S-1

As filed with the Securities and Exchange Commission on August 13, 2007

Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SandRidge Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	1311	20-8084793
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

1601 N.W. Expressway, Suite 1600

Oklahoma City, Oklahoma 73118

(405) 753-5500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Tom L. Ward

Chairman, Chief Executive Officer and President

1601 N.W. Expressway, Suite 1600

Oklahoma City, Oklahoma 73118

(405) 753-5500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Vinson & Elkins L.L.P.

2500 First City Tower, 1001 Fannin

Houston, Texas 77002

(713) 758-2222

Attn: T. Mark Kelly

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

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.  þ

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

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

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

CALCULATION OF REGISTRATION FEE

		Proposed Maximum	Proposed Maximum
Title of Each Class	Amount to	Offering Price	Aggregate Offering	Amount of
of Securities to be Registered	be Registered	per Share(2)	Price(2)	Registration Fee
Common Stock, par value $0.001	62,035,864(1)	$21.00	$1,302,753,144	$39,995

(1)

Includes 35,325,550 shares of common stock currently outstanding and 26,710,314 shares of common stock issuable upon the conversion of our 7.75% convertible preferred stock.

(2)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act 1933. No exchange or over-the-counter market exists for the registrant’s common stock. Shares of the registrant’s common stock issued to qualified institutional buyers in connection with its December 2005 private placement re eligible for trading on the PORTAL Market®. The last sale of shares of the registrant’s common stock that was eligible for PORTAL, of which the registrant is aware, occurred on June 28, 2007 at a price of $21.00.

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

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

SUBJECT TO COMPLETION, DATED AUGUST 13, 2007

Prospectus

           Shares

SandRidge Energy, Inc.

Common Stock

This prospectus relates to up to           shares of the common stock of SandRidge Energy, Inc., which may be offered for sale by the selling stockholders named in this prospectus. The shares of common stock offered by this prospectus were acquired by the selling stockholders, or are issuable upon conversion of securities acquired by the selling stockholders, in connection with our December 2005, November 2006 and March 2007 private placements. We are registering the offer and sale of the shares of common stock to satisfy registration rights we have granted.

We are not selling any shares of common stock under this prospectus and will not receive any proceeds from the sale of common stock by the selling stockholders. The shares of common stock to which this prospectus relates may be offered and sold from time to time directly from the selling stockholders or alternatively through underwriters or broker-dealers or agents. The shares of common stock may be sold in one or more transactions, at fixed prices, at prevailing market prices at the time of sale or at negotiated prices. Please read “Plan of Distribution.”

We intend to apply to have our common stock listed on the New York Stock Exchange under the symbol “SD.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 13.

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

The date of this prospectus is        , 2007

TABLE OF CONTENTS

Summary	1
Risk Factors	13
Cautionary Statement Concerning Forward-Looking Statements	24
Use of Proceeds	25
Dividend Policy	25
Unaudited Pro Forma Condensed Combined Financial Statements	26
Selected Consolidated Historical Financial Data	30
Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Business	63
Management	87
Executive Compensation and Other Information	93
Security Ownership of Certain Beneficial Owners and Management	109
Selling Shareholders	111
Plan of Distribution	113
Related Party Transactions	115
Description of Capital Stock	118
Certain U.S. Tax Consequences to Non-U.S. Holders	123
Legal Matters	126
Experts	126
Where You Can Find More Information	126
Index to Financial Statements	F-1
Glossary of Oil and Natural Gas Terms	A-1
Certificate of Incorporation
Certificate of Designation
Bylaws
Resale Registration Rights Agreement
Registration Rights Agreement
Securities Purchase Agreement
Form of Warrant
Amended and Restated Shareholders Agreement
2005 Stock Plan
Employment Participation Plan
Well Participation Plan
Senior Credit Facility
Senior Bridge Facility
Credit Agreement
Amendment No.1 to Senior Credit Facility
Amendment No.2 to Senior Credit Facility
Employment Agreement - Tom L. Ward
Employment Agreement - Larry K. Coshow
Consent of PricewaterhouseCoopers LLP
Consent of DeGolyer & MacNaughton
Consent of Grant Thornton LLP
Consent of Netherland, Sewell & Associates, Inc.

You should rely only on the information contained in this prospectus or to which we have referred you. We and the selling stockholders have not, and the underwriters have not, authorized anyone to provide you with different information. We and the selling stockholders are not making an offer of these securities in any jurisdiction where such offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

This prospectus is part of a “shelf” registration statement that we filed with the Securities and Exchange Commission (the “SEC”) for a continuous offering. Under this prospectus, the selling stockholders may, from time to time, sell the shares of our common stock described in this prospectus in one or more offerings. This prospectus may be supplemented from time to time to add, update or change information in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for the purposes of this prospectus to the extent that a statement contained in a prospectus supplement modifies such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so modified will be deemed to constitute a part of this prospectus.

i

The registration statement containing this prospectus, including the exhibits to the registration statement, provides additional information about us, the selling stockholders and the shares of our common stock offered under this prospectus. The registration statement, including the exhibits, can be read on the SEC website or at the SEC offices mentioned under the heading “Where You Can Find More Information.”

Information contained in our website does not constitute part of this prospectus.

SandRidge Energy, Inc., our logo and other trademarks mentioned in this prospectus are the property of their respective owners.

This prospectus includes market share and industry data that we obtained from internal research, publicly available information and industry publications and surveys. Our internal research and forecasts are based upon management’s understanding of industry conditions. Industry surveys and publications generally state that the information contained therein has been obtained from sources believed to be reliable.

ii

SUMMARY

This summary contains basic information about us and the offering. Because it is a summary, it does not contain all of the information that you should consider before investing in our common stock. You should read and carefully consider this entire prospectus before making an investment decision, especially the information presented under the heading “Risk Factors” and the consolidated and pro forma condensed combined financial statements and the accompanying notes thereto included elsewhere in this prospectus. We have provided definitions for some of the natural gas and oil industry terms used in this prospectus in the “Glossary of Natural Gas and Oil Terms” on page A-1 of this prospectus. Natural gas equivalents are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. Unless otherwise noted, all natural gas amounts are net of CO₂.

On December 29, 2006, we merged with and into a newly formed Delaware corporation and changed our name from Riata Energy, Inc. to SandRidge Energy, Inc. The purpose of the merger was to change our jurisdiction of incorporation from Texas to Delaware. Except as otherwise indicated or required by the context, references in this prospectus to “we,” “us,” “our,” “SandRidge,” “Riata,” or the “Company” refer to the business of SandRidge Energy, Inc. and its subsidiaries after the merger and its predecessor, Riata Energy, Inc., and its subsidiaries prior to the merger.

Overview

SandRidge is a rapidly growing independent natural gas and oil company concentrating in exploration, development and production activities. We are focused on expanding our continuing exploration and exploitation of our significant holdings in an area of West Texas that we refer to as the West Texas Overthrust, or “WTO,” a natural gas prone geological region where we have operated since 1986 that includes the Piñon Field and our South Sabino and Big Canyon prospects. We intend to add to our existing reserve and production base in this area by increasing our development drilling activities in the Piñon Field and our exploration program in other prospects that we have identified. As a result of our 2006 acquisitions, including the NEG acquisition, we have doubled our net acreage position in the WTO since January 2006. We believe that we are the largest operator and producer in the WTO and have assembled the largest acreage position in the area. We also operate significant interests in the Cotton Valley Trend in East Texas, the Gulf Coast area, the Gulf of Mexico and the Piceance Basin of Colorado.

We have assembled an extensive natural gas and oil property base in which we have identified over 3,800 potential drilling locations including over 2,600 in the WTO. As of December 31, 2006, our proved reserves were 1,001.8 Bcfe, of which 84.9% were natural gas and 99% of which were prepared by independent petroleum engineers. We had 1,281 gross (916 net) producing wells, substantially all of which we operate. As of March 31, 2007, we had interests in over 1,093,852 gross (541,787 net) natural gas and oil leased acres. We had 30 rigs drilling in the WTO as of June 30, 2007.

We also operate businesses that are complementary to our primary exploration, development and production activities, which provides us with operational flexibility and an advantageous cost structure. We own a fleet of 32 drilling rigs, five of which are currently being retrofitted. In addition, we are party to a joint venture that owns an additional twelve rigs, eleven of which are currently operating. We own related oil field services businesses, gas gathering and treating facilities and a marketing business. We also capture and supply CO₂ to support our tertiary oil recovery projects undertaken by us or third-parties. These assets are primarily located in our primary operating area in West Texas.

We expanded our management team significantly in 2006. Tom L. Ward, the co-founder and former President and Chief Operating Officer of Chesapeake Energy Corporation (“Chesapeake”), purchased a significant ownership interest in June 2006 and joined us as Chief Executive Officer and Chairman of the Board. During Mr. Ward’s 17 year tenure at Chesapeake, Chesapeake became one of the most active onshore drillers in the United States. From 1998 to 2005, Chesapeake drilled over 6,500 wells. Since Mr. Ward joined us, we have added eight new executive officers, substantially all of whom have experience at public

1

exploration and production companies. We have also added key professionals in exploration, operations, land, accounting and finance.

In addition, we significantly increased our proved reserves and producing properties through the acquisition of NEG in November 2006. NEG owned core assets in the Val Verde and Permian Basins of West Texas, including overlapping or contiguous interests in the properties that we own in the WTO.

Our estimated capital expenditures for 2007 of approximately $850 million include $665 million in exploration and development (including land and seismic acquisitions and our tertiary recovery operations), $85 million in drilling and oil field services and $100 million in midstream operations. Approximately $365 million of our 2007 capital expenditures will be spent in our Piñon Field development and our exploratory projects in the WTO. Under this capital budget, we plan to drill approximately 309 gross (266 net) wells in 2007, including approximately 215 gross (184 net) wells in the WTO. The actual number of wells drilled and the amount of our 2007 capital expenditures will be dependent upon market conditions, availability of capital and drilling and production results.

Our Strategy

Our primary objective is to achieve long-term growth and maximize shareholder value over multiple business cycles by pursuing the following strategies:

•  Grow Through Exploration and Aggressive Drilling and Development of Existing Acreage.  We expect to generate long-term reserve and production growth by exploring and aggressively drilling and developing our large acreage position. Our primary exploration and development focus will be in the WTO, where we have identified over 2,600 potential drilling locations and had 30 rigs operating as of June 30, 2007.

•  Apply Technological Improvements to Our Exploration and Development Program.  We intend to enhance our drilling success rate and completion efficiency with improved 3-D seismic acquisition and interpretation technologies, together with advanced drilling, completion and production methods that historically have not been widely used in the under-explored WTO.

•  Seek Opportunistic Acquisitions in Our Core Geographic Area.  Since January 2006, through acquisitions and leasing activities, we have doubled our net acreage position in the WTO. We intend to continue to seek other opportunities to optimize and enhance our exploratory acreage position in the WTO and other strategic areas.

•  Reduce Costs, Enhance Returns and Maintain Operating Flexibility by Controlling Drilling Rigs and Midstream Assets.  Our rig fleet enables us to aggressively develop our own acreage while maintaining the flexibility of a third-party contract drilling business. By controlling our fleet of drilling rigs and gathering and treating assets, we believe we will be able to better control overall costs and maintain a high degree of operational flexibility.

•  Capture and Utilize CO₂ for Tertiary Oil Recovery.  We intend to capitalize on our access to CO₂ reserves and CO₂ flooding expertise to pursue enhanced oil recovery in mature oil fields in West Texas. By utilizing this CO₂ in our own tertiary recovery projects, we expect to recover additional oil that would have otherwise been abandoned following traditional waterfloods.

Competitive Strengths

We have a number of strengths that we believe will help us successfully execute our strategies:

•  Large Asset Base with Substantial Drilling Inventory.  Our producing properties are characterized by long-lived predominantly natural gas reserves with established production profiles. Our estimated proved reserves of 1,001.8 Bcfe as of December 31, 2006 had a proved reserves to production ratio of approximately 17 years. Our core area of operations in the WTO has expanded to 428,870 gross (287,090 net) acres as of March 31, 2007. We have identified over 2,600 potential drilling locations in

2

the WTO and believe that we will be able to expand the number of drilling locations in the remainder of the WTO through exploratory drilling and our use of 3-D seismic technology.

•  Geographically Concentrated Exploration and Development Operations.  We intend to focus our drilling and development operations in the near term on the WTO to fully exploit this unique geological region. This geographic concentration allows us to establish economies of scale in both drilling and production operations to achieve lower production costs and generate increased cash flows from our producing properties. We believe our concentrated acreage position will enable us to organically grow our reserves and production for the next several years.

•  Experienced Management Team Focused on Delivering Long-term Shareholder Value.  During 2006, we significantly expanded our management team when Tom L. Ward, co-founder and former president of Chesapeake, purchased a significant interest in us and became our Chairman and Chief Executive Officer. We also hired a new chief financial officer, three additional executive vice presidents and other additional senior executives. Our management team, board of directors and employees own     % of our capital stock on a fully-diluted basis as of        , 2007, which we believe aligns their objectives with those of our shareholders.

•  High Degree of Operational Control.  We operate over 95% of production in the WTO, East Texas and the Gulf Coast area, which permits us to manage our operating costs and better control capital expenditures and the timing of development and exploitation activities.

•  Large Modern Fleet of Drilling Rigs.  By controlling a large, modern and more efficient drilling fleet, we can develop our existing reserves and explore for new reserves on a more economic basis.

Our Businesses and Primary Operations

Exploration and Production

We explore for, develop and produce natural gas and oil reserves, with a focus on increasing our reserves and production in the WTO. We operate substantially all of our wells in the WTO. We also have significant operated leasehold positions in the Cotton Valley Trend in East Texas and the Gulf Coast area, as well as other non-core operating areas.

The following table identifies certain information concerning our exploration and production business as of December 31, 2006 (unless otherwise noted):

																Number of
	Estimated						Average Daily									Identified
	Net Proved				Daily		Production		Proved							Potential
	Reserves		PV-10 (in		Production		(May 2007)		Reserves/			Gross		Net		Drilling
Area	(Bcfe)		millions)(1)		(Mmcfe/d)		(Mmcfe/d)		Production(2)			Acreage(3)		Acreage(3)		Locations
WTO		593.9	$	806.9		56.2		64.7		25.1	(4)		428,870		287,090		2,651
East Texas		119.8		140.4		22.7		24.5		13.4			52,933		31,900		176
Gulf Coast		99.6		294.4		43.8		37.0		7.4			55,058		35,572		35
Other(5)		188.5		492.6		15.6		35.5		14.5			556,991		187,225		995	(6)
Total		1,001.8	$	1,734.3		138.3		161.7		17.0			1,093,852		541,787		3,857

(1)	PV-10 is a non-GAAP financial measure and generally differs from Standardized Measure of Discounted Net Cash Flows, or Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. For a reconciliation of PV-10 to Standardized Measure, see “Summary Historical Operating and Reserve Data.” Our Standardized Measure was $1,440.2 million at December 31, 2006.
(2)	Represents the ratio of estimated proved reserves to production in years based on the average daily production for May 2007.
(3)	As of March 31, 2007.

3

(4)	Our proved reserves to production ratio in the WTO is significantly higher than our other areas of operation because of the high volume of our proved undeveloped reserves in this area. We expect this ratio to decrease as our production in the WTO increases.
(5)	Includes our properties located offshore in the Gulf of Mexico, the Piceance Basin of Colorado, Other West Texas areas, including our tertiary oil recovery projects, and the Arkoma and Anadarko Basins and other non-strategic areas.
(6)	Includes 828 identified potential drilling locations in the Piceance Basin.

West Texas Overthrust (WTO)

We have drilled and developed natural gas in the WTO since 1986. This area is located in Pecos and Terrell Counties in West Texas and provides for multi-pay exploration and development opportunities. The WTO has historically been largely under-explored due primarily to the remoteness and lack of infrastructure in the region, as well as historical limitations of conventional subsurface geological and geophysical methods. However, several fields including our prolific Piñon Field have been discovered. These fields have produced approximately 200 Bcfe from less than 300 wells through December 31, 2006. We believe our access to and control of the necessary infrastructure combined with application of modern seismic techniques will allow us to identify further exploration and development opportunities in the WTO.

In May 2007, we began the first phase of 3-D seismic data acquisition in the WTO. This is the first of six phases planned over the next three years to acquire 1,300 square miles of 3-D seismic data in the WTO. We believe this 3-D seismic program may identify structural details of potential reservoirs, thus lowering the risk of exploratory drilling and improving completion efficiency. The first two phases of the seismic program will cover 365 square miles, including the Piñon Field, and should both be completed by the end of 2007. We believe the data acquired in the Piñon Field will better define the limits of the field and potentially identify additional infill drilling locations beyond the more than 2,600 potential drilling locations we have already identified.

We have aggressively acquired leasehold acreage in the WTO, doubling our position since January 2006. As of March 31, 2007, we owned 428,870 gross (287,090 net) acres in the WTO, substantially all of which are along the leading edge of the WTO.

Piñon Field.  The Piñon Field, located in Pecos County, is our most significant producing field, and accounts for 59% of our proved reserve base as of December 31, 2006, and approximately 69% of our 2007 exploration and development budget. The Piñon Field lies along the leading edge of the WTO.

As of December 31, 2006, our estimated proved natural gas and oil reserves in the Piñon Field were 593.9 Bcfe, 72% of which were proved undeveloped reserves. This field has produced approximately 190 Bcfe through March 31, 2007 and currently produces in excess of 110 gross Mmcfe per day.

Our interests in the Piñon Field include 283 producing wells, as of December 31, 2006. We had an 81% working interest in the producing area of Piñon Field as of December 31, 2006 and were running 30 drilling rigs as of June 30, 2007. We estimate that we will drill approximately 213 wells in the field during 2007, the majority of which will be development wells. As of December 31, 2006, we have identified 2,649 potential well locations in the Piñon Field, including 400 proved undeveloped drilling locations.

West Texas Overthrust Prospects.  Through our exploratory drilling program, we have identified two prospect areas in the WTO, the South Sabino Prospect and the Big Canyon Prospect areas, on which we will drill exploratory wells in 2007:

•  South Sabino Prospect Area.  The South Sabino prospect area is located approximately twelve miles east of the Piñon Field. We have drilled two wells that appear to be on trend with the Piñon Field and are structurally higher against one of several thrust faults that make up the WTO. We began the first phase of our 3-D seismic program in this area in 2007 and may drill additional wells in late 2007 following the integration of this data and new subsurface well control.

4

•  Big Canyon Prospect Area.  Located approximately 20 miles east of the Piñon Field along the WTO, this prospect area represents potential opportunities for future development. We plan to conduct a 3-D seismic survey over the Big Canyon prospect area as part of Phase II of our 3-D seismic program in 2007. Exploratory wells may be planned in late 2007 and early 2008 to further evaluate both the Tesnus and the Caballos in a location structurally updip to the Big Canyon Ranch 106-1 well.

The following table provides information concerning our primary development areas:

											2007
			Estimated				Total Gross				Capital		2006
	Estimated Net		Gross PUD		Gross PUD		Drilling		Gross 2007		Expenditures		Year		Rigs
	PUD Reserves		Reserves		Drilling		Locations		Drilling		Budget		End Rigs		Working at 2Q
Area	(Bcfe)(1)		(Bcfe)(1)		Locations(1)		(1)		Locations		(in millions)		Working		2007 End
Piñon Field		425.2		674.5		400		2,649		213	$	356		8		30
South Sabino		—		—		—		2		2		9		1		—
Big Canyon		—		—		—		—		—		—		—		—
Total		425.2		674.5		400		2,651		215	$	365		9		30

(1) As of December 31, 2006.

East Texas — Cotton Valley Trend.  We own significant interests in the natural gas bearing Cotton Valley Trend, which covers parts of East Texas and Northern Louisiana. The production in this region is generally characterized as long-lived. We intend to target the tight sands reservoirs and plan to have four rigs running in this region during the remainder of 2007. As of December 31, 2006, East Texas accounted for 119.8 Bcfe of proved reserves, 176 potential drilling locations of which 53 are anticipated to be drilled in 2007, and approximately $79 million of budgeted 2007 capital expenditures.

Gulf Coast Area.  We own natural gas and oil interests in the Gulf Coast area, which encompasses the large coastal plain from the southernmost tip of Texas through the southern portion of Louisiana. Operations in this area are generally characterized as being comparatively higher risk and higher potential than in the other primary areas in which we operate, with successful wells typically having relatively higher initial production rates with steeper declines and shorter production lives. As of December 31, 2006, the Gulf Coast area accounted for 99.6 Bcfe of proved reserves, 35 potential drilling locations and approximately $44 million of budgeted 2007 capital expenditures.

Other Exploration and Production Areas.  We own significant natural gas and oil assets in the Gulf of Mexico and the Piceance Basin. Our Gulf of Mexico properties are located in bay and other shallow waters and produce a significant amount of natural gas and oil. Our acreage in the Piceance Basin of northwestern Colorado, a sedimentary basin in one of the country’s most prolific natural gas producing regions, is substantially undeveloped. We intend to manage our investments in the Gulf of Mexico and the Piceance Basin area to maximize returns without increasing future capital expenditures significantly.

We also own natural gas and oil interests in West Texas other than the WTO, including our tertiary oil recovery operations. In addition, we own interests in properties in the Arkoma and Anadarko Basins and other non-strategic areas that are primarily operated by third-parties.

Drilling and Oil Field Services

We drill onshore for our own interests through our drilling and oil field services subsidiary, Lariat Services, Inc. (“Lariat Services”). We also drill wells for other natural gas and oil companies, primarily in West Texas. We own or operate a total of 38 operational rigs, including eleven operational rigs owned by Larclay, L.P. (“Larclay”), a joint venture with Clayton Williams Energy, Inc. (“CWEI”). We also own five rigs that are currently being retrofitted. Our rig fleet is designed to drill in our specific areas of operation in West Texas and the WTO. The rigs average in excess of 800 horsepower and have an average depth capacity greater than 10,500 feet.

5

Our oil field services divisions provide services that complement our exploration and production operations. These services include location and road construction, trucking, roustabout services, pulling units, coiled tubing units, rental tools and air drilling equipment. These services are primarily used for our own account; however, some of our service divisions also perform work for third parties. We also provide under-balanced drilling systems services for our own account.

Midstream Services and Other Operations

To complement our exploration and production operations, particularly in the Piñon Field and surrounding areas, we provide gathering, compression, processing and treating services of natural gas. We have a 92.5% interest in and operate the Pike’s Peak gas treatment plant in West Texas and a 50% interest in the partnership that leases and operates the Grey Ranch gas treatment plant located in the WTO. The Pike’s Peak and Grey Ranch gas treatment plants have capacity of 60 Mmcf per day and 72 Mmcf per day of high CO₂ gas, respectively. These two gas treatment plants, along with two third-party plants in this area, serve as the primary source of CO₂ for our current and planned tertiary oil recovery operations. We also operate or own approximately 300 miles of West Texas natural gas gathering pipelines and over 34,000 horsepower of gas compression.

In order to ensure sufficient capacity for our existing and future Piñon Field production, we recently installed an additional 10,000 horsepower of compression and intend to install an additional 20,000 horsepower of compression by the end of 2007. We also intend to install approximately 40 miles of large diameter pipeline and additional processing facilities in the Piñon Field, which we expect to be operational by the fourth quarter of 2007.

Our CO₂ gathering and tertiary oil recovery operations are conducted through our subsidiary, PetroSource Energy Company, L.P. (“PetroSource”). PetroSource is the sole gatherer of CO₂ from the four natural gas treatment plants located in the WTO. PetroSource owns 231 miles of CO₂ pipelines in West Texas with approximately 88,000 horsepower of owned and leased CO₂ compression. CO₂ injection has proven to be ideal in recovering additional oil that remains after traditional water flooding has been completed. We have interests in four current or potential CO₂ flood tertiary oil recovery projects in the West Texas region, the Wellman Unit, the George Allen Unit, the South Mallet Unit and the Jones Ranch area. We believe we have a competitive advantage in identifying, acquiring and developing these properties because of our strong expertise and available CO₂ supply.

Initial Public Offering

On June 22, 2007, we filed a registration statement on Form S-1 related to a proposed initial public offering of our common stock. We intend to complete the proposed initial public offering prior to the effectiveness of this shelf registration statement. The number of shares to be offered and the price range for the proposed initial public offering have not been determined.

6

Risk Factors

Investing in our common stock involves risks, including, without limitation:

•  natural gas and oil prices are volatile, and a decline in natural gas and oil prices can significantly affect our financial results and impede our growth;

•  our estimated reserves are based on many assumptions that may turn out to be inaccurate, and any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves;

•  unless we replace our natural gas and oil reserves, our reserves and production will decline, which would adversely affect our business, financial condition and results of operations;

•  our potential drilling location inventories are scheduled out over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling;

•  our success is dependent on our ability to integrate our combined operations and new management as well as the cooperation, performance and retention of our executive officers and key employees;

•  the development of the proved undeveloped reserves in the WTO may take longer and may require higher levels of capital expenditures than we currently anticipate;

•  a significant portion of our operations are located in Piñon Field, making us vulnerable to risks associated with operating in one major geographic area;

•  we have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business; and

•  certain shareholders’ shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly.

Our Offices

Our company was founded in 1984 and is incorporated in Delaware. Our principal executive offices are located at 1601 N.W. Expressway, Suite 1600, Oklahoma City, Oklahoma 73118, and our telephone number at that address is (405) 753-5500.

7

The Offering

Common stock offered by the selling stockholders(1)	shares
Common stock outstanding(2)	shares
Common Stock to be outstanding immediately after the conversion of our convertible preferred stock and the exercise of all warrants for convertible preferred stock	shares
Dividend policy	We do not anticipate that we will pay cash dividends in the foreseeable future.
Use of Proceeds	We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders.
Proposed New York Stock Exchange Symbol	“SD”

(1)	See “Selling Shareholders” for information on the selling stockholders.
(2)	As of          , 2007. The shares exclude           shares issuable upon conversion of our convertible preferred stock and the exercise of all warrants for convertible preferred stock.
(3)	Assuming the satisfaction of certain conditions, we intend to convert all of the outstanding shares of our convertible preferred stock on          , 2008.

8

Summary Consolidated Historical and Pro Forma Combined Financial Data

Set forth below is our summary consolidated historical and unaudited pro forma combined financial data for the periods indicated. The historical financial data for the periods ended December 31, 2004, 2005 and 2006 and the balance sheet data as of December 31, 2005 and 2006 have been derived from our audited financial statements. Our historical financial data as of March 31, 2007 and for the three months ended March 31, 2006 and 2007 are derived from our unaudited financial statements and, in our opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of this information. The pro forma financial data have been derived from our unaudited pro forma financial statements included in this prospectus, which give pro forma effect to the transactions described in “Unaudited Pro Forma Condensed Financial Statements.” You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical and pro forma financial statements and related notes thereto appearing elsewhere in this prospectus.

	Historical															Pro Forma
										Three Months Ended						Year Ended
	Years Ended December 31,									March 31,						December 31,
	2004(1)			2005			2006			2006			2007			2006
	(In thousands except per share data)
Statement of Operations Data:
Revenues	$	175,995		$	287,693		$	388,242		$	85,915		$	149,064		$	565,256
Expenses:
Production		10,230			16,195			35,149			5,291			21,974			84,895
Production taxes		2,497			3,158			4,654			822			2,933			9,770
Drilling and services		26,442			52,122			98,436			21,536			18,777			77,453
Midstream and marketing		96,180			141,372			115,076			29,277			23,420			66,848
Depreciation, depletion and amortization — natural gas and crude oil		4,770			8,995			25,723			3,057			31,755			216,415
Depreciation, depletion and amortization — other		7,904			15,211			29,903			7,368			11,089			30,299
General and administrative		6,554			11,908			55,634			6,412			12,468			67,629
Loss (gain) on change in fair value of derivatives		878			4,132			(12,291	)		(2,246	)		23,181			(111,998	)
Loss(gain) on sale of assets		(210	)		547			(1,023	)		(10	)		(1	)		(1,023	)
Total expenses		155,245			253,640			351,261			71,507			145,596			440,288
Income from operations		20,750			34,053			36,981			14,408			3,468			124,968
Other income (expense):
Interest income		56			206			1,109			234			1,088			5,984
Interest expense		(1,678	)		(5,277	)		(16,904	)		(819	)		(35,429	)		(74,056	)
Minority interest		(262	)		(737	)		(296	)		45			(146	)		(185	)
Income (loss) from equity investments		(36	)		(384	)		967			(561	)		1,025			967
Total other expense		(1,920	)		(6,192	)		(15,124	)		(1,101	)		(33,462	)		(67,290	)
Income (loss) before income taxes		18,830			27,861			21,857			13,307			(29,994	)		57,678
Income tax expense (benefit)		6,433			9,968			6,236			4,924			(10,501	)		21,341
Income (loss) from continuing operations		12,397			17,893			15,621			8,383			(19,493	)		36,337
Income from discontinued operations, net of tax		451			229			—			—			—			—
Extraordinary gain		12,544			—			—			—			—			—
Net income (loss)		25,392			18,122			15,621			8,383			(19,493	)		36,337
Preferred stock dividends and accretion		—			—			3,967			—			8,966			40,174
Income (loss) available (applicable) to common stockholders	$	25,392		$	18,122		$	11,654		$	8,383		$	(28,459	)	$	(3,837	)

9

	Historical												Pro Forma
								Three Months Ended					Year Ended
	Years Ended December 31,							March 31,					December 31,
	2004(1)		2005		2006			2006		2007			2006
	(In thousands except per share data)
Basic and Diluted Earnings Per Share:
Income (loss) from continuing operations	$	0.22	$	0.31	$	0.21			0.12	$	(0.21	)	$	0.40
Income from discontinued operations, net of income tax		0.01		0.01		—			—		—			—
Extraordinary gain on acquisition		0.22		—		—			—		—			—
Preferred stock dividends		—		—		(0.05	)		—		(0.10	)		(0.44	)
Basic and diluted income (loss) per share available (applicable) to common stockholders	$	0.45	$	0.32	$	0.16		$	0.12	$	(0.31	)	$	(0.04	)
Weighted average number of shares outstanding(2):
Basic		56,312		56,559		73,727			71,581		92,442			90,046
Diluted		56,312		56,737		74,664			72,522		92,442			90,983

(1)	We recognized an extraordinary gain from the recognition of the excess of fair value over acquisition cost of $12.5 million related to an acquisition we made in 2004.
(2)	The number of shares has been adjusted to reflect a 281.562-to-1 stock split in December 2005.

	Historical
	At December 31,				At March 31,
	2005		2006		2007
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	45,731	$	38,948	$	193,459
Property, plant and equipment, net	$	337,881	$	2,134,718	$	2,274,247
Total assets	$	458,683	$	2,388,384	$	2,689,004
Long-term debt	$	43,133	$	1,066,831	$	1,074,254
Redeemable convertible preferred stock	$	—	$	439,643	$	449,643
Total stockholders’ equity	$	289,002	$	649,818	$	932,801
Total liabilities and stockholders’ equity	$	458,683	$	2,388,384	$	2,689,004

10

Summary Historical Operating and Reserve Data

The following historical estimates of net proved natural gas and oil reserves are based on reserve reports dated December 31, 2006, substantially all of which were prepared by our independent petroleum engineers. You should refer to “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business — Exploration and Production” in evaluating the material presented below.

	At December 31,			At December 31,
	2005			2006
Estimated Proved Reserves(1)
Natural Gas (Bcf)(2)		237.4			850.7
Oil (MmBbls)		10.4			25.2
Total (Bcfe)		300.0			1,001.8
PV-10 (in millions)	$	733.3	(3)	$	1,734.3	(3)
Standardized Measure of Discounted Net Cash Flows (in millions)(4)	$	499.2		$	1,440.2

(1)	Our estimated proved reserves and the future net revenues, PV-10, and Standardized Measure of Discounted Net Cash Flows were determined using end of the period prices for natural gas and oil that we realized as of December 31, 2005 and December 31, 2006, which were $8.40 per Mcf of natural gas and $54.04 per barrel of oil at December 31, 2005, and $5.64 per Mcf of natural gas and $57.75 per barrel of oil at December 31, 2006.
(2)	Given the nature of our natural gas reserves, a significant amount of our production contains natural gas high in CO2 content. These figures are net of CO2.
(3)	PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using pricing assumptions in effect at the end of the period. PV-10 differs from Standardized Measure of Discounted Net Cash Flows because it does not include the effects of income taxes on future net revenues. Neither PV-10 nor Standardized Measure represent an estimate of fair market value of our natural gas and oil properties. PV-10 is used by the industry and by our management as an arbitrary reserve asset value measure to compare against past reserve bases and the reserve bases of other business entities that are not dependent on the taxpaying status of the entity.
	The following tables provide a reconciliation of our Standardized Measure to PV-10:

	At December 31,		At December 31,
	2005		2006
	(In millions)
Standardized Measure of Discounted Net Cash Flows	$	499.2	$	1,440.2
Present value of future income tax and other discounted at 10%		234.1		294.1
PV-10	$	733.3	$	1,734.3

(4) The Standardized Measure of Discounted Net Cash Flows represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculate PV-10. Standardized Measure differs from PV-10 because Standardized Measure includes the effect of future income taxes.

11

The following tables set forth information regarding our net production of oil, natural gas and natural gas liquids and certain price and cost information for each of the periods indicated. Because of the relatively high volumes of CO₂ produced with natural gas in certain areas of the WTO, our reported sales and reserves volumes and the related unit prices received for natural gas in this area are reported net of CO₂ volumes stripped at the gas plants. The gas plant fees for stripping CO₂ produced with natural gas have been taken into account in the disclosed average sales prices of natural gas in the WTO. In other areas, natural gas sales are delivered to sales points with CO₂ levels within pipeline specifications and thus are included in sales and reserves volumes.

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Production Data:
Natural Gas (Mmcf)		6,708		6,873		13,410		1,848		10,449
Oil (MBbls)		37		72		322		25		393
Combined Equivalent Volumes (Mmcfe)		6,930		7,305		15,342		1,998		12,807
Average Daily Combined Equivalent Volumes (Mmcfe/d)		18.9		20.0		42.0		22.2		142.3

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Average Prices(1):
Natural Gas (per Mcf)	$	4.43	$	6.54	$	6.19	$	7.05	$	6.60
Oil (per Bbl)	$	34.03	$	48.19	$	56.61	$	55.30	$	54.06
Combined Equivalent (per Mcfe)	$	4.47	$	6.63	$	6.60	$	7.21	$	7.04

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Expenses per Mcfe:
Lease operating expenses	$	1.48	$	2.22	$	2.29	$	2.65	$	1.72
Production taxes	$	0.36	$	0.43	$	0.30	$	0.41	$	0.23

(1)   Reported prices represent actual prices for the periods presented and do not give effect to derivative transactions.

12

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in this prospectus before deciding to invest in our common stock.

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

Natural gas and oil prices are volatile, and a decline in natural gas and oil prices can significantly affect our financial results and impede our growth.

Our revenue, profitability and cash flow depend upon the prices and demand for natural gas and oil. The markets for these commodities are very volatile. Even relatively modest drops in prices can significantly affect our financial results and impede our growth. Changes in natural gas and oil prices have a significant impact on the value of our reserves and on our cash flow. Prices for natural gas and oil may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas and oil and a variety of additional factors that are beyond our control, such as:

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

•  the price of foreign imports;

•  worldwide economic conditions;

•  political and economic conditions in oil producing countries, including the Middle East and South America;

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

•  the level of consumer product demand;

•  weather conditions;

•  technological advances affecting energy consumption;

•  availability of pipeline infrastructure, treating, transportation and refining capacity;

•  domestic and foreign governmental regulations and taxes; and

•  the price and availability of alternative fuels.

Lower natural gas and oil prices may not only decrease our revenues on a per share basis, but also may reduce the amount of natural gas and oil that we can produce economically. This may result in our having to make substantial downward adjustments to our estimated proved reserves.

Our estimated reserves are based on many assumptions that may turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

The process of estimating natural gas and oil reserves is complex and inherently imprecise. It requires interpretations of available technical data and many assumptions, including assumptions relating to production rates and economic factors such as natural gas and oil prices, drilling and operating expenses, capital expenditures and availability of funds. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves shown in this prospectus. See “Business — Our Business and Primary Operations” for information about our natural gas and oil reserves.

Actual future production, natural gas and oil prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable natural gas and oil reserves most likely will vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of reserves shown in this prospectus. In addition, we may adjust estimates of proved reserves to reflect production history, results

13

of exploration and development, prevailing natural gas and oil prices and other factors, many of which are beyond our control.

The present value of future net cash flows from our proved reserves will not necessarily be the same as the current market value of our estimated natural gas and oil reserves.

We base the estimated discounted future net cash flows from our proved reserves on prices and costs in effect on the day of estimate. Actual future net cash flows from our natural gas and oil properties also will be affected by factors such as:

•  actual prices we receive for natural gas and oil;

•  actual cost of development and production expenditures;

•  the amount and timing of actual production;

•  supply of and demand for natural gas and oil; and

•  changes in governmental regulations or taxation.

The timing of both our production and our incurrence of expenses in connection with the development and production of natural gas and oil properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the natural gas and oil industry in general.

Unless we replace our natural gas and oil reserves, our reserves and production will decline, which would adversely affect our business, financial condition and results of operations.

Our future natural gas and oil reserves and production, and therefore our cash flow and income, are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs.

Our potential drilling location inventories are scheduled over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

As of December 31, 2006, only 637 of our 3,857 identified potential future well locations were attributed proved undeveloped reserves. These potential drilling locations, including those without proved undeveloped reserves, represent a significant part of our growth strategy. Our ability to drill and develop these locations is subject to a number of uncertainties, including the availability of capital, seasonal conditions, regulatory approvals, natural gas and oil prices, costs and drilling results. Because of these uncertainties, we do not know if the numerous potential drilling locations we have will ever be drilled or if we will be able to produce natural gas or oil from these or any other potential drilling locations. As such, our actual drilling activities may materially differ from our current expectations, which could adversely affect our business.

We will not know conclusively prior to drilling whether natural gas or oil will be present in sufficient quantities to be economically viable.

We describe some of our current prospects and drilling locations and our plans to explore those prospects and drilling locations in this prospectus. A prospect is a property on which we have identified what our geoscientists believe, based on available seismic and geological information, to be indications of natural gas or oil. Our prospects and drilling locations are in various stages of evaluation, ranging from a prospect that is ready to drill to a prospect that will require substantial additional seismic data processing and interpretation. The use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in sufficient quantities to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon bearing formation

14

or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production from the well or abandonment of the well. From January 1, 2007 through March 31, 2007, we participated in drilling a total of 54 gross wells, of which one has been identified as a dry hole. If we drill additional wells that we identify as dry holes in our current and future prospects, our drilling success rate may decline and materially harm our business. In sum, the cost of drilling, completing and operating any well is often uncertain, and new wells may not be productive.

Properties that we buy may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against them.

Our reviews of properties we acquire are inherently incomplete because it generally is not feasible to review in depth every individual property involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as soil or ground water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, we often assume certain environmental and other risks and liabilities in connection with acquired properties, which risks and liabilities could have a material adverse effect on our results of operations and financial condition.

The development of the proved undeveloped reserves in the WTO and other areas of operation may take longer and may require higher levels of capital expenditures than we currently anticipate.

Approximately 72% of the estimated proved reserves that we own or have under lease in the WTO as of December 31, 2006 are proved undeveloped reserves and 68% of our total reserves are proved undeveloped reserves. Development of these reserves may take longer and require higher levels of capital expenditures than we currently anticipate. Therefore, ultimate recoveries from these fields may not match current expectations. Delays in the development of our reserves or increases in costs to drill and develop such reserves will reduce the PV-10 value of our estimated proved undeveloped reserves and future net revenues estimated for such reserves.

A significant portion of our operations are located in WTO, making us vulnerable to risks associated with operating in one major geographic area.

As of December 31, 2006, approximately 59% of our proved reserves and approximately 33% of our production were located in the WTO. In addition, a substantial portion of our WTO natural gas contains a high concentration of CO₂ and requires treating. As a result, we may be disproportionately exposed to the impact of delays or interruptions of production from these wells caused by transportation and treatment capacity constraints, curtailment of production or treatment plant closures for scheduled maintenance or unanticipated occurrences.

Many of our prospects in the WTO may contain natural gas that is high in CO₂ content, which can negatively affect our economics.

The reservoirs of many of our prospects in the WTO may contain natural gas that is high in CO₂ content. The natural gas produced from these reservoirs must be treated for the removal of CO₂ prior to marketing. If we cannot obtain sufficient capacity at treatment facilities for our natural gas with a high CO₂ concentration, or if the cost to obtain such capacity significantly increases, we could be forced to delay production and development or experience increased production costs.

Furthermore, when we treat the gas for the removal of CO₂, some of the methane is used to run the treatment plant as fuel gas and other methane and heavier hydrocarbons, such as ethane, propane and butane, cannot be separated from the CO₂ and is lost. This is known as plant shrink. Historically our plant shrink has been approximately 14%. We do not know the amount of CO₂ we will encounter in any well until it is drilled. As a result, sometimes we encounter CO₂ levels in our wells that are higher than expected. The amount of

15

CO₂ in the gas produced affects the heating content of the gas. For example, if a well is 65% CO₂, the gas produced often has a heating content of between 300 and 350 MBtu per Mcf. Giving consideration for plant shrink, as many as four Mcf of high CO₂ gas must be produced to sell one MmBtu of gas. Since the treatment expenses are incurred on an Mcf basis, we will incur a higher effective treating cost per MmBtu of gas sold for natural gas with a higher CO₂ content. As a result, high CO₂ gas wells must produce at much higher rates than low CO₂ gas wells to be economic, especially in a low natural gas price environment.

We may experience difficulty in staffing and retaining employees on our new drilling rigs, which may adversely affect the efficiency of our drilling program.

We have increased our number of drilling rigs and the level of our activity substantially. This has required us to add additional employees to staff our drilling rigs and to add professional and support staff to other departments. If we are unable to retain these employees, we may experience decreased efficiency and delays in our drilling program.

A significant decrease in natural gas production in our areas of midstream services operation, due to the decline in production from existing wells, depressed commodity prices or otherwise, would adversely affect our revenues and cash flow for our midstream services segment.

The profitability of our midstream business is materially impacted by the volume of natural gas we gather, transmit and process at our facilities. Most of the reserves backing up our midstream assets are operated by our exploration and production segment. A material decrease in natural gas production in our areas of operation would result in a decline in the volume of natural gas delivered to our pipelines and facilities for gathering, transmitting and processing. The effect of such a material decrease would be to reduce our revenues, operating income and cash flows. Fluctuations in energy prices can greatly affect production rates and investments by our exploration and production business and third-parties in the development of new natural gas and oil reserves. Drilling activity generally decreases as natural gas and oil prices decrease. We have no control over factors affecting production activity, including prevailing and projected energy prices, demand for hydrocarbons, the level of reserves, geological considerations, governmental regulation and the availability and cost of capital. Failure to connect new wells to our gathering systems would, therefore, result in the amount of natural gas we gather, transmit and process being reduced substantially over time and could, upon exhaustion of the current wells, cause us to abandon our gathering systems and, possibly cease gathering, transmission and processing operations. Our ability to connect to new wells will be dependent on the level of drilling activity in our areas of operations and competitive market factors. As a consequence of these declines, our revenues and cash flows could be materially adversely affected.

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

A significant aspect of our exploration and development plan involves seismic data. Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are present in those structures. Other geologists and petroleum professionals, when studying the same seismic data, may have significantly different interpretations than our professionals. In addition, the use of 2-D and 3-D seismic and other advanced technologies requires greater predrilling expenditures than traditional drilling strategies, and we could incur losses due to such expenditures. As a result, our drilling activities may not be geologically successful or economical, and our overall drilling success rate or our drilling success rate for activities in a particular area may not improve.

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

16

Drilling for and producing natural gas and oil are high risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations.

Our drilling and operating activities are subject to many risks, including the risk that we will not discover commercially productive reservoirs. Drilling for natural gas and oil can be unprofitable, not only from dry holes, but from productive wells that do not produce sufficient revenues to return a profit. In addition, our drilling and producing operations may be curtailed, delayed or canceled as a result of other factors, including:

•  unusual or unexpected geological formations and miscalculations;

•  pressures;

•  fires;

•  blowouts;

•  loss of drilling fluid circulation;

•  title problems;

•  facility or equipment malfunctions;

•  unexpected operational events;

•  shortages of skilled personnel;

•  shortages or delivery delays of equipment and services;

•  compliance with environmental and other regulatory requirements; and

•  adverse weather conditions.

Any of these risks can cause substantial losses, including personal injury or loss of life; damage to or destruction of property, natural resources and equipment; pollution; environmental contamination or loss of wells; and regulatory fines or penalties.

Insurance against all operational risks is not available to us. Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented. We do not carry environmental insurance, thus, losses could occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not covered in full or in part by insurance could have a material adverse impact on our business activities, financial condition and results of operations.

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

Market conditions or a lack of satisfactory natural gas and oil transportation arrangements may hinder our access to natural gas and oil markets or delay our production. The availability of a ready market for our natural gas and oil production depends on a number of factors, including the demand for and supply of natural gas and oil and the proximity of reserves to pipelines and terminal facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities. For example, we are currently experiencing capacity limitations in the Piñon Field. Our failure to obtain such services on acceptable terms or expand our midstream assets could materially harm our business. We may be required to shut in wells for a lack of a market or because access to natural gas pipelines, gathering system capacity or processing facilities may be limited or unavailable. If that were to occur, then we would be unable to realize revenue from those wells until production arrangements were made to deliver the production to market.

17

Our development and exploration operations require substantial capital and we may be unable to obtain needed capital or financing on satisfactory terms, which could lead to a loss of properties and a decline in our natural gas and oil reserves.

The natural gas and oil industry is capital intensive. We make and expect to continue to make substantial capital expenditures in our business and operations for the exploration, development, production and acquisition of natural gas and oil reserves. To date, we have financed capital expenditures primarily with proceeds from the sale of equity, bank borrowings and cash generated by operations. We intend to finance our future capital expenditures with the sale of equity, asset sales, cash flow from operations and current and new financing arrangements. Our cash flow from operations and access to capital are subject to a number of variables, including:

•  our proved reserves;

•  the level of natural gas and oil we are able to produce from existing wells;

•  the prices at which natural gas and oil are sold; and

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

If our revenues decrease as a result of lower natural gas and oil prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to sustain our operations at current levels. In order to fund our capital expenditures, we must seek additional financing. Our senior credit facility and term loan contain covenants restricting our ability to incur additional indebtedness without the consent of the lenders. Our lenders may withhold this consent in their sole discretion.

In addition, we may not be able to obtain debt or equity financing on terms favorable to us, or at all. The failure to obtain additional financing could result in a curtailment of our operations relating to exploration and development of our prospects, which in turn could lead to a possible loss of properties and a decline in our natural gas and oil reserves.

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business.

As of March 31, 2007, our total indebtedness was $1.1 billion, which represented approximately 43.6% of our total capitalization. Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our lease and other financial obligations and contractual commitments, could have other important consequences to you. For example, it could:

•  make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

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

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

•  place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our leverage prevents us from pursuing; and

•  limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes.

Any of the above listed factors could materially adversely affect our business, financial condition and results of operations.

18

Our senior credit facility and term loan have restrictions and financial covenants which could adversely affect our operations.

We will depend on our senior credit facility for a portion of future capital needs. The senior credit facility and term loan restrict our ability to obtain additional financing, make investments, lease equipment, sell assets and engage in business combinations. We also are required to comply with certain financial covenants and ratios. Our ability to comply with these restrictions and covenants in the future is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. Our failure to comply with any of the restrictions and covenants under the senior credit facility, term loan or other debt financing could result in a default under those facilities, which could cause all of our existing indebtedness to be immediately due and payable.

The senior credit facility limits the amounts we can borrow to a borrowing base amount, determined by the lender in its sole discretion on a semi-annual basis, based upon projected revenues from the natural gas and oil properties securing our loan. The lender can unilaterally adjust the borrowing base and the borrowings permitted to be outstanding under the senior credit facility, and any increase in the borrowing base requires its consent. Outstanding borrowings in excess of the borrowing base must be repaid immediately, or we must pledge other natural gas and oil properties as additional collateral. We do not currently have any substantial unpledged properties, and we may not have the financial resources in the future to make any mandatory principal prepayments required under the senior credit facility.

Our derivative activities could result in financial losses or could reduce our earnings.

To achieve a more predictable cash flow and to reduce our exposure to adverse fluctuations in the prices of natural gas and oil, we currently, and may in the future, enter into derivative instruments for a portion of our natural gas and oil production, including collars and price-fix swaps. We have not designated any of our derivative instruments as hedges for accounting purposes and record all derivative instruments on our balance sheet at fair value. Changes in the fair value of our derivative instruments are recognized in current earnings. Accordingly, our earnings may fluctuate significantly as a result of changes in fair value of our derivative instruments. Derivative instruments also expose us to the risk of financial loss in some circumstances, including when:

•  production is less than expected;

•  the counter-party to the derivative instrument defaults on its contract obligations; or

•  there is a change in the expected differential between the underlying price in the derivative instrument and actual prices received.

In addition, these types of derivative arrangements limit the benefit we would receive from increases in the prices for natural gas and oil and may expose us to cash margin requirements.

Competition in the natural gas and oil industry is intense, which may adversely affect our ability to succeed.

The natural gas and oil industry is intensely competitive, and we compete with companies that have greater resources. Many of these companies not only explore for and produce natural gas and oil, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive natural gas and oil properties and exploratory prospects or identify, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low natural gas and oil market prices. Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because

19

we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing natural gas and oil properties.

Downturns in natural gas and oil prices can result in decreased oil field activity which, in turn, can result in an oversupply of service providers and drilling rigs. This oversupply can result in severe reductions in prices received for oil field services or a complete lack of work for crews and equipment.

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

Our natural gas and oil exploration, production, transportation and treatment operations are subject to complex and stringent laws and regulations. In order to conduct our operations in compliance with these laws and regulations, we must obtain and maintain numerous permits, approvals and certificates from various federal, state and local governmental authorities. We may incur substantial costs in order to maintain compliance with these existing laws and regulations. In addition, our costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to our operations. For instance, we may be unable to obtain all necessary permits, approvals and certificates for proposed projects. Alternatively, we may have to incur substantial expenditures to obtain, maintain or renew authorizations to conduct existing projects. If a project is unable to function as planned due to changing requirements or public opposition, we may suffer expensive delays, extended periods of non-operation or significant loss of value in a project. All such costs may have a negative effect on our business and results of operations.

Our business is subject to federal, state and local laws and regulations as interpreted and enforced by governmental agencies and other bodies vested with much authority relating to the exploration for, and the development, production and transportation of, natural gas and oil. Failure to comply with such laws and regulations, as interpreted and enforced, could have a material adverse effect on us. For instance, the U.S. Department of the Interior’s Minerals Management Service (“MMS”), may suspend or terminate our operations on federal leases for failure to pay royalties or comply with safety and environmental regulations.

Our operations expose us to potentially substantial costs and liabilities with respect to environmental, health and safety matters.

We may incur substantial costs and liabilities as a result of environmental, health and safety requirements applicable to our natural gas and oil exploration, development, production, transportation, treatment, and other activities. These costs and liabilities could arise under a wide range of environmental, health and safety laws, that cover, among other things, emissions into the air and water, habitat and endangered species protection, the containment and disposal of hazardous substances, oil field waste and other waste materials, the use of underground injection wells, and wetlands protection. These laws and regulations are complex, change frequently and have tended to become increasingly strict over time. Failure to comply with environmental, health and safety laws or regulations may result in assessment of administrative, civil, and criminal penalties, imposition of cleanup and site restoration costs and liens, and the issuance of orders enjoining or limiting our current or future operations. Compliance with these laws and regulations also increases the cost of our operations and may prevent or delay the commencement or continuance of a given operation. Specifically, we may incur increased expenditures in the future in order to maintain compliance with laws and regulations governing emissions of air pollutants from our natural gas treatment plants. See “Business — Environmental Matters and Regulation.”

Under certain environmental laws that impose strict, joint and several liability we may be required to remediate our contaminated properties regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were or were not in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property may result from environmental and other impacts of our operations. Moreover, new or modified environmental, health or safety laws, regulations or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. Therefore, the costs to comply with environmental, health or safety

20

laws or regulations or the liabilities incurred in connection with them could significantly and adversely affect our business, financial condition or results of operations. In addition, many countries as well as several states of the U.S. have agreed to regulate emissions of “greenhouse gases.” Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning of natural gas and oil are greenhouse gases. Regulation of greenhouse gases could adversely impact some of our operations and demand for some of our services or products in the future. See “Business — Environmental Matters and Regulation.”

The inability of one or more of our customers to meet their obligations may adversely affect our financial results.

Substantially all of our accounts receivable for natural gas and oil sales, drilling and oil field services and midstream services result from billings to third-parties in the energy industry. This concentration of customers and joint interest owners may impact our overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. In addition, our natural gas and oil derivative arrangements expose us to credit risk in the event of nonperformance by counterparties.

We have identified a material weakness in our internal control over financial reporting. If additional material weaknesses are detected or if we fail to maintain an adequate system of internal control over financial reporting this could adversely affect our ability to accurately report our results.

We are not currently required to comply with Section 404 of the Sarbanes Oxley Act of 2002, and are therefore not required to make an assessment of the effectiveness of our internal controls over financial reporting for that purpose. As disclosed elsewhere in this prospectus and in Note 1 to our consolidated financial statements included in this prospectus, we have restated our consolidated financial statements for our December 31, 2006 year end. We have considered the internal control over financial reporting implications of the error which resulted in the restatement of our consolidated financial statements and determined a material weakness existed as it relates to financial reporting process and accounting for derivatives. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Restatement of Previously Issued Financial Statements — Correction of an Accounting Error.”

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our 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 in accordance with generally accepted accounting principles. A material weakness is a control deficiency or a combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. Our efforts to develop and maintain our internal controls may not be successful, and we may be unable to maintain adequate controls over our financial processes and reporting in the future, including future compliance with the obligations under Section 404 of the Sarbanes-Oxley Act of 2002. We will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 effective as of December 31, 2008. Any failure to develop or maintain effective controls, or difficulties encountered in their implementation or other effective improvement of our internal controls could harm our operating results. Ineffective internal controls could also cause investors to lose confidence in our reported financial information.

Risks Related to Our Common Stock

A significant portion of our outstanding shares of common stock may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly.

As of          , 2007, we had outstanding           shares of common stock. In addition,           shares of common stock will be issuable upon conversion of our outstanding convertible preferred stock. Of these shares, the           shares the selling stockholders are selling in this offering will be freely tradable without restriction under the Securities Act except for any shares purchased by one of our “affiliates”

21

as defined in Rule 144 under the Securities Act. All of the other shares outstanding (a total of           shares) are “restricted securities” within the meaning of Rule 144 under the Securities Act.

The resale of these shares in the future could cause the market price of our stock to drop significantly.

There is currently no active trading market for our common stock, and an active trading market may not develop.

There is currently no public market for our common stock. We intend to apply to list our common stock on the New York Stock Exchange in connection with our proposed initial public offering prior to the effectiveness of this registration statement. We do not know if an active trading market will develop for our common stock or how the common stock will trade in the future, which may make it more difficult for you to sell your shares.

The market price for shares of our common stock may be highly volatile and could be subject to wide fluctuations.

The market price for shares of our common stock may be highly volatile and could be subject to wide fluctuations, even if an active trading market develops. Some of the factors that could negatively affect our share price include:

•  actual or anticipated variations in our reserve estimates and quarterly operating results;

•  liquidity and the registration of our common stock for public resale;

•  sales of our common stock by our shareholders;

•  changes in natural gas and oil prices;

•  changes in our cash flows from operations or earnings estimates;

•  publication of research reports about us or the exploration and production industry generally;

•  increases in market interest rates which may increase our cost of capital;

•  changes in applicable laws or regulations, court rulings and enforcement and legal actions;

•  changes in market valuations of similar companies;

•  adverse market reaction to any increased indebtedness we incur in the future;

•  additions or departures of key management personnel;

•  actions by our shareholders;

•  speculation in the press or investment community regarding our business;

•  large volume of sellers of our common stock pursuant to our resale registration statement with a relatively small volume of purchasers;

•  general market and economic conditions; and

•  domestic and international economic, legal and regulatory factors unrelated to our performance.

We do not anticipate paying any dividends on our common stock in the foreseeable future.

We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, as we intend to use cash flow generated by operations to expand our business. Our senior credit facility, our term loan and our convertible preferred stock restrict our ability to pay cash dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that restrict our ability to declare or pay cash dividends on our common stock.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock.

We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of our present shareholders and purchasers of common stock offered hereby. As of

22

March 31, 2007, we were authorized to issue 400,000,000 shares of common stock and 50,000,000 shares of preferred stock with preferences and rights as determined by our Board of Directors. As of          , 2007, we had           shares of common stock outstanding and pursuant to our stock incentive plan, we have also reserved          shares of our common stock for future issuance as restricted stock, stock options or other equity-based grants to employees and directors. 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 private placements of our securities for capital raising purposes or for other business purposes. In addition, as of          , 2007 we had           shares of convertible preferred stock outstanding, which may be converted into approximately           shares of common stock at any time by the holders of such preferred stock or by us at any time following          , 2008. See “Description of Capital Stock — Preferred Stock — Convertible Preferred Stock.” In addition, Mr. Ward, our Chairman, Chief Executive Officer and President, has pledged approximately           restricted shares of our common stock as a portion of the collateral for a personal loan and may pledge additional shares in the future. If Mr. Ward defaults on this loan, the lender may foreclose on and sell these shares pursuant to an exemption under the Securities Act. There are additional restrictions on the transfer of shares by Messrs. Ward and Mitchell contained in the Amended and Restated Shareholders Agreement, dated as of April 4, 2007. The Amended and Restated Shareholders Agreement, however, also permits Messrs. Ward and Mitchell to pledge their shares, subject to certain conditions, in connection with a bona fide loan. See “Description of Capital Stock — Amended and Restated Shareholders Agreement.” The potential issuance or sale of additional shares of common stock may create downward pressure on the trading price of our common stock.

Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock.

Our certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition, some provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:

•  a classified board of directors, so that only approximately one-third of our directors are elected each year;

•  limitations on the removal of directors;

•  the prohibition of stockholder action by written consent;

•  and limitations on the ability of our stockholders to call special meetings and establish advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders.

Delaware law prohibits us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns more than 15% of our stock cannot acquire us for a period of three years from the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by our board of directors.

23

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Various statements contained in this prospectus, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, are forward-looking statements. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this prospectus speak only as of the date of this prospectus; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties relating to, among other matters, the risks discussed under the heading “Risk Factors” and the following:

•  the volatility of natural gas and oil prices;

•  discovery, estimation, development and replacement of natural gas and oil reserves;

•  cash flow and liquidity;

•  financial position;

•  business strategy;

•  amount, nature and timing of capital expenditures, including future development costs;

•  availability and terms of capital;

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

•  availability of drilling and production equipment;

•  timing of drilling rig fabrication and delivery;

•  customer contracting of drilling rigs;

•  availability of oil field labor;

•  availability and regulation of CO₂;

•  operating costs and other expenses;

•  prospect development and property acquisitions;

•  availability of pipeline infrastructure to transport natural gas production;

•  marketing of natural gas and oil;

•  competition in the natural gas and oil industry;

•  governmental regulation and taxation of the natural gas and oil industry; and

•  developments in oil-producing and natural gas-producing countries.

24

USE OF PROCEEDS

The selling stockholders will receive all of the proceeds from any sales of our common stock pursuant to this registration statement, and we will not receive any such proceeds. See “Selling Shareholders.”

DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends to holders of our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business, including exploration, development and acquisition activities. In addition, the terms of our revolving credit facility, term loan and convertible preferred stock prohibit the payment of dividends to holders of common stock. Accordingly, if our dividend policy were to change in the future, our ability to pay dividends would be subject to these restrictions and our then existing conditions, including our results of operations, financial condition, contractual obligations, capital requirements, business prospects and other factors deemed relevant by our board of directors. In December 2003, we paid a cash dividend on our common stock in the amount of $0.02 per share on the 56,312,400 shares then outstanding.

Pursuant to the certificate of designation for our convertible preferred stock, we are required to pay a quarterly dividend in cash or shares of convertible preferred stock. Please see “Description of Capital Stock — Preferred Stock — Convertible Preferred Stock.” In February 2007 and May 2007, we paid a cash dividend on our convertible preferred stock of $3.21 and $3.97 per share, respectively. We have also declared a cash dividend of $4.10 on our convertible preferred stock to be paid in August 2007. We currently intend to continue to pay this distribution in cash.

25

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial information reflects our historical results as adjusted on a pro forma basis to give effect to the NEG acquisition and other 2006 acquisitions and the related financing transactions, which were entered into in order to fund these transactions. The unaudited pro forma condensed combined statement of operations information for the year ended December 31, 2006 gives effect to these transactions as if they occurred on January 1, 2006. The pro forma adjustments are based on available information and assumptions that our management believes are reasonable and are described in the related notes.

NEG acquisition

We acquired all the outstanding membership interests of NEG on November 21, 2006 for approximately $990.4 million in cash, 12,842,000 shares of our common stock (valued at approximately $231.2 million) and the assumption of $300 million in debt, and received $21.1 million in available cash. The cash requirements were funded from the issuance of $550 million in preferred stock, common units and additional banking arrangements.

Other 2006 acquisitions

•  Our acquisition in March 2006 from a former director and former executive officer of additional equity interests in PetroSource to increase our ownership percentage from 86.5% to 99% in exchange for the extinguishment of subordinated debt of approximately $1.0 million and a $4.5 million cash payment for a total consideration of approximately $5.5 million.

•  Our acquisition in May 2006 of working interests in WTO leases for cash consideration of $40.9 million.

•  Our acquisition in May 2006 of working interests in leases in WTO for $4.7 million of common stock at $18.50 per share and cash of $8.2 million for a total consideration of $12.9 million.

•  Our acquisition in June 2006 from a former director and former executive officer of additional working interests in WTO leases in which we already held interests in exchange for cash consideration of $9.0 million.

•  Our acquisition in June 2006 of the remaining 1% equity interest in PetroSource in exchange for common stock of $0.5 million at $17.25 per share.

The historical statement of operations information for the year ended December 31, 2006 is derived from the audited consolidated financial statements of SandRidge. We have provided the historical information regarding us and our subsidiaries and the assumptions and adjustments for the pro forma information.

The unaudited pro forma condensed combined financial statements are presented for informational purposes only and are not necessarily indicative of the combined results of operations which would have been realized had the transactions been effective for the period presented or the combined results of operations of SandRidge and its subsidiaries (including the entities to be acquired in the NEG acquisition) in the future. The unaudited pro forma condensed combined financial information for the period presented may have been different had the transactions actually been completed during the period due to, among other factors, those factors discussed in “Risk Factors.”

You should read the unaudited pro forma condensed combined financial information in conjunction with the historical financial statements and related notes of SandRidge and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

26

SandRidge Energy, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2006

				NEG
				Historical						SandRidge
	SandRidge			(January 1, 2006						Energy
	Energy			through			Pro Forma			Pro Forma
	Historical			November 21, 2006)			Adjustments			Combined
	(In thousands except per share data)
Revenues	$	388,242		$	253,832		$	(76,818	)(a)(b)	$	565,256
Expenses:
Production		35,149			50,527			(781	)(a)(b)		84,895
Production taxes		4,654			5,116			—			9,770
Drilling and services		98,436			—			(20,983	)(a)		77,453
Midstream and marketing		115,076			—			(48,228	)(a)		66,848
Depreciation, depletion and amortization — natural gas and crude oil		25,723			91,611			99,081	(a)(c)		216,415
Depreciation, depletion and amortization — other		29,903			396			—			30,299
General and administrative cost		55,634			16,566			(4,571	)(a)		67,629
Gain on derivative contracts		(12,291	)		(99,707	)		—			(111,998	)
Gain on sale of assets		(1,023	)		—			—			(1,023	)
Income from operations		36,981			189,323			(101,336	)		124,968
Interest income		1,109			4,875			—			5,984
Interest expense		(16,904	)		(10,411	)		(46,741	)(d)		(74,056	)
Minority interest		(296	)		—			111	(e)		(185	)
Income from equity investments		967			—			—			967
Income before income tax provision		21,857			183,787			(147,966	)		57,678
Income tax provision		6,236			2,143			12,962	(f)		21,341
Income from continuing operations		15,621			181,644			(160,928	)		36,337
Preferred dividends and accretion		3,967			—			36,207	(g)		40,174
Income (loss) available (applicable) to common stockholders	$	11,654		$	181,644		$	(197,135	)	$	(3,837	)
Earnings per share available (applicable) to common stockholders:
Basic	$	0.16								$	(0.04	)
Diluted	$	0.16								$	(0.04	)
Number of shares used in calculating earnings per share:
Basic		73,727						16,319	(h)		90,046
Diluted		74,664						16,319	(h)		90,983

See Notes to Unaudited Pro Forma Combined Condensed Financial Information

27

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Basis of Presentation

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 gives effect to the NEG acquisition and the other 2006 acquisitions and the related financing transactions as if they occurred on January 1, 2006.

NEG’s combined financial statements include the accounts of NEG and subsidiaries excluding NEGI, and the 103/4% Senior Notes due from NEGI, but including NEGI’s 50% membership interest in NEG Holding LLC, from January 1, 2006 through November 21, 2006, the date of the NEG acquisition.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 has been prepared based on the following information:

(a) audited consolidated financial statements of SandRidge and its subsidiaries as of and for the year ended December 31, 2006; and

(b) other supplementary information we considered necessary for the purpose of reflecting the transactions contemplated in the pro forma combined financial statements.

We accounted for this acquisition using the purchase method of accounting for business combinations. Under the purchase method of accounting, we are deemed to be the acquirer for accounting purposes based on a number of factors determined in accordance with GAAP. The purchase method of accounting requires the assets acquired and liabilities assumed by SandRidge to be recorded at their estimated fair values.

For purposes of these pro forma condensed combined financial statements, the presentation of certain historical NEG financial information has been modified to conform to this pro forma presentation.

Statement of Operations Adjustments

(a) Reflects the pro forma elimination of activity between SandRidge and NEG. SandRidge provides services to NEG where SandRidge is the operator of certain oil and gas properties and also provides other services to NEG.

(b) Reflects the increase in revenues and expenses related to the other 2006 acquisitions of $5.2 million in revenues and $1.5 million in production expenses.

(c) Reflects a $97.0 million incremental increase in depletion expense resulting from the step-up of property, plant and equipment acquired based on the allocation of the purchase price to the properties’ fair value. Adjustment assumes no material changes in the estimated lives or amortization periods for acquired assets as a result of the purchase price allocation.

(d) Reflects adjustment to increase interest expense for the effect of the additional debt assumed from the merger and the amounts borrowed as well as to recognize amortization expense associated with SandRidge’s estimated debt issuance costs. The interest rate used in the calculation of interest expense is monthly LIBOR plus 4.5%, the expected actual interest rates, and the life used in the calculation of amortization expense is based on the expected life of the new debt. If the actual interest rate is 1/8% more or less than the assumed rate the interest cost will increase or decrease by approximately $0.4 million for the year ended December 31, 2006.

(e) Reflects the net pro forma adjustment to minority interest as a result of the acquisition of additional interests in PetroSource in our financial statements.

(f) Reflects adjustment to income tax expense to reflect total combined pro forma income tax expense at a 37% statutory income tax rate as NEG was organized as a limited liability company for the period presented, thus not subject to corporate taxes.

28

(g) Reflects preferred dividends of 7.75% per annum and accretion on convertible preferred stock.

(h) Reflects shares issued for the NEG and other 2006 acquisitions adjusted for the inclusion of weighted average share amounts at December 31, 2006.

Shares issued for the NEG and other 2006 acquisitions are as follows (in thousands):

NEG acquisition	18,174
Other 2006 acquisitions	279
	18,453
Less: weighted shares included in historical results	(2,134	)
	16,319

29

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

Set forth below is our selected consolidated historical financial data for the periods indicated. The historical statement of operations data for the periods ended December 31, 2002, 2003, 2004, 2005 and 2006 and the balance sheet data as of December 31, 2002, 2003, 2004, 2005 and 2006 have been derived from our audited financial statements. Our historical statement of operations data as of and for the three months ended March 31, 2006 and 2007 are derived from our unaudited financial statements and, in our opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of this information. You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical and pro forma financial statements and related notes thereto appearing elsewhere in this prospectus.

	Years Ended December 31,															Three Months Ended March 31,
	2002			2003(1)			2004(2)			2005			2006			2006			2007
	(In thousands except per share data)
Statement of Operations Data:
Revenues	$	59,247		$	155,337		$	175,995		$	287,693		$	388,242		$	85,915		$	149,064
Expenses:
Production		7,949			7,980			10,230			16,195			35,149			5,291			21,974
Production taxes		661			2,099			2,497			3,158			4,654			822			2,933
Drilling and services		8,858			13,847			26,442			52,122			98,436			21,536			18,777
Midstream marketing		23,689			94,620			96,180			141,372			115,076			29,277			23,420
Depreciation, depletion and amortization — natural gas and crude oil		3,142			3,175			4,770			8,995			25,723			3,057			31,755
Depreciation, depletion and amortization — other		2,431			5,407			7,904			15,211			29,903			7,368			11,089
General and administrative		4,355			3,705			6,554			11,908			55,634			6,412			12,468
Loss (gain) on change in fair value of derivatives		3,193			3,450			878			4,132			(12,291	)		(2,246	)		23,181
Loss (gain) on sale of assets		—			(1,284	)		(210	)		547			(1,023	)		(10	)		(1	)
Total operating expenses		54,278			132,999			155,245			253,640			351,261			71,507			145,596
Income from operations		4,969			22,338			20,750			34,053			36,981			14,408			3,468
Other income (expense):
Interest income		84			103			56			206			1,109			234			1,088
Interest expense		(1,000	)		(1,208	)		(1,678	)		(5,277	)		(16,904	)		(819	)		(35,429	)
Minority interest		(673	)		(96	)		(262	)		(737	)		(296	)		45			(146	)
Income (loss) from equity investments		304			1,056			(36	)		(384	)		967			(561	)		1,025
Total other income (expense)		(1,285	)		(145	)		(1,920	)		(6,192	)		(15,124	)		(1,101	)		(33,462	)
Income (loss) before income taxes		3,684			22,193			18,830			27,861			21,857			13,307			(29,994	)
Income tax expense (benefit)		1,334			7,585			6,433			9,968			6,236			4,924			(10,501	)
Income (loss) from continuing operations		2,350			14,608			12,397			17,893			15,621			8,383			(19,493	)
Income (loss) from discontinued operations, net of tax		1,105			(85	)		451			229			—			—			—
Cumulative effect of accounting change		—			(1,636	)		—			—			—			—			—
Extraordinary gain		—			—			12,544			—			—			—			—
Net income (loss)		3,455			12,887			25,392			18,122			15,621			8,383			(19,493	)
Preferred stock dividends and accretion		—			—			—			—			3,967			—			8,966
Income (loss) available (applicable) to common stockholders	$	3,455		$	12,887		$	25,392		$	18,122		$	11,654		$	8,383		$	(28,459	)
Basic and Diluted Earnings Per Share:
Income (loss) from continuing operations	$	0.04		$	0.26		$	0.22		$	0.31		$	0.21		$	0.12		$	(0.21	)
Income (loss) from discontinued operations, net of income tax		0.02			—			0.01			0.01			—			—			—
Extraordinary gain on Foreland acquisition		—			—			0.22			—			—			—			—
Cumulative effect of change in accounting principle, net of income tax		—			(0.03	)		—			—			—			—			—
Preferred stock dividends		—			—			—			—			(0.05	)		—			(0.10	)
Basic and diluted income (loss) per share available (applicable) to common stockholders	$	0.06		$	0.23		$	0.45		$	0.32		$	0.16		$	0.12		$	(0.31	)
Weighted average number of shares outstanding(3):
Basic		56,312			56,312			56,312			56,559			73,727			71,581			92,442
Diluted		56,312			56,312			56,312			56,737			74,664			72,522			92,442

30

(1)	We adopted the provisions of SFAS 143 “Accounting for Retirement Obligations,” resulting in a cumulative effect change in accounting principal of $1.6 million.
(2)	We recognized an extraordinary gain from the recognition of the excess of fair value over acquisition cost of $12.5 million related to an acquisition we made in 2004.
(3)	The number of shares has been adjusted to reflect a 281.562-to-1 stock split in December 2005.

											Three Months Ended
	As of December 31,										March 31,
	2002		2003		2004		2005		2006		2006		2007
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	1,876	$	176	$	12,973	$	45,731	$	38,948	$	2,631	$	193,459
Property, plant and equipment, net	$	43,839	$	70,289	$	114,818	$	337,881	$	2,134,718	$	386,261	$	2,274,247
Total assets	$	88,247	$	127,744	$	197,017	$	458,683	$	2,388,384	$	465,260	$	2,689,004
Long-term debt	$	20,549	$	24,740	$	59,340	$	43,133	$	1,066,831	$	53,091	$	1,074,254
Redeemable convertible preferred stock	$	—	$	—	$	—	$	—	$	439,643	$	—	$	449,643
Total stockholders’ equity	$	22,106	$	33,940	$	59,330	$	289,002	$	649,818	$	301,363	$	932,801
Total liabilities and stockholders’ equity	$	88,247	$	127,744	$	197,017	$	458,683	$	2,388,384	$	465,260	$	2,689,004

31

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

Introduction

The following discussion and analysis should be read in conjunction with the “Selected Consolidated Historical Financial Data” and the accompanying financial statements and related notes thereto and the “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this registration statement. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for natural gas and oil, economic and competitive conditions, regulatory changes, estimates of proved reserves, potential failure to achieve production from development projects, capital expenditures and other uncertainties, as well as those factors discussed below and elsewhere in this registration statement, particularly in “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.

Overview of Our Company

We are a rapidly growing independent natural gas and oil company concentrating on exploration, development and production activities. We are focused on continuing the exploration and exploitation of our significant holdings in the WTO, a natural gas prone geological region where we have operated since 1986 that includes the Piñon Field and our South Sabino and Big Canyon Prospects. We also own and operate drilling rigs and conduct related oil field services, and we own and operate interests in gas gathering, marketing and processing facilities and CO₂ gathering and transportation facilities.

On November 21, 2006, we acquired all of the outstanding membership interests in NEG Oil & Gas, or NEG, for total consideration of approximately $1.5 billion, excluding cash acquired. With core assets in the Val Verde and Permian Basins of West Texas, including overlapping or contiguous interests in the WTO, the NEG acquisition has dramatically increased our exploration and production segment operations.

The NEG acquisition, coupled with six acquisitions of additional working interests completed during 2006 and late 2005, have significantly increased our holdings in the WTO. We believe we have assembled the largest acreage position and that we are the largest operator and producer in the WTO. We also operate significant interests in the Cotton Valley Trend in East Texas and the Gulf Coast region.

Restatement of Previously Issued Financial Statements

Change in Method of Accounting for Oil and Gas Operations.  In the fourth quarter of 2006, we changed from the successful efforts method to the full cost method of accounting for our oil and gas operations. All prior years’ financial statements presented have been restated to reflect the change.

Management believes that the full cost method is preferable for a company more actively involved in the exploration and development of oil and gas reserves. The full cost method was also utilized by NEG prior to the NEG acquisition, and the assets acquired from NEG constituted more than our total oil and natural gas assets at that time.

Our financial results have been retroactively restated to reflect the conversion to the full cost method. As prescribed by full cost accounting rules, all costs associated with property acquisition, exploration and development activities are capitalized. Exploration and development costs include dry hole costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding oil and gas reserves.

In accordance with full cost accounting rules, we are subject to a limitation on capitalized costs. The capitalized cost of natural gas and oil properties, net of accumulated depreciation, depletion and amortization,

32

may not exceed the estimated future net cash flows from proved oil and gas reserves discounted at 10%, plus the lower of cost or fair market value of unproved properties as adjusted for related tax effects. If capitalized costs exceed this limit (the “ceiling limitation”), the excess must be charged to expense. We did not have any adjustment to earnings due to the ceiling limitation for the periods presented herein.

Correction of an Accounting Error.  In May 2007, we determined that we had incorrectly accounted for certain derivative instruments as of and for the year ended December 31, 2006 due to a clerical error. For the year ended December 31, 2006, we recognized an unrealized gain on change in fair value of derivatives related to mark-to-market adjustments of derivative instruments with a counterparty of approximately $3.0 million. As part of our first quarter 2007 closing process, we discovered that the mark-to-market adjustments booked in 2006 for the derivative instruments with this counterparty were recorded incorrectly. As part of our normal closing procedures, we requested from the counterparty our mark-to-market position. Historically, the counterparties have sent the statement in terms of our position. During the fourth quarter of 2006, we entered into derivative instruments with a new counterparty. The new counterparty confirmed the mark-to-market loss (gain) with respect to the counterparty’s position, not our position, as we had requested. The position terms of the statement were not specified on the confirmation and it was recorded in error during the 2006 year end closing process. The restatement had no effect on our previously presented net cash provided by (used in) operating activities, investing activities or financing activities for any period presented.

Management has taken steps to improve and continues to improve our internal control over financial reporting, including the hiring of experienced financial reporting professionals, redefining and realigning responsibilities and defining additional controls, reporting processes and procedures.

Segment Overview

Operating income is computed as segment operating revenue less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. Set forth in the table below is financial information regarding each of our current segments.

										Three Months Ended
	Year Ended December 31,									March 31,
	2004			2005			2006			2006			2007
	(In thousands)
Segment revenue:
Exploration and production	$	37,564		$	54,051		$	106,413		$	15,173		$	90,826
Drilling and oil field services		39,211			80,151			138,657			34,522			27,895
Midstream services		99,044			147,499			122,892			30,741			26,187
Other		176			5,992			20,280			5,479			4,156
Total revenues		175,995			287,693			388,242			85,915			149,064
Segment operating income:
Exploration and production		14,000			14,886			17,069			4,936			371
Drilling and oil field services		4,206			18,295			32,946			11,162			5,202
Midstream services		2,636			4,096			3,528			691			1,350
Other		(92	)		(3,224	)		(16,562	)		(2,381	)		(3,455	)
Total operating income		20,750			34,053			36,981			14,408			3,468
Interest income		56			206			1,109			234			1,088
Interest expense		(1,678	)		(5,277	)		(16,904	)		(819	)		(35,429	)
Other income (expense)		(298	)		(1,121	)		671			(516	)		879
Income (loss) before income taxes	$	18,830		$	27,861		$	21,857		$	13,307		$	(29,994	)

33

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Production data:
Gas (Mmcf)		6,708		6,873		13,410		1,848		10,449
Oil (MBbls)		37		72		322		25		393
Combined equivalent volumes (Mmcfe)		6,930		7,305		15,342		1,998		12,807
Daily combined equivalent volumes (Mmcfe/d)		18.9		20.0		42.0		22.2		142.3
Average prices(1):
Natural gas (per Mcf)	$	4.43	$	6.54	$	6.19	$	7.05	$	6.60
Oil (per Bbl)	$	34.03	$	48.19	$	56.61	$	55.30	$	54.06
Combined equivalent (per Mcfe)	$	4.47	$	6.63	$	6.60	$	7.21	$	7.04
Drilling and oil field services:
Number of drilling rigs owned		10		19		25		20		25
Average number of drilling rigs owned		8.0		14.3		21.9		20		25
Average total revenue per rig per day(2)	$	9,128	$	11,503	$	17,034	$	17,523	$	16,648

(1)	Reported prices represent actual average prices for the periods presented and do not give effect to derivative transactions.
(2)	Does not include revenues for related rental equipment.

We report the results of our operations in the following segments:

Exploration and Production Segment.

We explore for, develop and produce natural gas and oil reserves, with a focus on our proved reserves and extensive undeveloped acreage positions in the WTO. We operate substantially all of our wells in our core areas and employ our drilling rigs and other drilling services in the exploration and development of our operated wells and, to a lesser extent, on our non-operated wells.

The primary factors affecting the financial results of our exploration and production segment are the prices we receive for our natural gas and oil production, the quantity of our natural gas and oil production and changes in the fair value of derivative instruments we use to reduce the volatility of the prices we receive for our natural gas and oil production. Because we are vertically integrated, our exploration and production activities affect the results of our oil field service and midstream segments. The NEG acquisition substantially increased our revenues and operating income in our exploration and production segment. However, because our working interest in the Piñon Field increased to approximately 81%, there are greater intercompany eliminations that affect the consolidated financial results of our oil field service and midstream segments.

Exploration and production segment revenues increased to $90.8 million in the three months ended March 31, 2007 from $15.2 million in the three months ended March 31, 2006, an increase of 497%, primarily as a result of an increase in volumes which was partially offset by a 2.4% decrease in the average price we received for the natural gas and oil we produced. In the three month period ended March 31, 2007 we increased production by 10.8 Bcfe, or 541%, to 12.8 Bcfe. Natural gas production increased 8.6 Bcf or 465%. Of the 10.8 Bcfe increase, approximately 9.9 Bcfe of the increase was attributable to the properties acquired in the NEG acquisition, with the remainder of the increase due to our successful drilling in the WTO.

The average price we received for our natural gas and oil production for the three month period ended March 31, 2007 decreased 2.4%, or $0.17, per Mcfe to $7.04 per Mcfe from $7.21 per Mcfe in the comparable period in 2006. A $0.45 per Mcf decrease in realized natural gas prices was the primary driver for the overall decrease.

34

For the three months ended March 31, 2007, we had $0.4 million in operating income in our exploration and production segment, compared to $4.9 million operating income for the same period in 2006. Our $75.7 million increase in exploration and production revenues was offset by a $18.8 million increase in production expenses, a $23.2 million loss on our derivatives positions ($21.7 million unrealized) compared to a $2.2 million unrealized gain in the comparable period in 2006 and a $29.4 million increase in depreciation, depletion and amortization, or DD&A, due to the step up in basis on the NEG properties. The increase in production expenses was attributable to the additional properties acquired in the NEG acquisition and operating expenses on our new wells. The loss on derivatives contracts was primarily attributable to the increase in natural gas prices from December 31, 2006 to March 31, 2007. Future volatility in natural gas and oil prices could have an adverse effect on the operating results of our exploration and production segment.

For the year ended December 31, 2006, exploration and production segment revenues increased to $106.4 million from $54.1 million in 2005 and from $37.6 million in 2004. The increase in 2006 compared to 2005 was attributable to increased production due to successful drilling activity and approximately 40 days of production from the NEG acquisition effective November 21, 2006. NEG contributed approximately $36.9 million of revenues in the 2006 period. Production volumes increased to 15,342 Mmcfe in 2006 from 7,305 Mmcfe in 2005, representing a 8,037 Mmcfe, or 110% increase. Approximately 4,902 Mmcfe, or 61%, of the increase was attributable to the NEG production for the period from November 21, 2006 to December 31, 2006. Average combined prices were essentially unchanged at $6.60 per Mcfe as compared to $6.63 in 2005. The increase in 2005 compared to 2004 was primarily due to a 48% increase in prices. Production volumes increased approximately 6% during 2005 as compared to 2004 with average daily volumes of 20.0 Mmcfe per day and 18.9 Mmcfe per day, respectively.

Exploration and production segment operating income increased $2.2 million in 2006 to $17.1 million from $14.9 million in 2005. The increase was primarily attributable to the increased production revenues described above, approximately $12.3 million in derivatives gains ($1.9 million unrealized loss) in 2006 as compared to a $4.1 million derivative loss ($1.3 million unrealized loss) in 2005, and the addition of NEG for the period from November 21, 2006 to December 31, 2006. The increase in the exploration and production segment income was substantially offset by a $20.5 million, or 106%, increase in production costs, a $26.7 million, or 380%, increase in general and administrative expenses and a $19.3 million increase in DD&A. Approximately $7.0 million of the increase in production costs was attributable to the NEG acquisition with remainder of the increase attributable to the increase in the number of wells operated in 2006 as compared to 2005. The increase in DD&A for our exploration and production segment was attributable to higher production and the increase in the full-cost pool due to the NEG acquisition. Exploration and production operating income increased to $14.9 million in 2005 from $14.0 million in 2004, due primarily to higher natural gas and oil prices and a 6% increase in volumes.

As of December 31, 2006, we had 1,001.8 Bcfe of estimated net proved reserves with a PV-10 of $1,734.3 million, while at December 31, 2005 we had 300.0 Bcfe of estimated net proved reserves with a PV-10 of $733.3 million. Our Standardized Measure of Discounted Future Net Cash Flows (discounted at 10%) was $499.2 million at December 31, 2005 and $1,440.2 million at December 31, 2006. For a discussion of PV-10 and a reconciliation to Standardized Measure of Discounted Net Cash Flows, see “Summary Consolidated Historical and Combined Financial Pro Forma Production and Reserve Data.” The increase is primarily related to the addition of the NEG reserves which was partially offset by a decrease in the price of natural gas from $8.40 per Mcf at December 31, 2005 to $5.64 per Mcf at December 31, 2006. Our estimated proved reserves at December 31, 2005 were considerably higher than our estimated proved reserves at December 31, 2004, which were 151.5 Bcfe, with an increase of $300.2 million in PV-10, due to an increase in the price of natural gas and oil, the acquisition of PetroSource and the “proving up” of additional reserves in the Piñon Field area. Estimates of net proved reserves are inherently imprecise. In order to prepare our estimates, we must analyze available geological, geophysical, production and engineering data and project production rates and the timing of development expenditures. The process also requires economic assumptions about matters such as natural gas and oil prices, drilling and operating expenses, capital expenditures, taxes and the availability of funds. We may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing natural gas and oil prices and other factors, many of which are

35

beyond our control. Over 99% of our year-end reserve estimates are reviewed by independent engineers at year-end.

Over the past several years, higher natural gas and oil prices have led to higher demand for drilling rigs, operating personnel and field supplies and services. Higher prices have also caused increases in the costs of those goods and services. To date, the higher sales prices have more than offset the higher field costs. Our ownership of drilling rigs has also assisted us in stabilizing our overall cost structure. Given the inherent volatility of natural gas and oil prices that are influenced by many factors beyond our control, we plan our activities and budget based on conservative sales price assumptions, which generally are lower than the average sales prices received in 2006. We focus our efforts on increasing natural gas reserves and production while controlling costs at a level that is appropriate for long-term operations. Our future earnings and cash flows are dependent on our ability to manage our overall cost structure to a level that allows for profitable production.

Like all exploration and production companies, we face the challenge of natural production declines. As initial reservoir pressures are depleted, natural gas and oil production from a given well naturally decreases. Thus, a natural gas and oil exploration and production company depletes part of its asset base with each unit of oil or natural gas it produces. We attempt to overcome this natural decline by drilling and acquiring more reserves than we produce. Our future growth will depend on our ability to continue to add reserves in excess of production. We will maintain our focus on managing the costs associated with adding reserves through drilling and acquisitions as well as the costs associated with producing such reserves. Our ability to add reserves through drilling is dependent on our capital resources and can be limited by many factors, including our ability to timely obtain drilling permits and regulatory approvals. In the WTO, this has not posed a problem. However, in other areas, the permitting and approval process has been more difficult in recent years than in the past due to increased activism from environmental and other groups. This has extended the time it takes to receive permits in some locations.

Drilling and Oil Field Services Segment.

We drill for our own account primarily in the WTO through our drilling and oil field services subsidiary, Lariat Services. We also drill wells for other natural gas and oil companies, primarily located in the West Texas region. Our oil field services business conducts operations that complement our drilling services operation. These services include providing pulling units, mud logging, trucking, rental tools, location and road construction and roustabout services to ourselves and to third-parties. Additionally, we provide under-balanced drilling systems only for our own account.

In October 2005, we entered into a joint venture, Larclay, with CWEI, pursuant to which we jointly acquired twelve newly-constructed rigs to be used for drilling on CWEI’s prospects and for contracting to third-parties on daywork drilling contracts. All of these rigs had been delivered as of March 31, 2007. CWEI was responsible for financing the purchase of the rigs by the terms of the joint venture and has financed 100% of the acquisition cost of the rigs. We operate the rigs owned by the joint venture, and after the initial construction and equipping, all operating costs to maintain the equipment are borne proportionately between us and CWEI. We have a 50% interest in Larclay, and we account for this joint venture as an equity investment.

The financial results of our drilling and oil field services segment depend on many factors, particularly the demand for and the price we can charge for our services. We provide drilling services for our own account and for others, generally on a daywork, footage or turnkey contract basis. The majority of our drilling contract revenues are derived from daywork drilling contracts. However, we generally assess the complexity and risk of operations, the on-site drilling conditions, the type of equipment to be used, the anticipated duration of the work to be performed and the prevailing market rates in determining the contract terms we offer.

Daywork Contracts.  Under a daywork drilling contract, we provide a drilling rig with required personnel to our customer who supervises the drilling of the well. We are paid based on a negotiated fixed rate per hour while the rig is used. Daywork drilling contracts specify the equipment to be used, the size of the hole and the depth of the well. Under a daywork drilling contract, the customer bears a large portion of the out-of-pocket

36

drilling costs, and we generally bear no part of the usual risks associated with drilling, such as time delays and unanticipated costs. As of March 31, 2007, 19 of our rigs were operating under daywork contracts.

Footage Contracts.  Under a footage contract, we are paid a fixed amount for each foot drilled, regardless of the time required or the problems encountered in drilling the well. We typically pay more of the out-of-pocket costs associated with footage contracts as compared to daywork contracts. The risks to us on a footage contract are greater because we assume most of the risks that are associated with drilling operations and that would normally be assumed by the operator in a daywork contract, including the risk of blowout, loss of hole, stuck drill pipe, machinery breakdowns, abnormal drilling conditions and risks associated with subcontractors’ services, supplies, cost escalation and personnel. As of March 31, 2007, none of our rigs were operating under footage contracts.

Turnkey Contracts.  Under a typical turnkey contract, a customer will pay us to drill a well to a specified depth and under specified conditions for a fixed price, regardless of the time required or the problems encountered in drilling the well. We provide technical expertise and engineering services, as well as most of the equipment and drilling supplies required to drill the well. We subcontract for related services such as the provision of casing crews, cementing and well logging. Generally we do not receive progress payments and are paid only after the well is drilled. We routinely enter into turnkey contracts in areas where our experience and expertise permit us to drill wells more profitably than under a daywork contract. As of March 31, 2007, four of our rigs were operating under turnkey contracts.

Drilling and oil field services segment revenue decreased to $27.9 million in the three month period ended March 31, 2007 from $34.5 million in the three month period ended March 31, 2006. Operating income decreased to $5.2 million in the three month period ending March 31, 2007 from $11.2 million in the same period in 2006. The decline in revenues and operating income is primarily attributable to an increase in the number of rigs operating on our properties and an increase in our ownership interest in our natural gas and oil properties. Our drilling and oil field services segment records revenues and operating income only on wells drilled for or on behalf of third parties. The portion of drilling costs incurred by our drilling and oil field services segment relating to our ownership interest are capitalized as part of our full-cost pool. With the NEG acquisition and other WTO property acquisitions, our average working interest has increased to approximately 81% in the wells we operate in the WTO, and the third party interest has declined to less than 20%. Our drilling and oil field services revenues declined $6.6 million due to the increase in our working interest and the number of wells drilled for our own account. The number of drilling rigs we owned increased 25% to an average of 25 rigs during the three month period ended March 31, 2007 from an average of 20 rigs in the comparable period in 2006. The average daily rate we received per rig, excluding revenues for related rental equipment, per day decreased 5% (before intercompany eliminations) from an average daily rate of $17,523 per day during the three month period ended March 31, 2006 to an average daily rate of $16,648 per day in the comparable period in 2007. The decline in average daily revenues is attributable to an increase in the stacked rigs in 2007. During the three month period ended March 31, 2007, we had 142 stacked rig days as compared to no stacked rig days in the comparable period in 2006, primarily resulting from the removal of two rigs from service for major refurbishment. Operating income decreased to $5.2 million, in the three month period ended March 31, 2007 from $11.2 million in the three month period ended March 31, 2006. The decline in operating income was principally attributable to the increase in the number and working interest ownership in wells drilled for our own account.

During 2006, our drilling and oil field services segment reported $138.7 million in revenues, an increase of $58.5 million, or 73%, from 2005. Operating income increased to $32.9 million in 2006 from $18.3 million in 2005. The increase in revenue and operating income was primarily attributable to an increase in the number of rigs we owned and an increase in the average revenue per rig per day we earned from the rigs. The number of rigs we owned increased 32% to 25 rigs as of December 31, 2006 and the average revenue we received per rig per day, excluding revenues for related rental equipment, increased 48% (before intercompany eliminations) to $17,034 per day from $11,503 per day. Our margins increased primarily due to our rig rates increasing faster than our operating costs.

37

Drilling and oil field services segment revenue increased to $80.2 million in 2005 from $39.2 million in 2004. Operating income increased to $18.3 million in 2005 from $4.2 million in 2004. The increase in revenue and operating income was primarily attributable to an increase in the number of rigs we owned and an increase in the average revenue per rig per day we earned from the rigs. The average number of rigs we owned in 2005 increased 90% from 2004 and the average revenue we received per rig per day, excluding revenues for related rental equipment, in 2005 increased 26% from 2004 (before intercompany eliminations).

We believe our ownership of drilling rigs and related oil field services will continue to be a major catalyst of our growth. As of June 15, 2007, our drilling fleet consisted of 44 rigs, including the twelve rigs owned by Larclay. Currently, 26 of our rigs are working on properties that we operate; ten of our rigs are drilling on a contract basis for third-parties; five are being retrofitted and three are idle or being repaired.

In 2005 we placed an order for 26 drilling rigs to be constructed by Chinese manufactures for an approximate aggregate purchase price of $126.4 million, of which $75.6 million was attributable to Larclay. We believe this is a lower cost when compared to newly built U.S. manufactured rigs with similar capabilities. In the first quarter of 2007, we took delivery of the three remaining rigs that we ordered from Chinese manufacturers bringing our total deliveries to ten rigs.

Midstream Services Segment.

We provide gathering, compression, processing and treating services of natural gas in West Texas and the Piceance Basin in northwestern Colorado, primarily through our wholly-owned subsidiary, ROC Gas. Through our gas marketing subsidiary, Integra Energy LLC (“Integra Energy”), we buy and sell natural gas produced from our operated wells as well as third-party operated wells. Gas marketing revenue is one of our largest revenue components; however, it is a very low margin business. Substantially all of our marketing fees are billed on a per unit basis. On a consolidated basis, gas purchases and other costs of sales includes the total value we receive from third-parties for the gas we sell and the amount we pay for gas, which are reported as midstream and marketing expense.

The primary factors affecting our midstream services are the quantity of gas we gather, treat and market and the prices we pay and receive for natural gas.

Midstream services revenue for the three months ended March 31, 2007 was $26.2 million compared to $30.7 million in the comparable period in 2006. The $4.5 million decrease in midstream services revenues is attributable to the increase in our working interest in the WTO as a result of the NEG and other acquisitions.

Midstream services segment revenue decreased $24.6 million for the year ended December 31, 2006 from $147.5 million in 2005 to $122.9 million in 2006. The NEG acquisition significantly decreased our midstream services revenue as more gas was transported for our own account. We do not record midstream gas revenue for transportation, treating and processing of our own gas. Prior to the NEG acquisition, transportation, treating and processing of gas for NEG was recorded as midstream services revenue. Operating income decreased to $3.5 million in 2006 from $4.1 million in the 2005 period, primarily due to the NEG acquisition and start-up operating expenses for our Sagebrush processing plant in 2006. The Sagebrush plant was placed into full operation during May 2007. We have the contractual right to periodically increase fees we receive for transportation and processing based on certain indexes.

Midstream services revenue increased to $147.5 million in 2005 from $99.0 million in 2004, primarily due to an increase in the price of natural gas. Volumes in the midstream services segment increased 5% in 2005 from 2004 due to two acquisitions completed in 2005. Operating income also increased to $4.1 million in 2005 from $2.6 million in 2004, due primarily to a $1.5 million contribution from our consolidating subsidiary, Cholla Pipeline, L.P.

Other Segment.

Our other segment consists primarily of our CO₂ gathering and tertiary oil recovery operations and other investments. We conduct our CO₂ gathering and tertiary oil recovery operations through PetroSource. In the fourth quarter of 2005 we acquired a majority interest in PetroSource, and in the first and second quarters of

38

2006 we acquired the remaining interests in PetroSource. Prior to the majority acquisition of PetroSource we accounted for PetroSource’s results of operation as an equity investment in an unconsolidated subsidiary. We now include PetroSource in our other segment. Currently most of the natural gas and oil revenue we receive is from the production of natural gas; however, we expect more of our revenue to come from oil production after we initiate our CO₂ flood operations. PetroSource gathers CO₂ from natural gas treatment plants located in West Texas and transports this CO₂ for use in our and third-parties’ tertiary oil recovery operations.

While it is extremely difficult to accurately forecast future natural gas and oil production, we believe tertiary oil recovery operations will provide significant long-term production growth potential at reasonable rates of return with relatively low risk. The increasing emphasis on CO₂ tertiary oil recovery projects has had, and will continue to have, an impact on our financial condition in the following manner:

•  there is a significant delay between the initial capital expenditures for infrastructure and CO₂ injections and the resulting production increases, if any, as tertiary oil recovery operations require the construction of facilities before CO₂ flooding can commence. After the infrastructure is in place and injections begin, it usually takes an additional 18 months before the field responds (i.e. oil production increases) to the injection of CO₂;

•  it is anticipated that PetroSource will not be profitable for several years. The anticipated lack of profitability in the initial years is due largely to the significant outlay of capital investment in the CO₂ flood projects and the lag of revenues associated with such expenditures. Thereafter, we will recognize profits only if the tertiary oil recovery efforts are successful; and

•  our tertiary oil recovery projects are more expensive to operate than conventional oil fields because of the additional cost of injecting and recycling the CO₂ (primarily due to the cost of CO₂ and the significant energy requirements to re-compress the CO₂ back into a liquid state for re-injection purposes). If commodity and energy prices increase, our operating expenses in these fields will also increase because we use natural gas to compress the CO₂.

Future Charges

Public Company Expenses

Following the completion of our proposed initial public offering, we will be a public company. We believe that our general and administrative expenses will increase in connection with becoming a public company. This increase will consist of legal and accounting fees and additional expenses associated with compliance with the Sarbanes-Oxley Act of 2002 and other regulations. Following the filing of a registration statement, we anticipate that our ongoing general and administrative expenses will also increase as a result of being a publicly traded company. This increase will be due to accounting support services, filing annual and quarterly reports with the SEC, investor relations, directors’ fees, directors’ and officers’ insurance and registrar and transfer agent fees. As a result, we believe that our general and administrative expenses for 2008 will significantly increase. Our consolidated financial statements following the completion of our proposed initial public offering will reflect the impact of these increased expenses and affect the comparability of our financial statements with periods prior to the completion of our proposed initial public offering.

Liquidated Damage Payments

In connection with our private placements in December 2005, November 2006 and March 2007, we entered into registration rights agreements that require us to use our commercially reasonable efforts to register the securities sold in such private placements by certain deadlines and to maintain effectiveness after registration. Generally, if we fail to have either registration statement declared effective within the specified time periods or fail to maintain an effective registration statement, we will be subject to liquidated damages payments. Please read “— Liquidated Damages Under Registration Rights Agreements.”

39

Results of Operations

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2007

The financial information with respect to the three months ended March 31, 2006 and 2007 that is discussed below is unaudited. In the opinion of management, this information contains all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for such periods. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.

Revenue.  Total revenue increased 74% to $149.1 million for the three months ended March 31, 2007 from $85.9 million in the same period in 2006. This increase was due to a $75.8 million increase in natural gas and oil sales and was partially offset by lower revenues in our other segments.

	Three Months Ended
	March 31,
	2006		2007		$ Change			% Change
	(In thousands)
Revenue:
Natural gas and crude oil	$	14,394	$	90,176	$	75,782			526.5	%
Drilling and services		34,386		27,895		(6,491	)		(18.9	)%
Midstream and marketing		30,672		26,187		(4,485	)		(14.6	)%
Other		6,463		4,806		(1,657	)		(25.6	)%
Total revenues	$	85,915	$	149,064	$	63,149			73.5	%

Total natural gas and crude oil revenues increased $75.8 million to $90.2 million for the three months ended March 31, 2007 compared to $14.4 million for the same period in 2006, primarily as a result of an increase in natural gas production volumes. Total natural gas production increased 465% to 10,449 Mmcf in 2007 compared to 1,848 Mmcf in 2006. Of the 8,601 Mmcf increase in natural gas production, approximately 7,674 Mmcf of the increase was attributable to the NEG acquisition. Natural gas prices decreased 6% in the 2007 period to $6.60 per Mcf compared to $7.05 per Mcf in 2006.

Drilling and services revenue decreased 19% to $27.9 million for the three months ended March 31, 2007 compared to $34.4 million in the same period in 2006. The decline in revenues is primarily attributable to an increase in the number of rigs operating on our properties and an increase in our ownership interest in our natural gas and oil properties. The number of rigs we owned increased to 25 (average for the three months ended March 31, 2007) as of March 31, 2007 compared to 20 (average for the three months ended March 31, 2006) in 2006, an increase of 25%, and the average daily revenue per rig, after considering the effect of the elimination of intercompany usage, decreased 5.0% to $16,648 in the 2007 period compared to $17,523 in the 2006 period. Additionally, the revenue from our heavy hauling trucking subsidiary increased $0.2 million during the comparison period due to an expansion of our trucking services, and the revenue from our pulling unit operations increased $2.0 million because of an increase in the demand for these oil field services and an increase in the rate we charge.

Midstream and marketing revenue decreased $4.5 million, or 15%, with revenues of $26.2 million in the three month period ended March 31, 2007 as compared to $30.7 million in the three month period ended March 31, 2006. The NEG acquisition significantly decreased our midstream services revenues as more gas was transported for our own account. Prior to the acquisition, transportation, treating and processing of gas for NEG was recorded as midstream services revenue. We have the contractual right to periodically increase fees we receive for transportation and processing based on certain indexes.

Other revenue decreased to $4.8 million for the three months ended March 31, 2007 from $6.5 million for the same period in 2006. The decrease was primarily due to the sale of Stockton Plaza. Stockton Plaza revenues are included in the 2006 period prior to its sale in August 2006.

40

Operating Costs and Expenses.  Total operating costs and expenses increased to $145.6 million for the three months ended March 31, 2007 compared to $71.5 million for the same period in 2006.

	Three Months Ended
	March 31,
	2006			2007			$ Change			% Change
	(In thousands)
Operating costs and expenses:
Production	$	5,291		$	21,974		$	16,683			315.3	%
Production taxes		822			2,933			2,111			256.8	%
Drilling and services		21,536			18,777			(2,759	)		(12.8	)%
Midstream and marketing		29,277			23,420			(5,857	)		(20.0	)%
Depreciation, depletion and amortization-natural gas and crude oil		3,057			31,755			28,698			938.8	%
Depreciation, depletion and amortization-other		7,368			11,089			3,721			50.5	%
General and administrative		6,412			12,468			6,056			94.4	%
Loss (gain) on derivative instruments		(2,246	)		23,181			25,427			1,132.1	%
Gain on sale of assets		(10	)		(1	)		9			90.0	%
Total operating costs and expenses	$	71,507		$	145,596		$	74,089			103.6	%

Production expense includes the costs associated with our exploration and production activities, including, but not limited to, lease operating expense and processing costs.

Production expenses increased $16.7 million primarily due to a $15.4 million increase because of the addition of the NEG properties in 2007. The remainder of the increase was due to an increase in lease operating expenses due to an increase in the number of wells we operate.

Production taxes increased $2.1 million, or 257%, to $2.9 million primarily due to the addition of the NEG properties in 2007.

Both drilling and services and midstream and marketing expenses decreased 13% and 20% respectively, for the three months ended March 31, 2007 as compared to the same period in 2006 primarily because of the increase in the number and working interest ownership of the wells we drilled for our own account.

DD&A for our natural gas and crude oil properties increased to $31.8 million for the three months ended March 31, 2007 from $3.1 million in the same period in 2006. The increase is primarily attributable to the NEG acquisition, which increased our depreciable properties by the purchase price plus future development costs and increased production. Our production increased 541% to 12.8 Bcfe from 2.0 Bcfe in 2006. Our DD&A per Mcfe increased $0.95 to $2.48 from $1.53 in the comparable period in 2006.

DD&A for our other assets consists primarily of depreciation of our drilling rigs and other equipment. The increase in DD&A for our drilling and oil field services equipment was due primarily to the increase in the number of rigs we own. We calculate depreciation of property and equipment using the straight-line method over the estimated useful lives of the assets, which range from three to 25 years. Our drilling rigs and related oil field services equipment are depreciated over an average seven-year useful life.

General and administrative expenses increased $6.1 million to $12.5 million for the three months ended March 31, 2007 from $6.4 million for the comparable period in 2006 due to a $2.4 million increase in corporate salaries and wages, a $2.0 million increase in legal and professional fees, a $0.7 million increase in rent and office expense and a $0.4 million charge with respect to the Conoco settlement. The increase in salaries and wages was due to an increase in corporate staff, particularly more highly compensated employees and an increase in stock based compensation expense. The increase in legal and professional fees was primarily due to two legal issues, one of which was settled during the 2007 period, and an increase in audit fees.

41

For the three month period ended March 31, 2007, we recorded a loss of $23.2 million ($21.7 million unrealized loss) on our derivatives instruments compared to $2.2 million unrealized gain for the comparable period in 2006. We entered into certain derivative instruments, primarily collars and fixed-price swaps, to mitigate the effect of price fluctuations of natural gas and oil. We have not designated any of these derivatives as part of a hedging relationship for accounting purposes. We record derivatives contracts at fair value on the balance sheet and gains or losses resulting from changes in the fair value of our derivatives contracts (both realized and unrealized) are recognized as a component of operating costs and expenses. Unrealized gains or losses are realized upon settlement. The change in the fair value of our derivatives contracts for the three month period ended December 31, 2007 is due to the increase in natural gas and oil prices from December 31, 2006 to March 31, 2007. Future volatility in natural gas and oil prices could have an adverse effect on the operating results of our exploration and production segment.

Other Income (Expense).  Total other expense increased to $33.5 million in the three month period ended March 31, 2007 from $1.1 million in the three month period ended March 31, 2006. The increase is reflected in the table below.

	Three Months Ended
	March 31,
	2006			2007			$ Change			% Change
	(In thousands)
Other income (expense):
Interest income	$	234		$	1,088		$	854			365.0	%
Interest expense		(819	)		(35,429	)		(34,610	)		(4,225.9	)%
Minority interest		45			(146	)		(191	)		(424.4	)%
Income (loss) from equity investments		(561	)		1,025			1,586			282.7	%
Total other expense		(1,101	)		(33,462	)		(32,361	)		(2,939.2	)%
Income (loss) before income taxes		13,307			(29,994	)		(43,301	)		(325.4	)%
Income tax expense (benefit)		4,924			(10,501	)		(15,425	)		(313.3	)%
Net income (loss)	$	8,383		$	(19,493	)	$	(27,876	)		(332.5	)%

Interest income increased to $1.1 million for the three months ended March 31. 2007 from $0.2 million for the same period in 2006. This increase was due to interest income from excess cash in investment accounts.

Interest expense increased to $35.4 million for the three months ended March 31, 2007 from $0.8 million for the same period in 2006. This increase was attributable to increased average debt balances resulting from our bridge loan.

To finance the NEG acquisition, we entered into a $750 million senior credit facility, which has an initial borrowing base of $300 million, and an $850 million senior bridge facility. In March 2007, we entered into a $1.0 billion term loan and sold 17.8 million shares of common stock in a private placement. A portion of the proceeds from the senior unsecured term loan and a portion of the proceeds from the private placement were used to repay the bridge loan (see “— Liquidity and Capital Resources”).

We reported an income tax benefit of $10.5 million for the three months ended March 31, 2007 from an expense of $4.9 million for the same period in 2006. The current period benefit was attributable to our pre-tax loss of approximately $30 million for the three month period ended March 31, 2007.

42

Year Ended December 31, 2005 Compared to Year Ended December 31, 2006

Revenue.  Total revenue increased to $388.2 million in 2006 from $287.7 million in 2005, which is further explained by the categories below.

	Year Ended December 31,
	2005		2006		$ Change			% Change
	(In thousands)
Revenue:
Natural gas and crude oil	$	49,987	$	101,252	$	51,265			102.6	%
Drilling and services		80,343		139,049		58,706			73.1	%
Midstream and marketing		147,133		122,896		(24,237	)		(16.5	)%
Other		10,230		25,045		14,815			144.8	%
Total revenues	$	287,693	$	388,242	$	100,549			35.0	%

Natural gas and crude oil revenue increased $51.3 million to $101.3 million in 2006 from $50.0 million in 2005. This was primarily a result of an increase in natural gas production volumes. Total natural gas production almost doubled to 13,410 Mmcf in 2006 compared to 6,873 Mmcf in 2005. Natural gas prices decreased $0.35, or 5%, in the 2006 period to $6.19 per Mcf compared to $6.54 per Mcf in 2005.

Drilling and services revenue increased 73% to $139.0 million for the year ended December 31, 2006 compared to $80.3 million in the same period in 2005, primarily due to an increase in the number of drilling rigs we owned and to an increase in the average daily revenue per rig. The number of rigs we owned increased to 25 (21.9 average for the year) as of December 31, 2006 compared to 19 (14.3 average for the year) in 2005, an increase of 32%, and the average daily revenue per rig, after considering the effect of the elimination of intercompany usage, increased 48% to $17,034 in 2006 compared to $11,503 in 2005. Additionally, the revenue from our heavy hauling trucking subsidiary increased $7.8 million during the comparison period due to an expansion of our trucking services. The revenue from our pulling unit operations increased $7.7 million because of an increase in the demand for these oil field services and an increase in the rate we charge.

Midstream and marketing revenue decreased $24.2 million from 2005 with revenues of $122.9 million during the year ended December 31, 2006 as compared to $147.1 million in 2005. We do not record midstream and marketing revenues for marketing, transportation, treating and processing of our own gas. The NEG acquisition significantly decreased our midstream services revenues as more gas was transported and marketed for our own account. Prior to the NEG acquisition, transportation, treating and processing of gas for NEG was recorded as midstream and marketing revenue. We have the contractual right to periodically increase fees we receive for transportation and processing based on certain indexes.

Other revenues increased $14.8 million to $25.0 million in 2006 from $10.2 million in 2005. The increase was primarily attributable to an increase of $12.0 million in CO₂ and tertiary oil recovery revenues. In December 2005, we acquired additional equity interest in PetroSource which increased our ownership interest to 86.5%, resulting in the consolidation of PetroSource commencing in the fourth quarter of 2005. We recorded PetroSource revenues for the full year in 2006. The remainder of the increase was attributable to additional administration fees collected from operating natural gas and oil wells and lease acreage income received as a result of an increase in the number of wells, an increase in overhead rates and an increase in leasing activities. Approximately $0.9 million of the increase was related to an increase of revenue from Stockton Plaza. Stockton Plaza was sold to our former president Mr. Mitchell in August 2006. See “Related Party Transactions.”

43

Operating Costs and Expenses.  Total operating costs and expenses increased $97.6 million to $351.3 million in 2006 from $253.6 million in 2005, which is further explained by the categories below.

	Year Ended December 31,
	2005		2006			$ Change			% Change
	(In thousands)
Operating costs and expenses:
Production	$	16,195	$	35,149		$	18,954			117.0	%
Production taxes		3,158		4,654			1,496			47.4	%
Drilling and services		52,122		98,436			46,314			88.9	%
Midstream and marketing		141,372		115,076			(26,296	)		(18.6	)%
Depreciation, depletion and amortization-natural gas and oil		8,995		25,723			16,728			186.0	%
Depreciation, depletion and amortization-other		15,211		29,903			14,692			96.6	%
General and administrative		11,908		55,634			43,726			367.2	%
Loss (gain) on derivative instruments		4,132		(12,291	)		(16,423	)		(397.5	)%
Loss (gain) on sale of assets		547		(1,023	)		(1,570	)		(287.0	)%
Total operating costs and expenses	$	253,640	$	351,261		$	97,621			38.5	%

Production expense increased to $35.1 million in 2006 from $16.2 million in 2005 primarily due to the increase in the number of wells operated in 2006 as compared to 2005, the addition of NEG for the period from November 21, 2006 to December 31, 2006 and the addition of PetroSource for the full year in 2006 as compared to one quarter in 2005. Approximately $7.5 million of the increase was attributable to the NEG acquisition and approximately $3.2 million of the increase was attributable to PetroSource with the remainder of the increase due to an increase in the number of wells we operate.

Production taxes increased $1.5 million, or 47%, to $4.7 million due to the increase in natural gas production, which was partially offset by a decline in realized natural gas prices. Production taxes are generally assessed at the wellhead and are based on the volumes produced times the price received.

Drilling and services expenses increased 89% to $98.4 million in 2006 from $52.1 million in 2005, primarily due to an increase in our oil field services operating expense. Oil field services operating expenses, including fuel, repairs and maintenance, increased $14.2 million due to an increase in the number of drilling rigs we owned as well as work we performed on a turnkey and footage basis rather than a day rate basis.

Midstream and marketing expenses decreased $26.3 million, or 19%, to $115.1 million in 2006 as compared to $141.4 million in 2005 due to a decrease in the average price paid for gas that we market and a decrease in gas purchased from third parties as we focused our marketing efforts more on our own production.

DD&A relating to our natural gas and oil properties increased 186% to $25.7 million in 2006 from $9.0 million in 2005. The increase was primarily attributable to a 110% increase in year-over-year production and a 36% increase in DD&A. The average DD&A per Mcfe was $1.68 for the year ended December 31, 2006 as compared to $1.23 in 2005. The increase in the DD&A was attributable to the NEG acquisition which added significantly higher reserves at a higher cost per Mcfe.

DD&A related to our other property, plant and equipment increased $14.7 million, or 97%, primarily due to our investment in additional drilling rigs and oil field service equipment.

General and administrative expense increased $43.7 million to $55.6 million in 2006 from $11.9 million in 2005, due in part to higher corporate salaries and wages as we added a significant amount of corporate staff to accommodate our acquisitions and increased drilling activities, a $5 million dispute settlement, a $3.6 million increase in property and franchise taxes, higher administrative costs associated with our increase in staff (rent, utilities, insurance and office equipment and supplies), a $2.5 million increase in bad debt expense and an increase in legal and professional expenses. Legal and professional fees increased $4.7 million due primarily to an increase in legal fees relating to two legal issues coupled with increased audit fees.

44

For the year ended December 31, 2006, we recorded a gain on derivative instruments of $12.3 million compared to a loss of $4.1 million in 2005. We entered into collars and fixed-price swaps to mitigate the effect of price fluctuations of natural gas and oil. We enter into natural gas basis swaps to mitigate the risk of fluctuations in pricing differentials between our natural gas well head prices and benchmark spot prices. We have not designated any of these derivatives as hedges for accounting purposes. We record derivatives contracts at fair value on the balance sheet, and gains or losses resulting from changes in the fair value of our derivatives contracts (unrealized) are recognized as a component of operating costs and expenses. Unrealized gains or losses are realized upon settlement. During the first eleven months of 2006, we settled or early terminated all of our natural gas derivatives positions and realized a net gain of approximately $14.2 million. We did not enter into any new derivative instruments until December 2006 and the first quarter of 2007. Offsetting the 2006 net realized gain on the settlement or early termination of our derivative instruments was a net unrealized loss of $1.9 million which represented the change in fair value of our derivatives instruments from the purchase date in early December 2006 to December 31, 2006. Generally, we will record unrealized gains on our swaps and fixed-price swaps when natural gas and oil commodity prices decrease, and we will record unrealized losses as natural gas and oil prices increase. We record unrealized gains on our basis swaps if the pricing differential increases and unrealized losses as the pricing differential decreases. Gains or losses on derivatives contracts are realized upon settlement. During 2005 we did not early terminate any derivatives positions, and we realized a loss of $2.8 million due to normal settlements. Future volatility in natural gas and oil prices could have an adverse effect on the operating results of our exploration and production segment.

Other Income (Expense).  Total other expense increased to $15.1 million in 2006 from $6.2 million in 2005. The increase is discussed in the table below.

	Year Ended December 31,
	2005			2006			$ Change			% Change
	(In thousands)
Other income (expense):
Interest income	$	206		$	1,109		$	903			438.3	%
Interest expense		(5,277	)		(16,904	)		(11,627	)		(220.3	)%
Minority interest		(737	)		(296	)		441			59.8	%
Income (loss) from equity investments		(384	)		967			1,351			351.8	%
Total other expense		(6,192	)		(15,124	)		(8,932	)		(144.3	)%
Income before income taxes		27,861			21,857			(6,004	)		(21.5	)%
Income tax expense		9,968			6,236			(3,732	)		(37.4	)%
Income from discontinued operations, net of tax		229			—			(229	)		(100.0	)%
Net income	$	18,122		$	15,621		$	(2,501	)		(13.8	)%

Interest income increased to $1.1 million in 2006 from $0.2 million in 2005. This increase was due to interest income recognized in 2006 related to excess cash balances with various financial institutions.

Interest expense increased to $16.9 million in 2006 from $5.3 million in 2005. This increase was due to the additional debt that we incurred to finance our purchase of NEG.

We recorded income from equity investments of $1.0 million in 2006 as compared to a $0.4 million loss in 2005. The 2005 loss was primarily due to PetroSource. We accounted for PetroSource under the equity method during the first nine months of 2005.

Income tax expense decreased to $6.2 million in 2006 from $10.0 million in 2005 primarily due to a decrease in our effective income tax rate. During 2006, we realized a $3.5 million reduction in tax expense from our percentage depletion deduction, which was partially offset by $1.3 million in additional state income taxes.

45

Year Ended December 31, 2004 Compared to Year Ended December 31, 2005

Revenue.  Total revenue increased to $287.7 million in 2005 from $176.0 million in 2004, which is further explained by the categories below.

	Year Ended December 31,
	2004		2005		$ Change		% Change
	(In thousands)
Revenue:
Natural gas and crude oil	$	33,685	$	49,987	$	16,302		48.4	%
Drilling and services		39,417		80,343		40,926		103.8	%
Midstream and marketing		98,906		147,133		48,227		48.8	%
Other		3,987		10,230		6,243		156.6	%
Total revenues	$	175,995	$	287,693	$	111,698		63.5	%

Natural gas and crude oil revenue increased $16.3 million to $50.0 million in 2005 from $33.7 million in 2004. This was due to an increase in the average price we received for the natural gas and oil we produced, which increased to $6.63 per Mcfe in 2005 from $4.47 per Mcfe in 2004. Combined volumes were essentially unchanged from 2004 to 2005.

Drilling and services revenue increased to $80.3 million in 2005 from $39.4 million in 2004, primarily due to an increase in the number of drilling rigs we owned and an increase in the average daily revenue we earned from our rigs. Average daily revenue per rig, after considering the effect of the elimination of intercompany usage, increased to $11,503 in 2005 from $9,128 in 2004, and our rig fleet increased to 19 (14.3 average) rigs in 2005 from ten (8.0 average) rigs in 2004. Revenue from our oil field trucking division increased $2.9 million because this division started operations in 2005, and our air compression rental increased $2.0 million due to an increase in the number of compressor units in operation.

Midstream and marketing revenue increased to $147.1 million in 2005 from $98.9 million in 2004, primarily due to an increase in the price of natural gas and a 5% increase in volumes. Following a review of area gathering fees in May 2005, we recommended and our partners accepted a 43% increase in the gathering fees we charge to $0.10 per Mcf from $0.07 per Mcf. The plant fee also increased in April 2005 from $0.21 to $0.22, a 3% increase.

Other revenues increased $6.2 million, or 157%, primarily due to a $3.8 million increase in CO₂ and tertiary oil recovery revenue in 2005 from $0 in 2004. The increase was due to our consolidation of PetroSource in 2005. Through September 30, 2005, PetroSource was accounted for under the equity method. The remainder of the increase was due to an increase in the fees and other income collected from operating natural gas and oil wells and conducting related activities.

46

Operating Costs and Expenses.  Total operating costs and expenses increased $98.4 million to $253.6 million in 2005 from $155.2 million in 2004, which is further explained by the categories below.

	Year Ended December 31,
	2004			2005		$ Change		% Change
	(In thousands)
Operating costs and expenses:
Production	$	10,230		$	16,195	$	5,965		58.3	%
Production taxes		2,497			3,158		661		26.5	%
Drilling and services		26,442			52,122		25,680		97.1	%
Midstream and marketing		96,180			141,372		45,192		47.0	%
Depreciation, depletion and amortization-natural gas and oil		4,770			8,995		4,225		88.6	%
Depreciation, depletion and amortization-other		7,904			15,211		7,307		92.4	%
General and administrative		6,554			11,908		5,354		81.7	%
Loss on derivative instruments		878			4,132		3,254		370.6	%
Loss (gain) on sale of assets		(210	)		547		757		360.5	%
Total operating costs and expenses	$	155,245		$	253,640	$	98,395		63.4	%

Production expense increased to $16.2 million in 2005 from $10.2 million in 2004 primarily as a result of an increase in lease operating expense. Lease operating expense increased $1.6 million, primarily due to an increase in the number of wells operated. The consolidation of PetroSource added $2.2 million in 2005 production expense. In December 2005, we increased our equity interest in PetroSource to 86.5% which required us to consolidate PetroSource effective in the fourth quarter of 2005. Generally, our production expense has increased along with the growth in our exploration and production activities.

Production taxes increased 27% primarily as a result of an increase in the average price realized on our natural gas production of $2.11 per Mcf.

Drilling and services expenses increased 97% to $52.1 million in 2005 from $26.4 million in 2004, primarily due to an increase in our oil field services operating expense. Oil field services operating expenses, including fuel, repairs and maintenance, increased $14.2 million due to an increase in the number of drilling rigs we owned as well as work we performed on a turnkey and footage basis rather than a day rate basis.

Midstream and marketing increased 47% to $141.4 million in 2005 from $96.2 million in 2004, primarily due to a 48% increase in the average price of natural gas paid by our marketing company. Volumes during 2005 were essentially unchanged from 2004.

DD&A relating to our natural gas and oil properties increased 89% to $9.0 million in 2005 from $4.8 million in 2004. The increase was primarily attributable to a 78% increase in our DD&A in 2005 and a 5% increase in production volumes. The average DD&A was $1.23 per Mcfe for the year ended December 31, 2005 as compared to $0.69 per Mcfe in 2004. The increase in the DD&A was attributable to our increased drilling activities which added reserves at a higher cost per Mcfe.

DD&A for our other segment increased $7.3 million, or 92%, primarily due to our investment in additional drilling rigs and oil field service equipment.

General and administrative expense increased $5.3 million to $11.9 million in 2005 from $6.6 million in 2004, primarily as a result of an increase in salaries and wages of $4.3 million and a slight increase in legal and professional expenses.

47

Other Income (Expense).  Total other expense increased to $6.2 million in 2005 from $1.9 million in 2004. The increase is discussed in the table below.

	Year Ended
	December 31,
	2004			2005			$ Change			% Change
	(In thousands)
Other income (expense):
Interest income	$	56		$	206		$	150			267.9	%
Interest expense		(1,678	)		(5,277	)		(3,599	)		(214.5	)%
Minority interest		(262	)		(737	)		(475	)		(181.3	)%
Loss from equity investments		(36	)		(384	)		(348	)		(966.7	)%
Total other expense		(1,920	)		(6,192	)		(4,272	)		(222.5	)%
Income before income taxes		18,830			27,861			9,031			48.0	%
Income tax expense		6,433			9,968			3,535			55.0	%
Income from discontinued operations, net of tax		451			229			(222	)		(49.2	)%
Extraordinary gain		12,544			—			(12,544	)		(100.0	)%
Net income	$	25,392		$	18,122		$	(7,270	)		(28.6	)%

Interest expense increased to $5.3 million in 2005 from $1.7 million in 2004. This increase was due to the additional debt that we incurred to finance our investment in natural gas and oil properties and oil field services equipment, including the additional drilling rigs.

The increase in loss from equity investments was primarily due to the operating loss from our equity investment in Grey Ranch, L.P. in 2005.

Income tax expense increased to $10.0 million in 2005 from $6.4 million in 2004 primarily due to an increase in income before taxes, which increased to $27.9 million in 2005 from $18.8 million in 2004. Our effective tax rate for the year ended December 31, 2005 increased slightly to 36% from 34% in 2004.

The extraordinary gain was attributable to our purchase of the Foreland Corporation in 2004 and represented the difference between the fair value of assets acquired and the purchase price. The fair value of the assets acquired was $13.8 million and the purchase price was $1.2 million.

Liquidity and Capital Resources

Summary

Our operating cash flow is influenced mainly by the prices that we receive for our natural gas and oil production; the quantity of natural gas we produce; and, to a lesser extent, the quantity of oil we produce; the success of our development and exploration activities; the demand for our drilling rigs and oil field services and the rates we receive therefore; and, the margins we obtain from our natural gas and CO₂ gathering and processing contracts.

During 2006 and the first quarter of 2007, we entered into various debt and equity transactions to fund the acquisition of NEG and our 2007 capital expenditure program. As of March 31, 2007, our cash and short term investments were $193.5 million, and we had approximately $300 million available under our senior credit facility. In April 2007, the borrowing capacity for our senior credit facility was increased to $400 million. Currently we have no borrowings outstanding under our senior credit facility. As of March 31, 2007, we had approximately $1,074.3 million in total debt outstanding, and our capital expenditures for the last three quarters of 2007 are projected to be approximately $669 million.

48

The NEG Acquisition

On November 21, 2006, we acquired all of the outstanding membership interest of NEG from AREP for approximately $990.4 million in cash, the assumption of $300 million in debt, the receipt of cash of $21.1 million and 12,842,000 shares of our common stock (valued at approximately $231.2 million).

To finance the NEG acquisition, we entered into a $750 million senior credit facility and an $850 million senior bridge facility. The $750 million senior credit facility had a borrowing capacity of $300 million. This revolving credit facility is collateralized by our natural gas and oil properties, except our Piceance Basin assets, and allows, but does not require any hedging. We also issued in a private placement to certain eligible purchasers $550 million of convertible preferred stock and common units consisting of shares of common stock and a warrant to purchase convertible preferred stock upon surrender of the common stock. Dividends on the convertible preferred stock are cumulative and have a stated value when and if declared of $34.8 million per year. The $850 million senior bridge facility was repaid in March 2007 with the proceeds from the term loan and private placement of common stock described below.

Capital Expenditures

We make and expect to continue to make substantial capital expenditures in the exploration, development, production and acquisition of natural gas and oil reserves. We believe that our cash flows from operations, current cash and investments on hand, availability under our senior credit facility and the proceeds from our proposed initial public offering will be sufficient to meet our capital expenditure budget for the next twelve months. We are currently contemplating sales of some of our non-core assets to satisfy our long-term capital expenditure plans.

Our capital expenditures by segment were:

	Year Ended						Three Months Ended
	December 31,						March 31,
	2004		2005		2006		2006		2007
	(In thousands)
Capital Expenditures:
Exploration and production	$	29,105	$	61,227	$	170,872	$	28,840	$	127,582
Drilling and oil field services		22,679		43,730		89,810		19,440		41,242
Midstream services		2,026		25,904		16,975		3,486		9,543
Other		4,116		3,735		28,884		2,498		2,728
Total capital expenditures	$	57,926	$	134,596	$	306,541	$	54,264	$	181,095

We estimate that our total capital expenditures for 2007 will be approximately $850 million, of which $181.1 million has been spent as of March 31, 2007. Our planned 2007 capital expenditures represents a 177% increase over 2006. Subject to our ability to raise capital, we anticipate our future capital expenditures will be made at approximately the same levels as our 2007 capital expenditures for the next several years.

Our 2007 capital expenditures for our exploration and production segment are focused on growing and developing our reserves and production on our existing acreage and acquiring additional acreage, primarily in the WTO. Of our total $850 million capital expenditure budget, approximately $665 million will be for exploration and production activities. We plan to drill 215 gross (184 net) wells in the WTO and 94 gross (82 net) wells in other areas in 2007. Included in our exploration and production capital expenditure budget is $100 million allocated to increasing our acreage positions in the WTO and the acquisition of seismic data, including proprietary 3-D seismic, which will be a valuable tool in helping us to explore and further develop the WTO.

During 2007 we expect to complete our rig fleet expansion program that we started in 2005. We have accepted the delivery of all of the rigs ordered from Chinese manufacturers, and we are in the process of retro-fitting and rigging up the remaining five rigs, which we expect to join our fleet during the third and

49

fourth quarter of 2007. We are also continuing to upgrade and modernize our rig fleet. Approximately $85 million of our capital expenditure budget will be spent on our drilling and oil field services segment.

We anticipate spending approximately $100 million in capital expenditures in our midstream services segment as we aggressively expand our network of gas gathering lines and plant and compression capacity.

During the remainder of 2007, we expect to incur approximately $38 million in 2007 in capital expenditures related to PetroSource primarily for the continuance of our CO₂ flood operations at the Wellman Unit and the commencement of our CO₂ flood operations at the George Allen Unit. We capitalize a portion of the acquisition cost of CO₂ used in our CO₂ floods as development cost when it is injected.

We expect our 2008 capital expenditure program to be comparable with 2007 levels, subject to market conditions and availability of capital on attractive terms, as we continue to explore and develop our core properties and expand our other business segments.

The majority of our capital expenditures will be discretionary and could be curtailed if our cash flows decline from expected levels or we are unable to obtain capital on attractive terms; however, we have various sources of capital in the form of our revolving credit facility, potential asset sales or the incurrence of additional long-term debt.

Cash Flows from Continuing Operations

Our cash flows from continuing operations are as follows:

										Three Months Ended
	Year Ended December 31,									March 31,
	2004			2005			2006			2006			2007
	(In thousands)
Cash Flows from Continuing Operations:
Cash flows provided by operating activities	$	38,458		$	63,297		$	67,349		$	3,181		$	43,963
Cash flows used in investing activities		(59,408	)		(155,826	)		(1,340,567	)		(59,217	)		(182,546	)
Cash flows provided by financing activities		34,700			126,413			1,266,435			12,936			293,094
Net increase (decrease) in cash and cash equivalents	$	13,750		$	33,884		$	(6,783	)	$	(43,100	)	$	154,511

Operating Activities.  Cash flows provided by operating activities increased $40.8 million to $44.0 million for the three months ended March 31, 2007 from $3.2 million for the three months ended March 31, 2006. The increase was caused by increased revenues of $63.2 million and was partially offset by an increase in cash expenses. The majority of our $19.5 million loss from continuing operations for the three month period ended March 31, 2007 was attributable to non-cash expenses, including $42.8 million in DD&A (a $32.4 million increase over the comparable period in 2006) and an unrealized loss on our derivatives contracts of $21.7 million.

Cash flows provided by operating activities increased $4.0 million to $67.3 million in 2006 from $63.3 million in 2005 primarily due to an increase in non-cash DD&A of $31.4 million and an increase in non-cash stock-based compensation expense of $8.3 million as net income decreased approximately $2.5 million in 2006 over 2005. The increases were substantially offset by changes in operating assets and liabilities.

Cash flows provided by continuing operating activities increased $24.8 million to $63.3 million in 2005 from $38.5 million in 2004, due primarily to an increase in operating income and an increase in non-cash expenses. Operating income increased $13.3 million whereas net income decreased $7.3 million. The 2004 period included a $12.5 million extraordinary gain that had no effect on cash flow from operations. DD&A

50

increased $11.5 million, and the remainder of the change was due to a $0.9 million net increase in operating assets and liabilities and a $3.1 million change due to changes in fair value of derivatives contracts.

Investing Activities.  Cash flows used in investing activities increased to $182.5 million in the three month period ended March 31, 2007 from $59.2 million in the 2006 period as we continued to ramp up our capital expenditure program. For the three month period ended March 31, 2007, our capital expenditures were $127.6 million in our exploration and production segment, $41.2 million for drilling and oil field services, $9.5 million for midstream services and $2.7 million for other capital expenditures. During the same period in 2006, capital expenditures were $28.8 million in our exploration and production segment, $19.4 million for drilling and oil field services, $3.5 million for midstream services and $2.5 million for other capital expenditures.

Cash flows used in investing activities increased to $1,341 million for the year ended December 31, 2006 from $155.8 million in 2005 and $59.4 million in 2004. During 2006, our cash flows used in investing activities included acquisitions of $1,054 million, including the NEG acquisition described above. During the comparison period, exploration and production capital expenditures increased to $170.9 million in 2006 from $61.2 million in 2005 and $29.1 million in 2004 primarily because of the additional wells that were drilled in the Piñon Field in 2006 and 2005. Capital expenditures for drilling and oil field services increased to $89.8 million in 2006 from $43.7 million in 2005 and $22.7 million in 2004 due to an increase in the number of drilling rigs. Proceeds from the sale of assets increased to $19.7 million in 2006 from $3.3 million in 2005 and $1.4 million in 2004.

Financing Activities.  Since December 2005, we have used equity issuances, borrowings and, to a lesser extent, our cash flows from operations to fund our rapid growth. Proceeds from borrowings increased to $1,142.8 million for the three months ended March 31, 2007, and we repaid approximately $1,136.8 million leaving net borrowings during the period of approximately $6 million. We also received net proceeds of approximately $318.9 million from a private placement of our common stock. We used the net proceeds from the term loan and the common stock issuance to repay the senior bridge facility and to repay all of our outstanding borrowings under our senior credit facility. Our financing activities provided $293.1 million in cash for the three month period ended March 31, 2007 compared to $12.9 million in the comparable period in 2006.

During the year ended December 31, 2006 we incurred net borrowings of $743 million, raised $100.8 million from issuances of common stock and raised $439.5 million from an issuance of redeemable convertible preferred stock. Our net borrowings, common stock issuances and issuance of redeemable preferred stock in 2006 were primarily used to finance the NEG acquisition as well as our 2006 capital expenditure program. During 2005 we received proceeds of $173.1 million from the issuance of common stock and had net repayments of $53.8 million as compared to net borrowings of $34.8 million in 2004. Most of our borrowings in 2005 funded the acquisition of our drilling rigs, our exploration and production activities and the expansion of our gathering and treating assets. In December 2005, the Company received $173.1 million in net proceeds from a private placement of 12.5 million shares of common stock, which was primarily used to reduce outstanding borrowings.

Credit Facilities and Other Indebtedness

Senior Credit Facility.  On November 21, 2006, we entered into a new $750 million senior secured revolving credit facility (the “senior credit facility”) with Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager. The senior credit facility matures on November 21, 2011.

The proceeds of the senior credit facility were used to (i) partially finance the NEG acquisition, (ii) refinance our existing senior secured revolving credit facility and NEG’s existing credit facility, and (iii) pay fees and expenses related to the NEG acquisition and our existing credit facility. Future borrowings under the senior credit facility will be available for capital expenditures, working capital and general corporate purposes and to finance permitted acquisitions of natural gas and oil properties and other assets related to the exploration, production and development of natural gas and oil properties. The senior credit facility will be

51

available to be drawn on and repaid without restriction so long as we are in compliance with its terms, including certain financial covenants.

The senior credit facility contains various covenants that limit our and certain of our subsidiaries’ ability to grant certain liens; make certain loans and investments; make distributions; redeem stock; redeem or prepay debt; merge or consolidate with or into a third party; or engage in certain asset dispositions, including a sale of all or substantially all of our assets. Additionally, the senior credit facility limits our and certain of our subsidiaries’ ability to incur additional indebtedness with certain exceptions, including under the senior unsecured bridge facility (as discussed below).

The senior credit facility also contains financial covenants, including maintenance of agreed upon levels for the ratio of (i) our total funded debt to EBITDAX (as defined in the senior credit facility), which may not exceed 4.5:1.0 as of the end of fiscal quarters ending on or before June 30, 2007 and 4.0:1.0 as of the end of any subsequent fiscal quarter, (ii) our ratio of EBITDAX to interest expense plus current maturities of long-term debt, which may not exceed 2.5:1.0, and (iii) our current ratio, which may not exceed 1.0:1.0. As of the end of the second quarter 2007 we were in compliance with these financial covenants.

The obligations under the senior credit facility are secured by first priority liens on all shares of capital stock of each of our present and future subsidiaries; all intercompany debt of us and our subsidiaries; and substantially all of our assets and the assets of our subsidiaries, including proven natural gas and oil reserves representing at least 80% of the present discounted value (as defined in the senior credit facility) of our proven natural gas and oil reserves reviewed in determining the borrowing base for the senior credit facility (as determined by the Administrative Agent). Additionally, the obligations under the senior credit facility will be guaranteed by certain of our subsidiaries.

The borrowing base for the senior credit facility is determined by the administrative agent in its sole discretion in accordance with its normal and customary natural gas and oil lending practices and approved by lenders. The reaffirmation of an existing borrowing base amount or an increase in the borrowing base will require approval by Required Lenders (as defined in the senior credit facility). The borrowing base is subject to review semi-annually; however, Required Lenders reserve the right to have (a) one additional redetermination within the first twelve months from the closing date and (b) one additional redetermination of the borrowing base per calendar year thereafter. Unscheduled redeterminations may be made at our request, but are limited to two such requests during the twelve months following the closing date and one request per twelve months thereafter.

The borrowing base includes proved developed producing reserves, proved developed non-producing reserves and proved undeveloped reserves and was initially set at $300.0 million. As of March 31, 2007 we had no outstanding indebtedness on our senior credit facility. In April 2007, the borrowing base was increased to $400.0 million.

At our election, interest under the senior credit facility is determined by reference to (i) the British Bankers Association LIBOR rate, or LIBOR, plus an applicable margin between 1.25% and 2.00% per annum or (ii) the higher of the federal funds rate plus 0.5% or the prime rate plus, in either case, an applicable margin between 0.25% and 1.00% per annum. Interest will be payable quarterly for prime rate loans and at the applicable maturity date for LIBOR loans, except that if the interest period for a LIBOR loan is six months, interest will be paid at the end of each three-month period.

If an event of default exists under the senior credit facility, the lenders may accelerate the maturity of the obligations outstanding under the senior credit facility and exercise other rights and remedies. Each of the following will be an event of default:

•  failure to pay any principal when due or any interest, fees or other amount within certain grace periods;

•  failure to perform or otherwise comply with the covenants in the credit agreement or other loan documents, subject, in certain instances, to certain grace periods;

•  bankruptcy or insolvency events involving us or our subsidiaries;

•  a change of control (as defined in the senior credit facility).

52

March 2007 Term Loan.  On March 22, 2007, we entered into a $1 billion senior unsecured term loan. The proceeds of the term loan were used to partially repay the senior bridge facility described below. The term loan includes both a fixed rate tranche and floating rate tranche. Approximately $650 million was issued at a fixed rate of 8.625% with principal due on April 1, 2015 (the “Fixed Rate Term Loans”). Under the terms of the Fixed Rate Term Loans, interest is payable quarterly and during the first four years interest may be paid, at our option, either entirely in cash or entirely with additional Fixed Rate Term Loans. If we elect to pay the interest due during any period in additional Fixed Rate Term Loans, the interest rate increases to 9.375% during such period. After April 1, 2011 the Fixed Rate Term Loans may be prepaid in whole or in part with prepayment penalties as follows (the prepayment penalty is multiplied by the principal amount prepaid):

Period	Prepayment Penalty
April 1, 2011 to March 31, 2012		4.313	%
April 1, 2012 to March 31, 2013		2.156	%
April 1, 2013 and thereafter		—

Approximately $350 million of the term loan was issued at a variable rate with interest payable quarterly and principal due on April 1, 2014 (the “Variable Rate Term Loans”). The Variable Rate Term Loans bear interest, at our option, at LIBOR plus 3.625% or the higher of (i) the federal funds rate, as defined, plus 3.125% or (ii) a Bank’s prime rate plus 2.625%. After April 1, 2009 the Variable Rate Term Loans may be prepaid in whole or in part with a prepayment penalty as follows (the prepayment penalty is multiplied by the principal amount prepaid):

Period	Prepayment Penalty
April 1, 2009 to March 31, 2010		3.00	%
April 1, 2010 to March 31, 2011		2.00	%
April 1, 2011 to March 31, 2012		1.00	%
April 1, 2012 and thereafter		—

After one year from the closing date, we are required to offer to exchange the term loan for senior unsecured notes with registration rights. The senior unsecured notes will have substantially similar terms and conditions as the term loan. If we are unable to or do not offer to exchange the term loan for senior unsecured notes with registration rights by the specified date, the interest rate on the term loan will increase by 0.25% every 90 days up to a maximum of 0.50%.

The term loan contains ordinary and customary covenants including limitations on the incurrence of indebtedness, payment of dividends, asset sales, certain asset purchases, transactions with related parties and consolidation or merger agreements.

Other Indebtedness.  We have financed a portion of our drilling rig fleet and related oil field services equipment through notes with Merrill Lynch Capital Corporation. At March 31, 2007, the aggregate outstanding balance of these credit agreements was $57.9 million, with a fixed interest rate ranging from 7.64% to 8.87%. The notes have a final maturity date of November 1, 2010, aggregate monthly installments for principal and interest in the amount of $1.2 million and are secured by the equipment. The notes have a prepayment penalty (currently 1-3%) in the event we repay the notes prior to maturity. We are currently negotiating a reduction in the prepayment penalty and/or breakage fee with the lender in order to repay these notes.

We have financed the purchase of various vehicles, oil field services equipment and other equipment used in our business. The aggregate outstanding balance of these notes as of March 31, 2007 was $6.8 million.

On October 14, 2005, Sagebrush Pipeline, LLC borrowed $4.0 million from Bank of America, N.A. for the purpose of completing the gas processing plant and pipeline in Colorado. This loan matures in July 2007, and the interest rate is LIBOR plus 215 basis points. We have guaranteed this loan, and we could be required to repay this debt in full. We own approximately 70% of Sagebrush Pipeline, LLC. We anticipate that the Sagebrush members will make additional equity investments to Sagebrush to retire the debt when the loan matures.

53

Senior Bridge Facility.  On November 21, 2006, we also entered into a $850 million senior unsecured bridge facility (the “senior bridge facility”) with Banc of America Bridge LLC, as the Initial Bridge Lender and Banc of America Securities LLC, Credit Suisse Securities, Goldman Sachs Credit Partners L.P., and Lehman Brothers Inc., as joint lead arrangers and bookrunners.

Together with borrowings under the senior credit facility, the proceeds from the senior bridge facility were used to (i) partially finance the NEG acquisition, (ii) refinance our existing senior secured revolving credit facility and NEG’s existing credit facility, and (iii) pay fees and expenses related to the NEG acquisition and our existing credit facility. The obligations under the senior bridge facility are general unsecured obligations of our company and certain of our subsidiaries. The senior bridge facility was paid in full in March 2007 with the proceeds from the term loan and the common stock issuance described above.

The senior bridge facility contained customary restrictive covenants pertaining to management and operations of our company and our subsidiaries similar to those contained in the senior credit facility. Generally, amounts outstanding under the senior bridge facility bore interest at a base rate equal to the greater of (i) three-month LIBOR plus an applicable margin initially equal to 4.50% per annum or (ii) 9.0% per annum plus an applicable margin initially equal to 0% per annum; provided that the applicable margin for the senior bridge facility will increase by 0.5% at the end of the period that is six months after the closing date for the senior bridge facility and an additional 0.25% per quarter thereafter for as long as the senior bridge facility, Rollover Loans or Exchange Notes remain outstanding subject to a cap of 11% (subject to certain additional interest rate increases in certain circumstances). In addition, the senior bridge facility includes a covenant that obligated us to use commercially reasonable efforts to refinance the senior bridge facility as promptly as practicable.

Prior Senior Credit Facility.  Prior to its termination on November 21, 2006, we had a $130 million revolving credit facility in place with Bank of America, N.A. (the “prior senior credit facility”). The prior senior credit facility included a $20 million sub-limit for letters of credit. The prior senior credit facility was replaced by the senior credit facility as of November 21, 2006. Advances under the prior senior credit facility were subject to a borrowing base based on our proved developed producing reserves, our proved developed non-producing reserves and proved undeveloped reserves. It is subject to re-determination semi-annually at the sole discretion of the lender based on the reports of independent petroleum engineers in accordance with normal and customary natural gas and oil lending practices.

The prior senior credit facility bore interest at our option at either LIBOR plus 2.15% or the Bank of America, N.A. prime rate. We paid a commitment fee on the unused portion of the borrowing base amount equal to 1/8% per annum. The prior senior credit facility was collateralized by natural gas and oil properties representing at least 80% of the present discounted value of our proved reserves and by a negative pledge on any of our non-mortgaged properties.

Convertible Preferred Stock

We have 2,184,286 shares of convertible preferred stock issued and outstanding. Each holder of our convertible preferred stock is entitled to quarterly cash dividends at the annual rate of 7.75% of the accreted value of its convertible preferred stock. At our option, we may choose to increase the accreted value of the convertible preferred stock in lieu of paying any quarterly cash dividend. The accreted value is $210 per share as of March 31, 2007. Each share of convertible preferred stock is currently convertible into 10.2 shares of common stock at the option of the holder, subject to certain anti-dilution adjustments. Assuming the satisfaction of certain conditions set forth in the certificate of designations, we intend to convert all of the outstanding shares of convertible preferred stock to common stock 180 days following the completion of the offering. In connection with this conversion, we must make a cash payment to each holder of convertible preferred stock. Please see “Description of Capital Stock — Convertible Preferred Stock.”

54

Contractual Obligations

A summary of our contractual obligations as of March 31, 2007 is provided in the following table:

	Remainder		Payments Due by Year
	of 2007		2008		2009		2010		2011		After 2011		Total
	(In thousands)
Long-term debt	$	21,756	$	16,285	$	17,330	$	12,286	$	6,597	$	1,000,000	$	1,074,254
Interest on term loan(1)		65,606		87,475		87,475		87,475		87,475		252,881		668,387
Firm transportation(2)		712		949		949		949		949		4,592		9,100
Operating leases		1,635		2,109		1,337		235		235		384		5,935
Third party drilling rig commitments(3)		15,125		10,110		—		—		—		—		25,235
Dispute settlement payments(4)		—		5,000		5,000		5,000		5,000		—		20,000
Asset retirement obligations		288		58		101		95		4,045		41,854		46,441
Total	$	105,122	$	121,986	$	112,192	$	106,040	$	104,301	$	1,299,711	$	1,849,352

(1)	Based on interest rates as of March 31, 2007.
(2)	We entered into a firm transportation agreement with Questar Pipeline Company giving us guaranteed capacity on their pipeline for 10 MmBtu per day at an estimated charge of $0.9 million per year, with a total commitment of $9.1 million. In December 2006 we assigned our rights and obligations to a third party.
(3)	Drilling contracts with third party drilling rig operators at specified day rates.
(4)	In January 2007, we settled a royalty interest dispute and agreed to pay five installments of $5 million each, plus interest commencing April 1, 2007. The April 1, 2007 payment was made on March 30, 2007. The remaining installments are due on July 1 of each year commencing July 1, 2008.

In connection with the NEG acquisition, we acquired restricted deposits aggregating $31.9 million. The restricted deposits represent bank trust and escrow accounts required to be set up by surety bond underwriters and certain former owners of a subsidiary on NEG’s offshore properties. In accordance with requirements of MMS, the NEG subsidiary was required to put in place surety bonds or escrow agreements to provide satisfaction of its eventual responsibility to plug and abandon wells and remove structures when certain offshore fields are no longer in use. As part of the agreement with the surety bond underwriter or the former owners of the particular fields, bank trust and escrow accounts were set up and funded based on the terms of the escrow agreements. Certain amounts are required to be paid upon receipt of proceeds from production.

In connection with one of the escrow accounts, we are required to make quarterly deposits to the escrow accounts of $0.8 million. Additionally, for some of the offshore properties, we will be required to deposit additional funds in an escrow account, representing the difference between the required escrow deposit under the surety bond and actual escrow deposit balance at various points in time in the future. Aggregate payments to the escrow accounts are as estimated follows (in thousands):

Remainder of 2007	$	5,300
2008		3,200
2009		3,200
2010		5,000
Thereafter		4,000
	$	20,700

55

Liquidated Damages Under Registration Rights Agreements

December 2005 Private Placement.  In connection with our private placement of common stock in December 2005, we entered into a registration rights agreement that requires us to use our commercially reasonable efforts to maintain effectiveness of this registration statement or other shelf registration statements covering the shares sold in such private placement until December 31, 2009.

Generally, if we fail to maintain an effective registration statement, we will be subject to liquidated damages payments equal to a percentage of the gross proceeds of the offering for each day that we are not in compliance. The payments increase every 90 days, up to a maximum as specified in the registration rights agreement as follows:

Non-Compliance Period
1-90 Days	91-180 Days	181-270 Days	270+ Days
$1.2 million plus	1.0% per annum	1.5% per annum	2.0% per annum
0.5% per annum ($3,300 per day)	$(6,600 per day)	$(9,900 per day)	$(13,200 per day)

November 2006 Private Placement.  In connection with our private placement of convertible preferred stock and common stock units, we entered into a registration rights agreement that requires us to use our commercially reasonable efforts to maintain effectiveness of this registration statement or other shelf registration statements covering the shares sold in such private placement. In general, if we fail to maintain effectiveness, we will be subject to liquidated damage payments equal to a percentage of the purchase price of the securities sold in the November 2006 private placement.

During the first nine months following any failure to meet the deadlines described above, the payments will be equal to a percentage of the purchase price of $550 million on a per month basis until the default is cured. During the first month following a default, the payment shall be equal to 0.25% of the purchase price and shall increase by 0.25% per month to a maximum of 0.75%. If the default has not been cured within eight months, the payments will become equal to 2.0% per annum paid on a monthly basis until such default is cured.

March 2007 Private Placement.  In connection with our private placement of common stock in March 2007, we entered into a registration rights agreement that requires us to use our commercially reasonable efforts to maintain effectiveness of this registration statement or other shelf registration statements covering the shares sold in such private placement. Generally, if we fail to maintain an effective registration statement, we will be subject to liquidated damages payments equal to a percentage of the gross proceeds of the offering for each day that we are not in compliance. The payments increase every 90 days, up to a maximum as specified in the registration rights agreement as follows:

Non-Compliance Period
1-90 Days	91-180 Days	181-270 Days	270+ Days
$1.6 million plus	1.0% per annum	1.5% per annum	2.0% per annum
0.5% per annum ($4,400 per day)	$(8,800 per day)	$(13,200 per day)	$(17,600 per day)

56

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make assumptions and prepare estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and revenues and expenses. We base our estimates on historical experience and various other assumptions that we believe are reasonable; however, actual results may differ. See “Consolidated Financial Statements, Note 1 — Summary of Organization and Significant Accounting Policies” for a discussion of our significant accounting policies.

Proved Reserves.  Over 99% of our reserves are estimated on an annual basis by independent petroleum engineers. Our estimates of proved reserves are based on the quantities of natural gas and oil which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. However, there are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future revenues, rates of production and timing of development expenditures, including many factors beyond our control. The estimation process is very complex and relies on assumptions and subjective interpretations of available geologic, geophysical, engineering and production data, and the accuracy of reserve estimates is a function of the quality and quantity of available data, engineering and geological interpretation and judgment. In addition, as a result of volatility and changing market conditions, commodity prices and future development costs will change from period to period, causing estimates of proved reserves to change, as well as causing estimates of future net revenues to change. For the years ended December 31, 2006 and 2005, we revised our proved reserves upward from prior years’ reports by approximately 26.6 Bcfe and 12.3 Bcfe and revised our proved reserves downward 18.5 Bcfe in 2004 due to proved undeveloped reserves that were determined to contain greater (or lesser) quantities than originally estimated, due to market prices at the end of the applicable period or from production performance indicating more (or less) reserves in place or larger (or smaller) reservoir size than initially estimated. Estimates of proved reserves are key components of our most significant financial estimates involving our rate for recording depreciation, depletion and amortization and our full-cost ceiling limitation. These revisions may be material and could materially affect our future depletion, depreciation and amortization expenses.

Method of accounting for natural gas and oil properties.  Our natural gas and oil properties are accounted for using the full-cost method of accounting. All direct costs and certain indirect costs associated with the acquisition, exploration and development of natural gas and oil properties are capitalized. Exploration and development costs include dry hole costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding natural gas and oil reserves. Amortization of natural gas and oil properties is provided using the unit-of-production method based on estimated proved natural gas and oil reserves. No gains or losses are recognized upon the sale or disposition of natural gas and oil properties unless the sale or disposition represents a significant quantity of natural gas and oil reserves, which would have a significant impact on the depreciation, depletion and amortization rate.

In accordance with full-cost accounting rules, capitalized cost are subject to a limitation. The capitalized cost of natural gas and oil properties, net of accumulated depreciation, depletion, and amortization, may not exceed the estimated future net cash flows from proved natural gas and oil reserves discounted at 10%, plus the lower of cost or fair market value of unproved properties as adjusted for related tax effects. The full-cost ceiling limitation is calculated using natural gas and oil prices in effect as of the balance sheet date and adjusted for “basis” or location differential, held constant over the life of the reserves. If capitalized costs exceed this limit (the “ceiling limitation”), the excess must be charged to expense. Once incurred, a write-down is not reversible at a later date. We did not have any adjustment to earnings due to the ceiling limitation for the periods presented herein.

Unevaluated Properties.  The balance of unevaluated properties is comprised of capital costs incurred for undeveloped acreage, wells and production facilities in progress and wells pending determination, together with capitalized interest costs for these projects. These costs are initially excluded from our amortization base until the outcome of the project has been determined, or generally, until it is known whether proved reserves

57

will or will not be assigned to the property. We assess all items classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. We assess our properties on an individual basis or as a group if properties are individually insignificant. Our assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full-cost pool and are then subject to amortization. We estimate that substantially all of our costs classified as unproved as of the balance sheet date will be evaluated and transferred within a four-year period.

Asset Retirement Obligations.  Asset retirement obligations represent the estimated future abandonment costs of tangible long-lived assets such as platforms, wells, service assets, pipelines and other facilities. We estimate the fair value of an asset’s retirement obligation in the period in which the liability is incurred, if a reasonable estimate can be made. We employ a present value technique to estimate the fair value of an asset retirement obligation, which reflects certain assumptions, including an inflation rate, our credit-adjusted, risk-free interest rate, the estimated settlement date of the liability and the estimated current cost to settle the liability based on third party quotes and current actual costs. Changes in timing or to the original estimate of cash flows will result in changes to the carrying amount of the liability.

Revenue Recognition and Gas Balancing.  Oil and natural gas revenues are recorded when title passes to the customer, net of royalties, discounts and allowances, as applicable. We account for oil and natural gas production imbalances using the sales method, whereby we recognize revenue on all oil and natural gas sold to our customers notwithstanding the fact that its ownership may be less than 100% of the oil and natural gas sold. Liabilities are recorded for imbalances greater than our proportionate share of remaining estimated oil and natural gas reserves.

We recognize revenues and expenses generated from “daywork” drilling contracts as the services are performed, since we do not bear the risk of completion of the well. Under “footage” and “turnkey” contracts, we bear the risk of completion of the well; therefore, revenues and expenses are recognized when the well is substantially completed. Under this method, substantial completion is determined when the well bore reaches the negotiated depth as stated in the contract. The duration of all three types of contracts range typically from 20 to 90 days. The entire amount of a loss, if any, is recorded when the loss is determinable. The costs of uncompleted drilling contracts include expenses incurred to date on “footage” or “turnkey” contracts, which are still in process at the end of the period.

We may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees received and costs incurred to mobilize a rig from one market to another are recognized over the term of the related drilling contract. The contract terms are typically from 20 to 90 days.

Revenues of our midstream services segment are derived from providing supply, transportation, balancing and sales services for producers and wholesale customers on our natural gas pipelines, as well as other interconnected pipeline systems. Midstream services are primarily undertaken to realize incremental margins on gas purchased at the wellhead, and provide value-added services to customers. In general, natural gas purchased and sold by our midstream gas business is priced at a published daily or monthly index price. Sales to wholesale customers typically incorporate a premium for managing their transmission and balancing requirements. Revenues are recognized upon delivery of natural gas to customers and/or when services are rendered, pricing is determinable and collectibility is reasonably assured.

Revenue from sales of CO₂ is recognized when the product is delivered to the customer. We recognize service fees related to the transportation of CO₂ as revenue when the related service is provided.

Property, Plant and Equipment, Net.  Other capitalized costs, including drilling equipment, natural gas gathering and processing equipment, transportation equipment and other property and equipment are carried at cost. Renewals and improvements are capitalized while repairs and maintenance are expensed. Depreciation of drilling equipment is recorded using the straight-line method based on estimated useful lives. Depreciation of

58

other property and equipment is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 39 years.

Realization of the carrying value of property and equipment is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are determined to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset including disposal value if any, is less than the carrying amount of the asset. If any asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. An estimate of fair value is based on the best information available, including prices for similar assets. Changes in such estimates could cause us to reduce the carrying value of property and equipment.

When property and equipment components are disposed of, the cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is generally reflected in operations.

Income Taxes.  Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns.

Derivative Financial Instruments.  To manage risks related to increases in interest rates and changes in natural gas and oil prices, we enter into interest rate swaps and natural gas and oil futures contracts.

We recognize all of our derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based on the exposure being hedged, as either a fair value hedge or a cash flow hedge. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. None of our derivatives were designated as hedging instruments during 2007, 2006 and 2005.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S. generally accepted accounting principles (“GAAP”) to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (“CON”) No. 7 which discusses present value techniques in measuring fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this Statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on the financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits an entity to choose to measure certain financial assets and liabilities at fair value. SFAS No. 159 also revises provisions of SFAS No. 115 that apply to available-for-sale and trading securities. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on the financial statements.

59

Effects of Inflation

The effect of inflation in the natural gas and oil industry is primarily driven by the prices for natural gas and oil. Increased commodity prices increase demand for contract drilling rigs and services, which supports higher drilling rig activity. This in turn affects the overall demand for our drilling rigs and the dayrates we can obtain for our contract drilling services.

Over the last three years, natural gas and oil prices have been more volatile, and during periods of higher utilization we have experienced increases in labor cost and the cost of services to support our drilling rigs.

During this same period, when commodity prices declined, labor rates did not return to the levels that existed before the increases. If natural gas prices increase substantially for a long period, shortages in support equipment (such as drill pipe, third-party services and qualified labor) may result in additional increases in our material and labor costs. These conditions may limit our ability to realize improvements in operating profits. How inflation will affect us in the future will depend on additional increases, if any, realized in our drilling rig rates and the prices we receive for our natural gas and oil.

Quantitative and Qualitative Disclosures About Market Risk

The discussion in this section provides information about the financial instruments we use to manage commodity price and interest rate volatility. All contracts are financial contracts, which are settled in cash and do not require the delivery of a physical quantity to satisfy settlement.

Commodity Price Risk

Our most significant market risk is the prices we receive for our gas and oil production, which can be highly volatile. In light of this historical volatility, we periodically have entered into, and expect in the future to enter into, derivative arrangements aimed at reducing the variability of gas and oil prices we receive for our production. We will from time to time enter into commodities pricing derivative instruments for a portion of our anticipated production volumes depending upon our management’s view of opportunities under the then current market conditions. We do not intend to enter into derivative instruments that would exceed our expected production volumes for the period covered by the derivative arrangement. Our current credit agreement limits our ability to enter into derivatives transactions to 85% of expected production volumes from estimated proved reserves. Future credit agreements could require a minimum level of commodity price hedging.

We use, or may use, a variety of derivative instruments including collars and fixed-price swaps. These transactions generally require no cash payment upfront and are settled on a monthly basis. While this strategy may result in our having lower revenues than we would have if we were not party to these derivative instruments in times of high natural gas prices, we believe that the stabilization of prices and protection afforded us by providing a revenue floor for our production is very beneficial.

For natural gas derivatives, transactions are settled based upon the New York Mercantile Exchange price of natural gas at the Waha hub, a West Texas gas marketing and delivery center, on the final trading day of the month. Settlement for natural gas derivative contracts occurs in the month following the production month. We currently do not enter into derivative arrangements with respect to our oil production, but we may do so in the future if our oil production increases as a result of the initiation of our CO₂ tertiary oil recovery operations.

Generally, our trade counterparties are affiliates of the financial institution that is a party to our credit agreement, although we do have transactions with counterparties that are not affiliated with this institution.

While we believe that the gas and oil price derivative arrangements we enter into are important to our program to manage price variability for our production, we have not designated any of our derivative contracts as hedges for accounting purposes. We record all derivative contracts on the balance sheet at fair value, which will be significantly affected by changes in gas and oil prices. We establish fair value of our derivative contracts by market price quotations of the derivative contract or, if not available, market price quotations of

60

derivative contracts with similar terms and characteristics. When market quotations are not available, we will estimate the fair value of derivative contracts using option pricing models that management believes represent its best estimate. Changes in fair values of our derivative contracts that are not designated as hedges for accounting purposes are recognized as unrealized gains and losses in current period earnings. As a result, our current period earnings may be significantly affected by changes in fair value of our commodities derivative arrangements. The gain or loss recognized in earnings, included in operating costs and expenses, for the three months ended March 31, 2006 and March 31, 2007, was a gain of $2.2 million and a loss of $23.2 million, respectively.

At March 31, 2007, our open commodity derivative contracts consisted of the following:

			Weighted Average
Period	Commodity	Notional	Fixed Price
Collars:
April 2007 - December 2007	Crude Oil	60,000 Bbls		$50.00 - $84.50
January 2008 - June 2008	Crude Oil	42,000 Bbls		$50.00 - $83.35
July 2008 - December 2008	Crude Oil	54,000 Bbls		$50.00 - $82.60
Fixed price swap:
April 2007 - September 2007	Natural gas	3,660,000 MmBtu		$8.05
April 2007 - September 2007	Natural gas	10,980,000 MmBtu		$7.87
April 2007 - October 2007	Natural gas	4,280,000 MmBtu		$7.02
April 2007 - October 2007	Natural gas	4,280,000 MmBtu		$7.50
May 2007 - September 2007	Natural gas	3,060,000 MmBtu		$7.75
November 2007 - June 2008	Natural gas	4,860,000 MmBtu		$8.05
November 2007 - June 2008	Natural gas	9,720,000 MmBtu		$8.20
January 2008 - June 2008	Natural gas	3,640,000 MmBtu		$7.987
January 2008 - June 2008	Natural gas	3,640,000 MmBtu		$7.99
Waha basis swap:
January 2007 - December 2007	Natural gas	14,600,000 MmBtu		$(0.70	)
January 2007 - December 2007	Natural gas	7,300,000 MmBtu		$(0.5925	)
April 2007 - September 2007	Natural gas	3,660,000 MmBtu		$(0.470	)
April 2007 - October 2007	Natural gas	4,280,000 MmBtu		$(0.530	)
May 2007 - September 2007	Natural gas	3,060,000 MmBtu		$(0.65	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu		$(0.585	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu		$(0.65	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu		$(0.635	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu		$(0.59	)

These derivative instruments have not been designated as hedges.

61

Interest Rate Risk

We are subject to interest rate risk on our long-term fixed and variable interest rate borrowings. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us (i) to changes in market interest rates reflected in the fair value of the debt and (ii) to the risk that we may need to refinance maturing debt with new debt at a higher rate. Variable rate debt, where the interest rate fluctuates, exposes us to short-term changes in market interest rates as our interest obligations on these instruments are periodically redetermined based on prevailing market interest rates, primarily LIBOR and federal funds rate.

The indebtedness evidenced by our other notes payable related to drilling rig fleet and related oil field services equipment, Sagebrush, insurance financing, and other equipment and vehicles and a portion of our term loan is a fixed-rate debt, which exposes us to cash-flow risk from market interest rate changes on these notes. The fair value of that debt will vary as interest rates change.

Borrowings under our senior credit facility and a portion of our term loan expose us to certain market risks. We use sensitivity analysis to determine the impact that market risk exposures may have on our variable interest rate borrowings. At March 31, 2007, we had outstanding borrowings under our senior credit facility. Based on the approximately $350.0 million outstanding balance of the variable rate portion of our term loan at March 31, 2007, a one percent change in the applicable rate, with all other variables held constant, would result in a change in our interest expense of $0.1 million for the three months ended March 31, 2007.

In addition to commodity price derivative arrangements, we may enter into derivative transactions to fix the interest we pay on a portion of the money we borrow under our credit agreements. At March 31, 2007, we are not party to any interest rate swap instruments. Future interest rate derivative instruments, if any, are expected to be with affiliates of the financial institution that are party to our credit agreements.

62

BUSINESS

Overview

SandRidge is a rapidly growing independent natural gas and oil company concentrating in exploration, development and production activities. We are focused on expanding our continuing exploration and exploitation of our significant holdings in an area of West Texas we refer to as the West Texas Overthrust, or “WTO,” a natural gas prone geological region where we have operated since 1986 that includes the Piñon Field and our South Sabino and Big Canyon prospects. We intend to add to our existing reserve and production base in this area by increasing our development drilling activities in the Piñon Field and our exploration program in other prospects that we have identified. As a result of our 2006 acquisitions, including the NEG acquisition, we have doubled our net acreage position in the WTO since January 2006. We believe that we are the largest operator and producer in the WTO and have assembled the largest position in the area. We also operate significant interests in the Cotton Valley Trend in East Texas, the Gulf Coast area, the Gulf of Mexico and the Piceance Basin of Colorado.

We have assembled an extensive natural gas and oil property base in which we have identified over 3,800 potential drilling locations including over 2,600 in the WTO. As of December 31, 2006, our proved reserves were 1,001.8 Bcfe, of which 84.9% were natural gas and 99% of which were based on estimates prepared by independent petroleum engineers. We had 1,281 gross (916 net) producing wells, substantially all of which we operate. As of March 31, 2007, we had interests in over 1,093,852 gross (541,787 net) natural gas and oil leased acres. We had 30 rigs drilling in the WTO as of June 30, 2007.

We also operate businesses that are complementary to our primary exploration, development and production activities, which provides us with operational flexibility and an advantageous cost structure. We own a fleet of 32 drilling rigs, five of which are currently being retrofitted. In addition, we are a party to a joint venture that owns an additional twelve rigs, eleven of which are currently operating. We own related oil field services businesses, gas gathering and treating facilities and a marketing business. We capture and supply CO₂ to support our tertiary oil recovery projects undertaken by us or third-parties. We use this CO₂ in our own tertiary oil recovery projects and market it to third-parties for use in tertiary oil recovery projects. These assets are primarily located in our primary operating area in West Texas.

We expanded our management team significantly in 2006. Tom L. Ward, the co-founder and former President and Chief Operating Officer of Chesapeake Energy Corporation (“Chesapeake”), purchased a significant ownership interest in June 2006 and joined us as Chief Executive Officer and Chairman of the Board. During Mr. Ward’s 17 year tenure at Chesapeake, Chesapeake became one of the most active onshore drillers in the United States. From 1998 to 2005, Chesapeake drilled over 6,500 wells. Since Mr. Ward joined us, we have added eight new executive officers, substantially all of which have experience at public exploration and production companies. In July 2006, we relocated our corporate headquarters to Oklahoma City to take advantage of the broader market of experienced energy professionals. We have also added key professionals in exploration, operations, land, accounting and finance.

Our estimated capital expenditures for 2007 of approximately $850 million include $665 million in exploration and development (including land and seismic acquisitions and our tertiary recovery operations), $85 million in drilling and oil field services and $100 million in midstream gas operations. Approximately $365 million of our capital expenditures are to be spent in our Piñon Field development and our exploratory projects in the WTO. Under this capital budget, we plan to drill approximately 309 gross (266 net) wells in 2007, including approximately 215 gross (184 net) wells in the WTO. The actual number of wells drilled in our drilling program and the amount of our 2007 capital expenditures will be dependent upon market conditions, availability of capital and drilling and production results.

The NEG Acquisition

On November 21, 2006, we acquired all of the outstanding membership interests of NEG from American Real Estate Partners, L.P., or “AREP,” for approximately $990.4 million in cash, the assumption of $300 million in debt, the receipt of cash of $21.1 million, and the issuance of 12,842,000 shares of our common stock

63

(valued at approximately $231.2 million). NEG owned core assets in the Val Verde and Permian Basins of West Texas, including overlapping or contiguous interests in the properties that we own in the WTO. Based on reserve reports prepared as of June 30, 2006 by DeGolyer & MacNaughton and Netherland, Sewell & Associates, Inc., the estimated proved reserves of NEG were 519.7 Bcfe.

Our Strategy

Our primary objective is to achieve long-term growth and maximize shareholder value over multiple business cycles by pursuing the following strategies:

•  Grow Through Exploration and Aggressive Drilling and Development of Existing Acreage.  We expect to generate long-term reserve and production growth by exploring and aggressively drilling and developing our large acreage position. Our primary exploration and development focus will be in the WTO, where we have identified over 2,600 potential drilling locations and had 30 rigs operating as of June 30, 2007. We have also identified 176 potential drilling locations in the Cotton Valley Trend in East Texas and plan to have four rigs running in this region through the end of 2007.

•  Apply Technological Improvements to Our Exploration and Development Program.  We intend to enhance our drilling success rate and completion efficiency with improved 3-D seismic acquisition and interpretation technology and applying advanced drilling, completion and production methods in the exploration and development of our large acreage position in the WTO. We believe that this area is under-explored with modern technology and that the application of this technology has the potential to result in a higher overall drilling success rate and higher initial production rates and ultimate well recoveries, thereby improving overall economics.

•  Seek Opportunistic Acquisitions in Our Core Geographic Area.  Since January 2006, through acquisitions and leasing activities, we have doubled our net acreage position in the WTO. We intend to continue to seek other opportunities to optimize and enhance our exploratory acreage position in the WTO and other strategic areas.

•  Reduce Costs, Enhance Returns and Maintain Operating Flexibility by Controlling Drilling Rigs and Midstream Assets.  Our rig fleet enables us to aggressively develop our own acreage while maintaining the flexibility of a third-party contract drilling business. We plan to capitalize on opportunities to utilize our rigs primarily in the WTO, where we had 30 of our rigs drilling our own wells as of June 30, 2007. By controlling our fleet of drilling rigs and gathering and treating assets, we believe we will be able to better control overall costs and maintain a high degree of operational flexibility.

•  Capture and Utilize CO₂ for Tertiary Oil Recovery.  We intend to capitalize on our access to CO₂ reserves and CO₂ flooding expertise to pursue enhanced oil recovery in mature oil fields in West Texas. By utilizing this CO₂ in our own tertiary recovery projects, we expect to recover additional oil that would have otherwise been abandoned following traditional waterfloods.

Competitive Strengths

We have a number of strengths that we believe will help us successfully execute our strategies:

•  Large Asset Base with Substantial Drilling Inventory.  Our producing properties are characterized by long-lived predominantly natural gas reserves with established production profiles. Our estimated proved reserves of 1,001.8 Bcfe as of December 31, 2006 had a proved reserves to production ratio of approximately 17 years. Our core area of operations in the WTO has expanded to 428,870 gross (287,090 net) acres as of March 31, 2007. We have identified over 2,600 potential drilling locations in the WTO and believe that we will be able to expand the number of drilling locations in the remainder of the WTO through exploratory drilling and our use of 3-D seismic technology.

•  Geographically Concentrated Exploration and Development Operations.  We intend to focus our drilling and development operations in the near term on the WTO to fully exploit this unique geological area. The WTO was created by the collision of the ancestral North and South American continents,

64

which fractured and thrust the reservoir rock to come to rest in repeating layers. We believe the geological environment of the WTO and the height of the prospective pay zones create opportunities for significant conventional accumulations of natural gas and oil. To a lesser extent, we will also focus on the highly prolific Cotton Valley Trend in East Texas. This geographic concentration allows us to establish economies of scale in both drilling and production operations to achieve lower production costs and generate increased cash flows from our producing properties. We believe our concentrated acreage position will enable us to organically grow our reserves and production for the next several years.

•  Experienced Management Team Focused on Delivering Long-term Shareholder Value.  During 2006, we significantly expanded our management team when Tom L. Ward, co-founder and former president of Chesapeake, purchased a significant interest in us and became our Chairman and Chief Executive Officer. We also hired a new chief financial officer and three additional executive vice presidents. Our nine executive officers and 27 senior executives average over 23 years of experience working in or servicing the natural gas and oil industry. Our management team, board of directors and employees own     % of our capital stock on a fully-diluted basis as of          , 2007, which we believe aligns their objectives with those of our shareholders.

•  High Degree of Operational Control.  We operate over 95% of production in the WTO, East Texas and the Gulf Coast area, which permits us to manage our operating costs and better control capital expenditures and the timing of development and exploitation activities.

•  Large Modern Fleet of Drilling Rigs.  We own a fleet of 32 drilling rigs, five of which are currently being retrofitted. In addition, we are a party to a joint venture that owns an additional twelve rigs, eleven of which are currently operating. By controlling a large, modern and more efficient drilling fleet, we can develop our existing reserves and explore for new reserves on a more economic basis.

Our Businesses and Primary Operations

Exploration and Production

We explore for, develop and produce natural gas and oil reserves, with a focus on increasing our reserves and production in the WTO. We operate substantially all of our wells in the WTO. We also have significant operated leasehold positions in the Cotton Valley Trend in East Texas and the Gulf Coast area, as well as other non-core operating areas.

The following table identifies certain information concerning our exploration and production business as of December 31, 2006 (unless otherwise noted):

	Estimated						Average									Number of
	Net						Daily									Identified
	Proved				Daily		Production		Proved							Potential
	Reserves		PV-10 (in		Production		(May 2007)		Reserves/			Gross		Net		Drilling
	(Bcfe)		millions)(1)		(Mmcfe/d)		(Mmcfe/d)		Production(2)			Acreage(3)		Acreage(3)		Locations
Area
WTO		593.9	$	806.9		56.2		64.7		25.1	(4)		428,870		287,090		2,651
East Texas		119.8		140.4		22.7		24.5		13.4			52,933		31,900		176
Gulf Coast		99.6		294.4		43.8		37.0		7.4			55,058		35,572		35
Other:
Gulf of Mexico		55.1		196.5		—		19.8		7.6			73,614		36,770		42
Other West Texas		21.3		58.7		6.8		5.6		10.4			22,288		20,040		68
PetroSource		66.5		164.2		1.1		1.3		137.4			9,064		8,195		47
Piceance Basin		11.3		7.2		0.4		1.5		20.6			41,454		16,193		828
Other		34.3		66.0		7.3		7.3		12.9			410,571		106,027		10
Total		1,001.8	$	1,734.3		138.3		161.7		17.0			1,093,852		541,787		3,857

65

(1)	PV-10 is a non-GAAP financial measure and generally differs from Standardized Measure of Discounted Net Cash Flows, or Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. For a reconciliation of PV-10 to Standardized Measure, see “Summary Historical Operating and Reserve Data.” Our Standardized Measure was $1,440.2 million at December 31, 2006.
(2)	Represents the ratio of estimated proved reserves to production in years based on the average daily production for May 2007.
(3)	As of March 31, 2007.
(4)	Our proved reserves to production ratio in the WTO is significantly higher than our other areas of operation because of the high volume of our proved undeveloped reserves in this area. We expect this ratio to decrease as our production in the WTO increases.

West Texas Overthrust (WTO)

We have drilled and developed natural gas in the WTO since 1986. This area is located in Pecos and Terrell Counties in West Texas and is associated with the Marathon-Ouachita fold and thrust belt that extends east-northeast across the United States into the Appalachian Mountain Region. The WTO was created by the collision of the ancestral North American and South American continents resulting in source rock and reservoir rock, including potential hydrocarbon traps, becoming thrusted upon one another in multiple layers (imbricate stacking) along the leading edge of the WTO. The collision and thrusting resulted in the reservoir rock becoming highly fractured, increasing the likelihood of conventional natural gas and oil accumulations in the reservoir rock and creating a unique geological setting in North America.

The primary reservoir rocks in the WTO range in depth from 2,000 to 10,000 feet and range in geologic age from the Permian to the Devonian. The imbricate stacking of these conventional gas-prone reservoirs provides for multi-pay exploration and development opportunities. Despite this, the WTO has historically been largely under-explored due primarily to the remoteness and lack of infrastructure in the region, as well as historical limitations of conventional subsurface geological and geophysical methods. However, several fields including our prolific Piñon Field have been discovered. These fields have produced approximately 200 Bcfe from less than 300 wells through December 31, 2006. We believe our access to and control of the necessary infrastructure combined with application of modern seismic techniques will allow us to identify further exploration and development opportunities in the WTO.

In May 2007, we began the first phase of 3-D seismic data acquisition in the WTO. This is the first of six phases planned over the next three years to acquire 1,300 square miles of modern 3-D seismic data in the WTO. We believe this enhanced 3-D seismic program may identify structural details of potential reservoirs, thus lowering risk of exploratory drilling and improving completion efficiency. The first two phases of the seismic program will cover 365 square miles, including the Piñon Field, and should both be completed by the end of 2007. We believe the data acquired in the Piñon Field will better define the limits of the field and potentially identify additional infill drilling locations beyond the more than 2,600 potential drilling locations we have already identified.

We have aggressively acquired leasehold acreage in the WTO, doubling our position since January 2006. As of March 31, 2007 we owned 428,870 gross (287,090 net) acres in the WTO, substantially all of which are along the leading edge of the WTO.

Piñon Field.  The Piñon Field, located in Pecos County, is our most significant producing field, and accounts for 59% of our proved reserve base as of December 31, 2006 and approximately 69% of our 2007 exploration and development budget. The Piñon Field lies along the leading edge of the WTO. The primary reservoirs are the Wolfcamp sands (average depth of 2,500 to 3,500 feet), the Tesnus sands (average depth of 3,700 to 4,750 feet), the Upper Caballos chert (average depth of 5,500 feet), and the Lower Caballos chert (average depth of 7,300 to 10,000 feet).

66

As of December 31, 2006, our estimated proved natural gas and oil reserves in the Piñon Field were 593.9 Bcfe, 72% of which were proved undeveloped reserves. This field has produced approximately 190 Bcfe through March 31, 2007 and currently produces in excess of 110 gross Mmcfe per day.

Our interests in the Piñon Field include 283 producing wells, as of December 31, 2006. We had an 81% working interest in the producing area of Piñon Field as of December 31, 2006 and were running 30 drilling rigs as of June 30, 2007. We estimate that we will drill approximately 213 wells in the field during 2007, the majority of which will be development wells. As of December 31, 2006, we have identified over 2,600 potential well locations in the Piñon Field, including 400 proved undeveloped drilling locations.

West Texas Overthrust Prospects.  Through our exploratory drilling program, we have identified two prospect areas in the WTO, the South Sabino Prospect and the Big Canyon Prospect areas on which we will drill exploratory wells in 2007:

•  South Sabino Prospect Area.  The South Sabino prospect area is located approximately twelve miles east of the Piñon Field. We have drilled two wells which have encountered the Caballos chert and hydrocarbons in zones less than 7,000 feet deep. Those wells were selected using 2-D seismic and limited subsurface well control. The wells appear to be on trend with the Piñon Field and are structurally higher against one of several thrust faults that make up the WTO. We began the first phase of our 3-D seismic program in this area in 2007 and may drill additional wells in late 2007 following the integration of this data and new subsurface well control.

•  Big Canyon Prospect Area.  Located approximately 20 miles east of the Piñon Field along the WTO, this prospect area represents potential opportunities for future development. The key well, Big Canyon Ranch 106-1, was drilled by a third party to a depth of 24,075 feet and was abandoned in December 1993 after testing gas from the Tesnus sands and Caballos chert. We plan to conduct a 3-D seismic survey over the Big Canyon prospect area as part of Phase II of our 3-D seismic program in 2007. Exploratory wells may be planned in late 2007 and early 2008 to further evaluate both the Tesnus and the Caballos in a location structurally updip to the Big Canyon Ranch 106-1 well.

The following table provides information concerning our primary development areas in the WTO:

															Projected
	Estimated		Estimated								2007 Capital				Rigs
	Net PUD		Gross PUD		Gross PUD		Total Gross		Gross 2007		Expenditures		2006 Year		Working
	Reserves		Reserves		Drilling		Drilling		Drilling		Budget		End Rigs		at 2Q
	(Bcfe)(1)		(Bcfe)(1)		Locations(1)		Locations(1)		Locations		(in millions)		Working		2007 End
Area
Piñon Field		425.2		674.5		400		2,649		213	$	356		8		30
South Sabino		—		—		—		2		2		9		1		—
Big Canyon		—		—		—		—		—		—		—		—
Total		425.2		674.5		400		2,651		215	$	365		9		30

(1) As of December 31, 2006.

East Texas — Cotton Valley Trend

We own significant natural gas and oil interests in the natural gas bearing Cotton Valley Trend in East Texas, which covers parts of East Texas and Northern Louisiana. We held interests in 52,933 gross (31,900 net) acres in East Texas as of March 31, 2007. At December 31, 2006, our estimated net proved reserves in East Texas were 119.8 Bcfe, with net production of approximately 24.5 Mmcfe per day in the month of May 2007. We intend to target the tight sand reservoirs of the Cotton Valley, Pettit and Travis Peak formations at depths of 6,500 to 10,500 feet. These sands are typically distributed over a large area, which has led to a near 100% success rate in this area. Due to the tight nature of the reservoirs, significant hydraulic fracture stimulation is required to obtain commercial production rates and efficiently drain the reservoir. Production in this area is generally characterized as long-lived, with wells having high initial production and decline rates

67

that stabilize at lower levels after several years. Moreover, area operators continue to focus on infill development drilling as many areas have been down spaced to 80 acres per well, with some areas down spaced to as little as 40 acres per well. Recently, operators have begun drilling horizontal wells and we are monitoring their success. Thirteen wells have been drilled in the first quarter of 2007. We plan to have four rigs running in this region for the remainder of 2007 with an additional 40 wells planned.

Gulf Coast

We own natural gas and oil interests in 55,058 gross (35,572 net) acres in the Gulf Coast area as of March 31, 2007, which encompasses the large coastal plain from the southernmost tip of Texas through the southern portion of Louisiana. As of December 31, 2006, our estimated net proved reserves in the Gulf Coast area were 99.6 Bcfe, with net production of approximately 37.0 Mmcfe per day in the month of May 2007. This is a predominantly gas prone, multi-pay, geologically complex area with significant faulting and compartmentalized reservoirs where 3-D seismic and other advanced exploration technologies are critical to our efforts. This area is comprised of sediments ranging from Cretaceous through Tertiary age and is productive from very shallow depths of several thousand feet to depths in excess of 18,000 feet. We target shallower geological formations such as the Frio and the Miocene, as well as deeper horizons such as Wilcox and Vicksburg. Operations in this area are generally characterized as being higher risk and higher potential than in our other core areas, with successful wells typically having higher initial production rates with steeper declines and shorter production lives. Drilling cost per well also tends to be significantly higher than in our other areas due to the increased depth and complexity of wellbore conditions. Three wells have been drilled in the first quarter of 2007. We are evaluating additional drilling opportunities for the remainder of 2007.

Other Areas

Gulf of Mexico.  We own natural gas and oil interests in 73,614 gross (36,770 net) acres in State and Federal waters of Texas and Louisiana. At December 31, 2006 our estimated net proved reserves were 55.1 Bcfe, with net production of approximately 19.8 Mmcfe per day for the month of May 2007. The water depth ranges from 30 feet to 1,100 feet and activity extends from the coast to more than 100 miles offshore. The Gulf of Mexico is one of the premier producing basins in the United States and is an area where we have achieved value-added growth through exploitation and exploration. Our production will range in depth from several thousand feet to in excess of 17,000 feet. The reservoir rocks range in age from the Plio-Pleistocene through the Oligocene. Typical Gulf of Mexico reservoirs have high porosity and permeability and wells historically flow at prolific rates. Overall, the Gulf of Mexico is known as an area of high quality 3-D seismic acquisition. Our major areas of activity will include the blocks in East Breaks and High Island areas that are located off the Texas coast, and the East Cameron area located off the Louisiana coast. In most cases in this area we own non-operating interests with larger companies such as Chevron Corporation, BP plc and Apache Corporation. We are currently evaluating our future drilling plans and intend to manage our investment in this area to maximize returns without significantly increasing future capital expenditures.

Piceance Basin.  The Piceance Basin in northwestern Colorado is a sedimentary basin consisting of multiple productive sandstone formations in one of the country’s most prolific natural gas regions. We entered the Piceance Basin in 1993 with the purchase of leasehold interests predominantly located on federal lands. We acquired this position in order to utilize the experience we had gained in underbalanced drilling and foam fracture simulations in West Texas. Initially, development of these natural gas reserves was limited due to high drilling costs and complex completion requirements. However, new drilling and completion technologies now enable successful development in this area.

We are currently evaluating wells we have drilled, but not completed, on the western portion of our acreage block. At December 31, 2006, we had identified 828 potential drilling locations on the eastern portion of our 41,454 gross (16,193 net) acres. We will continue to evaluate our position in 2007 and intend to manage our investment in this area to maximize returns without significantly increasing future capital expenditures.

68

Other West Texas.  Our other non-tertiary West Texas assets include our Brooklaw field and the Goldsmith Adobe Unit in the Permian Basin. As of March 31, 2007, we own 22,288 gross (20,040 net) acres in these prospects. As of December 31, 2006, our proved reserves were 21.3 Bcfe. We have identified 68 potential drilling locations in these fields, including 52 proved undeveloped locations, and intend to drill approximately 16 development wells in 2007.

Other.  We own interests in properties in the Arkoma and Anadarko Basins and other non-strategic areas. As of March 31, 2007, we hold interests in 410,571 gross (106,027 net) leasehold and option acres in these non-strategic areas.

Tertiary Oil Recovery

Wellman Unit.  The Wellman Unit is part of our tertiary oil recovery operations. The Wellman Field, located in Terry County, was discovered in 1950 and produces from the Canyon Reef limestone formation of Permian age from an average depth of 9,500 feet. The Wellman Unit is on the western edge of the Horseshoe Atoll, a geologic feature in the northern part of the Midland Basin. There are approximately 110 separate fields that are contained within this feature, including seven existing CO₂ floods. The Wellman Unit covers approximately 2,120 acres, 1,200 of which are well-suited for both water and CO₂ floods. The Wellman Field has been partially CO₂ flooded and water flooded to produce 83.5 Mmboe to date. We recently re-initiated injection of CO₂, and our injection rate is expected to reach 32.0 Mmcf per day in 2007 and to average 30.9 Mmcf per day over the next 10 years. Current net proved reserves attributable to the Wellman Unit are 8.4 Mmboe. We also own a CO₂ recycling plant at this unit with a capacity of 28 Mmcf per day. The plant includes 6,000 horsepower of CO₂ compression and 4,850 horsepower of processing compression, which is sufficient to handle the recycling of the CO₂ that will be produced in association with the production of these reserves.

George Allen Unit.  The George Allen Unit, located in Gaines County, covers 800 gross acres and produces from the San Andres formation from an average depth of 4,950 feet, in the George Allen Field. An additional 320 acres adjacent to the unit to the south have also been leased. The field is located within the Greater Wasson Area which contains seven active CO₂ floods including the largest in the world, the Denver Unit. The George Allen Unit has produced 1.6 Mmboe to date, but it also contains a significant transition zone which has been proven to be a tertiary oil target at the nearby Denver Unit. We are currently moving ahead with the implementation of a nine pattern pilot which is expected to begin CO₂ injection in the third quarter of 2007. The CO₂ injection rate is expected to reach 15 Mmcf per day by end of year 2007.

South Mallet Unit.  The South Mallet Unit, located in Hockley County, covers 3,540 gross acres and produces from the San Andres formation from an average depth of 5,000 feet in the Slaughter/Levelland Field complex. These fields are some of the largest in West Texas and currently have ten active CO₂ floods and four more at various stages of readiness. The South Mallet Unit has produced 27.8 Mmboe to date. We plan to begin injection of CO₂ in 2009, and we expect to reach an injection rate of approximately 7,100 Mcf per day by the beginning of 2010. Current net proved reserves attributable to the South Mallet Unit are 2.5 Mmboe.

Jones Ranch Area.  Several miles west of the George Allen Unit, in Gaines County, PetroSource has acquired various leases in the Jones Ranch Area. These leases produce from various depths and formations from approximately 2,400 gross acres. We are evaluating these leases for both conventional development and tertiary potential.

69

Proved Reserves

The following tables present our historical estimated net proved natural gas and oil reserves and the present value of our estimated proved reserves as of December 31, 2005 and December 31, 2006. The PV-10 and Standardized Measure shown in the table are not intended to represent the current market value of our estimated market value or our estimated natural gas and oil reserves. Approximately 68% of our proved reserves are proved undeveloped reserves. Based on our current drilling schedule, we estimate that 97% of our current proved undeveloped reserves will be developed by 2011 and all of our current proved undeveloped reserves will be developed by 2012.

	At December 31,			At December 31,
	2005			2006
Estimated Proved Reserves(1)
Natural Gas (Bcf)(2)		237.4			850.7
Oil (MmBbls)		10.4			25.2
Total (Bcfe)		300.0			1,001.8
PV-10 (in millions)	$	733.3	(3)	$	1,734.3	(3)
Standardized Measure of Discounted Net Cash Flows (in millions)(4)	$	499.2		$	1,440.2

(1)	Our estimated proved reserves and the future net revenues, PV-10, and Standardized Measure of Discounted Net Cash Flows were determined using end of the period prices for natural gas and oil that we realized as of December 31, 2005 and December 31, 2006, which were $8.40 per Mcf of natural gas and $54.04 per barrel of oil at December 31, 2005, and $5.64 per Mcf of natural gas and $57.75 per barrel of oil at December 31, 2006.
(2)	Given the nature of our natural gas reserves, a significant amount of our production contains natural gas high in CO2 content. These figures are net of CO2.
(3)	PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using pricing assumptions in effect at the end of the period. PV-10 differs from Standardized Measure of Discounted Net Cash Flows because it does not include the effects of income taxes on future net revenues. Neither PV-10 nor Standardized Measure represent an estimate of fair market value of our natural gas and oil properties. PV-10 is used by the industry and by our management as an arbitrary reserve asset value measure to compare against past reserve bases and the reserve bases of other business entities that are not dependent on the taxpaying status of the entity. The following tables provide a reconciliation of our Standardized Measure to PV-10:

	At December 31,
	2005		2006
	(In millions)
Standardized Measure of Discounted Net Cash Flows	$	499.2	$	1,440.2
Present value of future income tax and other discounted at 10%		234.1		294.1
PV-10	$	733.3	$	1,734.3

(4) The Standardized Measure of Discounted Net Cash Flows represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculate PV-10. Standardized Measure differs from PV-10 because Standardized Measure includes the effect of future income taxes.

70

Production and Price History

The following tables set forth information regarding our net production of oil, natural gas and natural gas liquids and certain price and cost information for each of the periods indicated. Because of the relatively high volumes of CO₂ produced with natural gas in certain areas of the WTO, our reported sales and reserves volumes and the related unit prices received for natural gas in this area are reported net of CO₂ volumes stripped at the gas plants. The gas plant fees for stripping CO₂ produced with natural gas have been taken into account in the disclosed average sales prices of natural gas in the WTO. In other areas, natural gas sales are delivered to sales points with CO₂ levels within pipeline specifications and thus are included in sales and reserves volumes.

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Production Data:
Natural Gas (Mmcf)		6,708		6,873		13,410		1,848		10,449
Oil (MBbls)		37		72		322		25		393
Combined Equivalent Volumes (Mmcfe)		6,930		7,305		15,342		1,998		12,807
Average Daily Combined Equivalent Volumes (Mmcfe/d)		18.9		20.0		42.0		22.2		142.3

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Average Prices(1):
Natural Gas (per Mcf)	$	4.43	$	6.54	$	6.19	$	7.05	$	6.60
Oil (per Bbl)	$	34.03	$	48.19	$	56.61	$	55.30	$	54.06
Combined Equivalent (per Mcfe)	$	4.47	$	6.63	$	6.60	$	7.21	$	7.04

(1)   Reported prices represent actual prices for the periods presented and do not give effect to derivative transactions.

							Three Months Ended
	Year Ended December 31,						March 31,
	2004		2005		2006		2006		2007
Expenses per Mcfe:
Lease operating expenses	$	1.48	$	2.22	$	2.29	$	2.65	$	1.72
Production taxes	$	0.36	$	0.43	$	0.30	$	0.41	$	0.23

71

Productive Wells

The following table sets forth information at December 31, 2006, relating to the productive wells in which we owned a working interest as of that date. Productive wells consist of producing wells and wells capable of producing, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities. Gross wells are the total number of producing wells in which we have an interest, and net wells are the sum of our fractional working interests owned in gross wells.

Area	Gross		Net
WTO		283		225
East Texas		128		121
Gulf Coast		206		123
Other:
Gulf of Mexico		58		42
Other West Texas		252		244
PetroSource		38		34
Piceance Basin		38		14
Other		278		113
Total		1,281		916

Developed and Undeveloped Acreage

The following tables set forth information at March 31, 2007:

	Developed				Undeveloped
	Acreage(1)				Acreage(2)
Area	Gross(3)		Net(4)		Gross(3)		Net(4)
WTO		16,997		11,551		411,873		275,539
East Texas		25,756		23,488		27,177		8,412
Gulf Coast		38,913		24,324		16,145		11,248
Other:
Gulf of Mexico		73,614		36,770		—		—
Other West Texas		19,244		18,353		3,044		1,687
PetroSource		9,064		8,195		—		—
Piceance Basin		2,160		652		39,294		15,541
Other		71,352		37,649		339,219		68,378
Total		257,100		160,982		836,752		380,805

(1)	Developed acres are acres spaced or assigned to productive wells.
(2)	Undeveloped acres are acres 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 such acreage contains proved reserves.
(3)	A gross acre is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which a working interest is owned.
(4)	A net acre is deemed to exist when the sum of the fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.

72

Many of the leases comprising the acreage set forth in the table above will expire at the end of their respective primary terms unless production from the leasehold acreage has been established prior to such date, in which event the lease will remain in effect until the cessation of production. We generally have been able to obtain extensions of the primary terms of our federal leases when we have been unable to obtain drilling permits due to a pending Environmental Assessment, Environmental Impact Statement or related legal challenge. The following table sets forth as of December 31, 2007 the expiration periods of the gross and net acres that are subject to leases in the acreage summarized in the above table.

	Acres Expiring
Twelve Months Ending	Gross		Net
December 31, 2007		220,942		27,021
December 31, 2008		25,534		19,760
December 31, 2009		166,887		123,175
December 31, 2010 and later		290,833		133,285
Other(1)		389,656		238,546
Total		1,093,852		541,787

(1) Leases remaining in effect until the cessation of development efforts or cessation of production on the developed portion of the particular lease.

Drilling Results

The following table sets forth information with respect to wells we completed during the periods indicated. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. Productive wells are those that produce commercial quantities of hydrocarbons, regardless of whether they produce a reasonable rate of return.

	Year Ended				Three Months Ended
	December 31,				March 31,
	2006				2007
	Gross		Net		Gross		Net
Development:
Productive		82		50.8		51		35.5
Dry		5		2.5		—		—
Exploratory:
Productive		19		13.0		2		1.5
Dry		6		5.0		1		0.9
Total:
Productive		101		63.8		53		37.0
Dry		11		7.5		1		0.9

73

Drilling Rigs

The following table sets forth information with respect to the drilling on our acreage as of the periods indicated.

	As of December 31, 2006				As of June 15, 2007
Area	Owned(1)		Third Party		Owned(1)		Third Party
WTO		9		—		25		4
East Texas		—		2		—		4
Gulf Coast		—		1		—		1
Other		1		—		1		1
Total		10		3		26		10

(1) Includes both rigs owned by Lariat, our wholly owned subsidiary, and by Larclay, a joint venture.

Marketing and Customers

Through Integra Energy, our subsidiary, we market our natural gas production in accordance with standard industry practices. Each month we develop a portfolio of natural gas sales by arranging for a percentage of Integra Energy’s natural gas to be sold on a first of the month index price basis with the remaining volume sold on a daily swing basis at current market rates. Most of the natural gas is sold on a month-to-month basis, and any longer term or evergreen agreements that we are subject to provide pricing provisions that allow us to receive monthly market area based prices. During the year ended December 31, 2006, we sold natural gas to 20 different purchasers.

Our top five natural gas purchasers of our WTO production for the year ended December 31, 2006 and each company’s approximate percentage of total sales during that period are listed below:

Gas Purchasers	%
ANP Funding I, LLC		27.4%
Atmos Energy Corporation		13.9%
City of Garland, Texas		11.5%
Magnus Energy Marketing, Ltd.		9.3%
Tenaska Marketing Ventures		7.9%

Title to Properties

As is customary in the natural gas and oil industry, we initially conduct only a cursory review of the title to our properties on which we do not have proved reserves. Prior to the commencement of drilling operations on those properties, we conduct a thorough title examination and perform curative work with respect to significant defects. To the extent title opinions or other investigations reflect title defects on those properties, we are typically responsible for curing any title defects at our expense. We generally will not commence drilling operations on a property until we have cured any material title defects on such property. In addition, prior to completing an acquisition of producing natural gas and oil leases, we perform title reviews on the most significant leases, and depending on the materiality of properties, we may obtain a title opinion or review previously obtained title opinions. To date, we have obtained title opinions on substantially all of our producing properties and believe that we have satisfactory title to our producing properties in accordance with standards generally accepted in the natural gas and oil industry. However, we have drilled wells in the Piceance Basin, which are subject to litigation that may affect that property. Please read “— Legal Proceedings.” Our natural gas and oil properties are subject to customary royalty and other interests, liens for current taxes and other burdens which we believe do not materially interfere with the use of or affect our carrying value of the properties.

74

Drilling and Oil Field Services Operations

We provide drilling and related oil field services to our exploration and production business and to third-parties in both West Texas and the Piceance Basin.

Drilling Operations

We drill for our own account in both the WTO and the Piceance Basin through our drilling and oil field services subsidiary, Lariat Services, Inc. We have recently moved the rig working in the Piceance Basin back to West Texas to work for our own account. In addition, we also drill wells for other natural gas and oil companies, primarily located in the West Texas region. We believe that drilling with our own rigs allows us to control costs and maintain operating flexibility. We are a party to a joint venture, Larclay, with CWEI, where we currently have eleven rigs working for our own account, CWEI and an outside operator. Larclay has one rig that has currently not been assembled. We believe that we are one of the largest privately held drilling contractors in the United States on a footage drilled basis. We believe that our ownership of drilling rigs and our related oil field services will continue to be a catalyst of our growth. Currently, 26 of our rigs are working on properties operated by us, and we are operating 38 rigs, including eleven of the twelve rigs owned by Larclay. Our rig fleet is designed to drill in our specific areas of operation and have an average horsepower of over 800 and an average depth capacity of greater than 10,500 feet.

Twenty two rigs had previously been ordered from Chinese manufacturers for an aggregate purchase price of $126.4 million, which included the cost of assembling and equipping the rigs in the U.S. Due in part to the shortage of experienced drilling employees and various operational challenges, we have deemed it prudent to retrofit the last five Chinese rigs to a conventional operation. This involves the replacement of the Chinese trailer mounted unit with the traditional box-on-box substructure, cantilever mast and hand-brake drawworks. The retrofit should be complete in the late fourth quarter of 2007.

The table below identifies certain information concerning our contract drilling operations:

	Year Ended									Three Months Ended
	December 31,									March 31,
	2004			2005			2006			2006			2007
Number of rigs owned at end of period		10			19			25			20			25
Average number of rigs owned during the period		8			14.3			21.9			20			25
Average number of rigs utilized		8			14.3			21.9			20			23.44
Utilization rate		100	%		100	%		100	%		100	%		93.70	%
Average drilling revenue per day(1)(2)	$	73,023		$	164,495		$	373,051		$	350,454		$	390,221
Average drilling revenue per rig per day(2)	$	9,128		$	11,503		$	17,034		$	17,523		$	16,648
Total footage drilled (feet in thousands)		635,684			1,749,700			2,124,079			582,000			506,938
Number of wells drilled		159			249			379			97			70

(1)	Represents the total revenues from our contract drilling operations divided by the total number of days our drilling rigs were used during the period.
(2)	Does not include revenues for related rental equipment.

75

The table below identifies certain information concerning our drilling rigs as of June 15, 2007:

						Operating for		Operating for
	Owned			Operational		SandRidge		Third Parties
Lariat		32	(1)		27		20		5
Larclay		12	(2)		11		6		5
Total		44			38		26		10

(1)	Includes five rigs that were being retrofitted.
(2)	Includes one rig that has not been assembled.

Oil Field Services

Our oil field services business began in 1986 and conducts operations that complement our drilling services operation. These services include providing pulling units, coiled-tubing units, trucking, location and road construction roustabout services, mud logging and rental tools to ourselves and to third-parties. Less than 10% of our oil field services revenues are from third-parties. We also provide underbalanced drilling systems for our own wells. Our expected capital expenditures for 2007 related to our oil field services are $85 million.

Types of Drilling Contracts

We obtain our contracts for drilling natural gas and oil wells either through competitive bidding or through direct negotiations with customers. Our drilling contracts generally provide for compensation on a daywork, footage or turnkey basis. The contract terms we offer generally depend on the complexity and risk of operations, the on-site drilling conditions, the type of equipment used, the anticipated duration of the work to be performed and prevailing market rates. For a discussion of these contracts, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Segment Overview — Drilling and Oil Field Services.”

Our Customers

We perform approximately 54% of our drilling services in support of our exploration and production business. We also have significant customer relationships with other operators in West Texas, including Mariner Energy, Inc. For the three months ended March 31, 2007, we generated revenues of $16.2 million, for drilling services performed for third-parties, with Mariner Energy, Inc. accounting for $10.8 million of those revenues.

In addition, we began receiving delivery of rigs to our Larclay joint venture in the first quarter of 2006. Larclay began drilling wells in the first quarter of 2006. CWEI will utilize fewer Larclay rigs on it own projects than initially anticipated.

76

Midstream Services

We provide gathering, compression, processing and treating services of natural gas in the TransPecos region of West Texas and the Piceance Basin. Our midstream operations and assets not only serve our exploration and production business, but also service other natural gas and oil companies. The following tables set forth our primary midstream assets as of March 31, 2007:

	Plant Capacity		Average			Third Party
ROC Gas Operated Plants	(Mmcf/d)		Utilization(1)			Usage
Pike’s Peak		60		90.0	%		1.0	%
Grey Ranch(2)		72		90.0	%		35.0	%
Sagebrush		50		—			—

(1)	Average utilization for three months ended March 31, 2007.
(2)	The Grey Ranch plant is operated by Southern Union. A project to expand the plant to 100 MMcf/d will be completed during the third quarter of 2007. The plant capacity can be further increased to 160 MMcf/d with additional capital improvements.

	CO2 Compression		Average
PetroSource Facilities	Capacity (Mmcf/d)		Utilization(1)
Pike’s Peak		38		57.4	%
Mitchell		31		0.0	%
Grey Ranch		36		59.9	%
Terrell		38		47.7	%
Puckett		11		0.0	%

(1) Average utilization for three months ended March 31, 2007.

West Texas

In Pecos County, we operate and own 92.5% of the Pike’s Peak gas treating plant, which has the capacity to treat 60 Mmcf per day of gas for the removal of CO₂ from natural gas produced in the Piñon Field and nearby areas. We also have a 50% interest in the partnership that leases and operates the Grey Ranch CO₂ treatment plant located in Pecos County, which has the capacity to treat 72 Mmcf per day of gas. A project to increase the plant capacity to 100 MMcf per day will be completed during the third quarter of 2007. Further expansion to 160 MMcf per day may be accomplished with additional capital expenditures. The treating capacities for both the Pike’s Peak and Grey Ranch plants are dependent upon the quality of natural gas being treated. The above numbers for the Pike’s Peak plant are based on a natural gas stream that is about 65% CO₂. The Grey Ranch plant capacity is an estimate of its treating capacity based on a natural gas stream that is about 70% CO₂.

We also operate or own approximately 300 miles of natural gas gathering pipelines and numerous dehydration units. Within the Piñon Field, we operate separate gathering systems for sweet natural gas and produced natural gas containing high percentages of CO₂. In addition to servicing our exploration and production business, these assets also service other natural gas and oil companies.

A portion of our West Texas assets, including the Pike’s Peak plant and approximately 52 miles of pipeline, was acquired from TXU Lone Star in 1998. We have since constructed or acquired approximately 250 miles of pipeline, and acquired and expanded the only sweet gathering pipeline system within the Brown Bassett field in Terrell County in 2002. In 2003, we entered into a 50% joint venture with Southern Union Gas Services, whose primary assets are a 10-year lease on the Grey Ranch natural gas treatment plant and a 22-mile pipeline gathering system. Our two West Texas plants remove CO₂ from natural gas production and deliver residue gas into the Atmos Lone Star and Enterprise Energy Services pipelines. These assets are operated on fixed fees based upon throughput of natural gas. We have also secured 50 MMcf/d of treating capacity at Anadarko’s Mitchell Plant under a long term favorable fixed fee arrangement.

77

Approximately 90% of the produced natural gas gathered by our midstream assets in West Texas requires compression from the wellhead to the final sales meter. We began replacing third-party rental compression through ROC Gas in 2003. ROC Gas currently owns and operates more than 34,000 horsepower of gas compression. Market based monthly rental fees are charged based on the gross horsepower rating of each unit.

Other Areas

Our Piceance Basin system consists of 50 Mmcf per day of processing plants and approximately 53 miles of pipeline gathering systems. We gather and transport our natural gas and third-party natural gas to market delivery points on Colorado Interstate Gas Company, Questar and Rocky Mountain Natural Gas Pipelines.

We also own approximately 30 miles of pipeline gathering systems in East Texas and approximately 47 miles of pipeline gathering systems in the Gulf Coast area.

Capital Expenditures

The growth of our midstream assets is primarily driven by our exploration and development operations. Historically, pipeline and facility expansions are made when warranted by the increase in production or the development of additional acreage. As a result of our increased production from the Piñon Field during 2007, we have experienced some compressor capacity limitations and relatively poor runtime. The current system does not have surplus horsepower to compensate for periods of scheduled maintenance. When units are serviced or go down unexpectedly, we experience higher line pressures, which impact the deliverability. Additionally, some of our compressor units in the Piñon Field have been operating at high loads, which may result in excessive wear and downtime. In order to ensure sufficient capacity for our existing and future Piñon Field production, we recently installed approximately 10,000 horsepower of compression and intend to install approximately 20,000 horsepower of additional compression by the end of 2007. These new units will provide surplus capacity and allow us to provide stable, low pressures to maximize the deliverability of our wells. We also intend to install over approximately 40 miles of large diameter pipeline and additional processing facilities in the Piñon Field, which we expect to be operational by the fourth quarter of 2007.

Marketing

Through Integra Energy, our subsidiary, we buy and sell the natural gas and oil production from SandRidge-operated wells and third-party operated wells. Through Integra Energy, we will purchase and sell residue gas from the Sagebrush plant into Questar and Colorado Interstate Gas pipelines. We generally buy and sell natural gas on “back-to-back” contracts using a portfolio of baseload and spot sales agreements. Identical volumes are bought and sold on monthly and daily contracts using a combination of Inside F.E.R.C. and Gas Daily pricing indices to eliminate price exposure. We market our oil and condensate production in both Texas and Colorado to Shell Trading U.S. Company at current market rates.

We do not actively seek to buy and sell third-party natural gas due to onerous credit requirements and minimal margin expectations. We conduct thorough credit checks with all potential purchasers and minimize our exposure by contracting with multiple parties each month. We do not engage in any hedging activities with respect to these contracts. We manage several interruptible natural gas transportation agreements in order to take advantage of price differentials or to secure available markets when necessary. At present, we do not have any firm transportation agreements, but we are in the process of securing firm transportation for a portion of our Piñon Field production.

Other Operations

Our CO₂ gathering and tertiary oil recovery operations are conducted through our wholly-owned subsidiary, PetroSource. PetroSource owns 231 miles of CO₂ pipelines in West Texas with approximately 88,000 horsepower of owned and leased CO₂ compression available with approximately 49,000 horsepower currently operational. In addition, PetroSource has exclusive long-term supply contracts to gather CO₂ from natural gas treatment plants in West Texas and is the sole gatherer of CO₂ from the four natural gas treatment plants located in the Delaware and Val Verde Basins of West Texas. The primary use of our CO₂ supply is for

78

use in our and third-parties’ tertiary oil recovery operations. We have assembled an experienced CO₂ management team, including engineers and geologists with extensive experience in CO₂ flooding with industry leaders.

Production from most oil reservoirs includes three distinct phases: primary, secondary, and tertiary, or enhanced recovery. During primary recovery, the natural pressure of the reservoir or gravity drives oil into the wellbore and artificial lift techniques (such as pumps) produce the oil to the surface. However, only about 10% to 15% of a reservoir’s original oil in place is typically produced during primary recovery. Secondary recovery techniques, most commonly waterflooding, often increase ultimate recovery to more than 20% to 45% of the original oil in place. This technique involves injecting water to displace oil and drive it to the wellbore. Even after a water flood, the majority of the original oil in place is still un-recovered. Tertiary, or enhanced recovery techniques, such as CO₂ flooding, can recover additional oil. In CO₂ flooding, the CO₂ is injected into the reservoir. At high pressures (approximately 2,000 psi), the CO₂ is in a liquid phase and can become miscible with the oil, which means the CO₂ and oil mix together and form one fluid. This mixing changes the fluid properties of the oil and enables this trapped oil to begin to move in the reservoir again. The result is a potentially significant increase in production. CO₂ injection can recover, on average, an additional 10% to 16% of the original oil in place in a field over a period of 20 to 30 years. Mature fields that have been abandoned may still be viable candidates for CO₂ floods. CO₂ flooding typically extends the life of oil fields by 20 years.

In 2004 and 2005, we acquired West Texas waterfloods, the Wellman and South Mallet Units and the George Allen Unit for the purpose of evaluating for potential implementation of tertiary oil recovery operations utilizing our equity CO₂ supply. For a discussion of our tertiary reserves and production at the units, please read “— Exploration and Production Operations — Tertiary Oil Recovery.” We have also identified numerous other properties that are attractive candidates for implementing CO₂ projects. We believe we have a competitive advantage in identifying, acquiring and developing these properties because of our expertise and large available CO₂ supply.

PetroSource currently has approximately 80 Mmcf per day of CO₂ in available supply. We currently deliver the majority of this supply to Occidental Permian Ltd. and Pure Resources L.P. In May 2007, we captured and sold 78 Mmcf per day. Our long term contracts in place with Occidental provide for the exchange of up to 60% of the delivered volumes. We believe our current tertiary oil recovery properties will require approximately 60 Mmcf of CO₂ per day over the next five years. We intend to increase our supply of CO₂ in order to provide sufficient capacity as our tertiary oil recovery operations grow through additional acquisitions and expansions. We expect the supply of CO₂ to increase as additional natural gas reserves with a high CO₂ content are developed in the Piñon and surrounding fields. In addition, we intend to increase the capacity of our CO₂ treating, gathering and transportation assets. We recently completed the refurbishment of an additional compressor unit at the Grey Ranch plant at a cost of approximately $1.2 million. The unit added 6,350 operational horsepower and 16 Mmcf per day of capacity to our system.

In addition to gathering CO₂ for use in tertiary oil recovery operations, our CO₂ assets may create another economic benefit by generating Emissions Reduction Credits (“ERCs”). Recently, a number of states of the U.S. have passed laws, adopted regulations or undertaken regulatory initiatives to reduce the emission of “greenhouse gases,” such as CO₂ and methane. In addition, the U.S. Congress is actively considering legislation to reduce emissions of greenhouse gases, and in light of the U.S. Supreme Court’s recent decision in Massachusetts, et al. v. EPA, the U.S. Environmental Protection Agency may be required to regulate greenhouse gas emissions from mobile sources (e.g., cars and trucks) even if Congress does not adopt new legislation specifically addressing emissions of greenhouse gases. Other nations (not including the United States) have already agreed to regulate emissions of greenhouse gases pursuant to the United Nations Framework Convention on Climate Change, also known as the “Kyoto Protocol.” We believe that we are well positioned to benefit from the developing market for trading ERCs. We currently capture approximately 1.5 million tons of CO₂ per year. Since that CO₂ would otherwise escape into the atmosphere, the resulting capture of CO₂ generates ERCs that can be sold to parties either needing or desiring to offset their own CO₂ emissions. In the past, we have sold a portion of our ERCs; however, this market is still in its infancy and has

79

not been a material source of income. In the coming years, we expect ERCs to become a greater source of income.

Competition

We believe that our leasehold acreage position, oil field service businesses, midstream assets, CO₂ supply and technical and operational capabilities generally enable us to compete effectively. However, the natural gas and oil industry is intensely competitive, and we face competition in each of our business segments.

We believe our geographic concentration of operations and vertical integration enable us to compete effectively with our exploration and production operations. However, we compete with companies that have greater financial and personnel resources than we do. These companies may be able to pay more for producing properties and undeveloped acreage. In addition, these companies may have a greater ability to continue exploration activities during periods of low natural gas and oil market prices. Our larger or integrated competitors may be able to absorb the burden of any existing and future federal, state, and local laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing natural gas and oil properties.

We believe the type, age and condition of our drilling rigs, the quality of our crew and the responsiveness of our management generally enable us to compete effectively. However, to the extent we drill for third-parties, we encounter substantial competition from other drilling contractors. Our primary market area is highly competitive. The drilling contracts we compete for are sometimes awarded on the basis of competitive bids. We believe pricing and rig availability are the primary factors our potential customers consider in determining which drilling contractor to select. While we must be competitive in our pricing, our competitive strategy generally emphasizes the quality of our equipment, the experience of our rig crews and our willingness to drill on a turnkey basis, to differentiate us from our competitors. This strategy is less effective when demand for drilling services is weak or there is an oversupply of rigs, as these conditions usually result in increased price competition, which makes it more difficult for us to compete on the basis of factors other than price. Many of our competitors have greater financial, technical and other resources than we do. Their greater capabilities in these areas may enable them to better withstand industry downturns and better retain skilled rig personnel.

We believe our geographic concentration of operations enables us to compete effectively in our midstream business segment. Most of our midstream assets are integrated with our production. However, with respect to third-party gas and acquisitions, we compete with companies that have greater financial and personnel resources than we do. These companies may be able to pay more for acquisitions. In addition, these companies may have a greater ability to price their services below our prices for similar services. Our larger or integrated competitors may be able to absorb the burden of any existing and future federal, state, and local laws and regulations more easily than we can, which would adversely affect our competitive position.

We believe our supply of CO₂, focus on small to mid-sized acquisitions and technical expertise enable us to compete effectively in our PetroSource business. However, we face the same competitive pressures in this business that we do in our traditional exploration and production segment.

Seasonal Nature of Business

Generally, the demand for natural gas decreases during the summer months and increases during the winter months. Seasonal anomalies such as mild winters or cool 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 natural gas and oil operations in a portion of our operating areas. These seasonal anomalies can pose challenges for meeting our well drilling objectives and 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.

80

Environmental Matters and Regulation

General

We are subject to various stringent and complex federal, state and local laws and regulations governing environmental protection including the discharge of materials into the environment. These laws and regulations may, among other things:

•  require the acquisition of various permits before drilling commences;

•  require the installation of expensive pollution control equipment;

•  restrict the types, quantities and concentration of various substances that can be released into the environment in connection with natural gas and oil drilling production, transportation and processing activities;

•  suspend, limit, prohibit or require approval before construction, drilling and other activities in certain lands lying within wilderness, wetlands and other protected areas; and

•  require remedial measures to mitigate pollution from historical and ongoing operations, such as the closure of pits and plugging of abandoned wells.

These laws, rules and regulations may also restrict the rate of natural gas and oil production below the rate that would otherwise be possible. The regulatory burden on the natural gas and oil industry increases the cost of doing business in the industry and consequently affects profitability.

Governmental authorities have the power to enforce compliance with environmental laws, regulations and permits, and violations are subject to injunction, as well as administrative, civil and even criminal penalties. The effects of these laws and regulations, as well as other laws or regulations that may be adopted in the future, could have a material adverse impact on our business, financial condition and results of operations.

Below is a discussion of the environmental laws and regulations that could have a material impact on the oil and gas industry.

Comprehensive Environmental Response, Compensation and Liability Act

The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the Superfund law, imposes joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third-parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. In the course of our operations, we generate wastes that may fall within CERCLA’s definition of hazardous substances. Further, natural gas and oil exploration, production, processing and other activities have been conducted at some of our properties by previous owners and operators, and materials from these operations remain on some of our properties and in some cases may require remediation. Therefore, governmental agencies or third-parties could seek to hold us responsible under CERCLA or similar state laws for all or part of the costs to clean up a site at which hazardous substances may have been released or deposited.

Waste Handling

The Resource Conservation and Recovery Act, or RCRA, and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the U.S. Environmental Protection Agency, or EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own more stringent requirements.

81

Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development, and production of crude oil or natural gas are currently regulated under RCRA’s non-hazardous waste provisions. However, it is possible that certain natural gas and oil exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change would likely increase our operating expenses, which could have a material adverse effect on our business, financial condition or results of operations.

Air Emissions

The Federal Clean Air Act, and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. In addition, the EPA has developed, and continues to develop, stringent regulations governing emissions of toxic air pollutants at specified sources. These regulatory programs may require us to obtain permits before commencing construction on a new source of air emissions, and may require us to reduce emissions at existing facilities. As a result, we may be required to incur increased capital and operating costs. For instance, the Grey Ranch natural gas treatment plant currently operates under a grandfather clause, which expires, possibly in as early as September 2008. Southern Union, the operator of the Grey Ranch plant, has been in discussions with the Texas Commission on Environmental Quality concerning an extension of the grandfather clause protection until January 2011. We expect that the State of Texas will require us to obtain an air emissions permit for the plant prior to the expiration of the grandfather clause. The new air permit may impose new, lower air emissions limits for nitrogen oxides and possibly other contaminants, and we may be required to incur capital costs to upgrade the plant’s air emissions control equipment in order to achieve these new, lower air emissions limits. Based on information currently available to us, we estimate that the cost to upgrade the plant if new, lower air emissions limits are imposed by the new air permit could be approximately $7 million, of which we would be responsible for approximately $3.5 million and Southern Union would be responsible for approximately $3.5 million. Additionally, federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the federal Clean Air Act and analogous state laws and regulations.

Water Discharges

The Federal Water Pollution Control Act, or the Clean Water Act, and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances into waters of the United States, including wetlands. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other substances related to the oil and natural gas industry into onshore, coastal and offshore waters without appropriate permits. Some of the pollutant limitations have become more restrictive over the years and additional restrictions and limitations may be imposed in the future. The Clean Water Act also regulates storm water discharges from industrial and construction activities. Regulations promulgated by the EPA and state regulatory agencies require industries engaged in certain industrial or construction activities to acquire permits and implement storm water management plans and best management practices, to conduct periodic monitoring and reporting of discharges, and to train employees. Further, federal and state regulations require certain oil and natural gas exploration and production facilities to obtain permits for storm water discharges. There are costs associated with each of these regulatory requirements. In addition, federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.

The Oil Pollution Act of 1990, or OPA, which amends and augments the Clean Water Act, establishes strict liability for owners and operators of facilities that are the site of a release of oil into waters of the United States. In addition, OPA and regulations promulgated pursuant thereto impose a variety of regulations on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills. For example, certain natural gas and oil operators must develop, implement and maintain facility response plans, conduct annual spill training for certain employees and provide varying degrees of financial assurance.

82

National Environmental Policy Act

Natural gas and oil exploration and production activities on federal lands are subject to the National Environmental Policy Act, or NEPA. NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. All of our current exploration and production activities, as well as proposed exploration and development plans on federal lands require governmental permits that are subject to the requirements of NEPA. This process has the potential to delay or limit our development of natural gas and oil projects.

Other Laws and Regulations

Recent scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases” and including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere. In response to such studies, the U.S. Congress is actively considering legislation to reduce emissions of greenhouse gases. In addition, several states have declined to wait on Congress to develop and implement climate control legislation and have already taken legal measures to reduce emissions of greenhouse gases. Also, as a result of the U.S. Supreme Court’s decision on April 2, 2007 in Massachusetts, et al. v. EPA, the EPA may be required to regulate greenhouse gas emissions from mobile sources (e.g., cars and trucks) even if Congress does not adopt new legislation specifically addressing emissions of greenhouse gases. Other nations have already agreed to regulate emissions of greenhouse gases pursuant to the Kyoto Protocol, an international treaty pursuant to which participating countries (not including the United States) have agreed to reduce their emissions of greenhouse gases to below 1990 levels by 2012. Passage of climate control legislation or other regulatory initiatives by Congress or various states of the U.S., or the adoption of regulations by the EPA and analogous state agencies that restrict emissions of greenhouse gases in areas in which we conduct business could have an adverse affect on some of our operations and demand for some of our services or products.

New and more stringent laws and regulations concerning the security of industrial facilities, including natural gas and oil facilities could be adopted in the future. Our operations may in the future be subject to such laws and regulations. Presently, it is not possible to accurately estimate the costs we could incur to comply with any such facility security laws or regulations, but such expenditures could be substantial.

Other Regulation of the Natural Gas and Oil Industry

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

Drilling and Production

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

•  the location of wells;

•  the method of drilling and casing wells;

83

•  the rates of production or “allowables;”

•  the surface use and restoration of properties upon which wells are drilled and other third-parties;

•  the plugging and abandoning of wells; and

•  notice to surface owners and other third-parties.

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

Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production facilities and pipelines, and for site restoration, in areas where we operate. MMS regulations require that owners and operators plug and abandon wells and decommission and remove offshore facilities located in federal offshore lease areas in a prescribed manner. The MMS requires federal leaseholders to post performance bonds or otherwise provide necessary financial assurances to provide for such abandonment, decommissioning and removal. The Railroad Commission of Texas has financial responsibility requirements for owners and operators of facilities in state waters to provide for similar assurances. The U.S. Army Corps of Engineers, or ACOE, and many other state and local municipalities have regulations for plugging and abandonment, decommissioning and site restoration. Although the ACOE does not require bonds or other financial assurances, some other state agencies and municipalities do have such requirements.

Natural Gas Sales Transportation

Historically, federal legislation and regulatory controls have affected the price of the natural gas we produce and the manner in which we market our production. The Federal Energy Regulatory Commission, or FERC, has jurisdiction over the transportation and sale for resale of natural gas in interstate commerce by natural gas companies under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. Since 1978, various federal laws have been enacted which have resulted in the complete removal of all price and non-price controls for sales of domestic natural gas sold in “first sales,” which include all of our sales of our own production.

FERC also regulates interstate natural gas transportation rates and service conditions, which affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas. Commencing in 1985, FERC promulgated a series of orders, regulations and rule makings that significantly fostered competition in the business of transporting and marketing gas. Today, interstate pipeline companies are required to provide nondiscriminatory transportation services to producers, marketers and other shippers, regardless of whether such shippers are affiliated with an interstate pipeline company. FERC’s initiatives have led to the development of a competitive, unregulated, open access market for gas purchases and sales that permits all purchasers of gas to buy gas directly from third-party sellers other than pipelines. However, the natural gas industry historically has been very heavily regulated; therefore, we cannot guarantee that the less stringent regulatory approach recently pursued by FERC and Congress will continue indefinitely into the future nor can we determine what affect, if any, future regulatory changes might have on our natural gas related activities.

84

Under FERC’s current regulatory regime, transmission services must be provided on an open-access, non-discriminatory basis at cost-based rates or at market-based rates if the transportation market at issue is sufficiently competitive. Gathering service, which occurs upstream of jurisdictional transmission services, is regulated by the states onshore and instate waters. Although its policy is still in flux, FERC recently has reclassified certain jurisdictional transmission facilities as non-jurisdictional gathering facilities, which has the tendency to increase our costs of getting gas to point-of-sale locations.

Employees

As of March 31, 2007, we had 1,746 full-time employees and six part-time employees, including 82 geologists, geophysicists, petroleum engineers, land and regulatory professionals. Of these employees, 201 are located at our headquarters in Oklahoma City, eight in Amarillo, Texas and the remaining 1,543 employees are working in our various field offices and drilling sites.

Offices

We currently lease 67,347 square feet of office space in Oklahoma City, Oklahoma at 1601 N.W. Expressway, where our principal offices are located, and another 28,059 square feet in Enterprise Plaza, which is nearby. The term of the leases expires for our space at 1601 N.W. Expressway on August 31, 2009. For our space at Enterprise Plaza, the term of lease expires on October 31, 2009 for 18,547 square feet, and April 31, 2008 for 9,433 square feet. We also lease 28,936 square feet of space in downtown Oklahoma City. This is a short term lease, renewable on a 30-day basis. We also lease or sublease 37,873 square feet of office space in Amarillo, Texas at 701 S. Taylor Street, where our principal offices were previously located. The leases for our Amarillo office expire in April 2009. We also lease 6,725 square feet of office space at 16801 Greenspoint Park Drive in Houston, Texas. This lease expires in January 2014. PetroSource currently leases approximately 3,529 square feet in Midland, Texas. The PetroSource lease expires in December 2008. We also own an approximate 10,000 square foot office building in Midland, Texas. In Fort Stockton, Texas, we own over 10,000 square feet of office space and 40,000 square feet of shop space. We also own 4,358 square feet of office space and 6,240 square feet of shop space in Odessa, Texas, which serves as the headquarters of Lariat Services. In addition, we have a field office located in Terry County, Texas and Rifle, Colorado. We believe that our office facilities are adequate for our short-term needs.

On July 12, 2007, we purchased several buildings in downtown Oklahoma City, Oklahoma, including the Kerr-McGee Tower, from Chesapeake Energy, Inc. for approximately $25 million and the assumption of related liabilities. These properties are located at 123 Robert S. Kerr Avenue and contain approximately 450,000 square feet of office space. We intend to relocate our principal offices from 1601 N.W. Expressway to the Kerr-McGee Tower.

Legal Proceedings

On May 18, 2004, we commenced a civil action seeking declaratory judgment against Elliot Roosevelt, Jr., E.R. Family Limited Partnership and Ceres Resource Partners, L.P. in the District Court of Dallas County, Texas, 101st Judicial District, SandRidge Energy, Inc. and Riata Energy Piceance, LLC v. Elliot Roosevelt, Jr. et al, Cause No. 92.717-C. This suit sought a declaratory judgment relating to the rights of the parties in and to certain leases in a defined area of mutual interest in the Piceance Basin pursuant to an acquisition agreement entered into in 1989, including our 41,454 gross (16,193 net) acreage position. We tried the case to a jury in July 2006. Before the case was submitted to the jury, the trial court granted Roosevelt a directed verdict stating that he owned a 25% deferred interest in our acreage after project payout. The directed verdict is not likely to affect our proved reserves of 11.7 Bcfe, because of the requirement that project payout be achieved before the deferred interest shares in revenue. Other issues of fact were submitted to the jury. The trial court recently entered a judgment favorable to Roosevelt. We have filed a motion to modify the judgment and for a new trial. Depending on the outcome of this motion, we expect to appeal, at a minimum, from the entry of the directed verdict. If we do not ultimately prevail, the deferred interest will reduce our economic returns from the project, if project payout is achieved.

85

On April 29, 2005, Harvey E. Yates Company (“Heyco”), filed a trespass to try title suit against us in the District Court for Pecos County, Texas, 112th Judicial District, Harvey E. Yates Company v. Riata Energy, Inc., Cause No. 10376. In February 2006, additional parties joined the case as plaintiffs. The plaintiffs seek title to a 44.57% working interest in a lease covering three sections of land and a 18.66% working interest in a lease covering 51/2 sections of land, each located in West Texas, as well as unspecified damages based on production attributable to these working interests. The plaintiffs’ claims stem from the alleged failure of our predecessors in title to assign the disputed working interest in 1994. We believe that we have record title to the interest claimed by plaintiffs. If the plaintiffs prevail, any recovery would not be expected to have a material impact on our proved reserves.

We are subject to other claims in the ordinary course of business. However, we believe that the ultimate resolution of the above mentioned claims and other current legal proceedings will not have a material adverse effect on our financial condition or results of operations.

86

MANAGEMENT

The following table sets forth information regarding our executive officers, our directors and other key employees as of June 15, 2007.

Name	Age		Position
Tom L. Ward		48	Chairman, Chief Executive Officer and President
Dirk M. Van Doren		48	Executive Vice President and Chief Financial Officer
Matthew K. Grubb		43	Executive Vice President and Chief Operating Officer
Larry K. Coshow		48	Executive Vice President — Land
Todd N. Tipton		52	Executive Vice President — Exploration
Rodney E. Johnson		50	Senior Vice President — Reservoir Engineering
V. Bruce Thompson		60	Senior Vice President — Legal and General Counsel
Thomas L. Winton		60	Senior Vice President — Information Technology and Chief Information Officer
Mary L. Whitson		46	Senior Vice President — Human Resources
Randall D. Cooley		53	Vice President — Accounting
Bill Gilliland		69	Director
Dan Jordan		50	Director
N. Malone Mitchell, 3rd		46	Director
Roy T. Oliver, Jr.		55	Director
D. Dwight Scott		44	Director
Jeffrey Serota		41	Director

Tom L. Ward (Chairman, Chief Executive Officer and President) Mr. Ward has served as our Chairman and Chief Executive Officer since June 2006 and as our President since December 2006. Prior to joining SandRidge, he served as President, Chief Operating Officer and a director of Chesapeake Energy Corporation (NYSE: CHK) from the time he co-founded the company in 1989 until February 2006. From February 2006 until June 2006, Mr. Ward managed his private investments. Chesapeake Energy Corporation is the second largest independent natural gas producer in the U.S. Mr. Ward graduated from the University of Oklahoma in 1981 with a Bachelor of Business Administration in Petroleum Land Management. He is a member of the Board of Trustees of Anderson University in Anderson, Indiana.

Dirk M. Van Doren (Executive Vice President and Chief Financial Officer) Mr. Van Doren has served as our Chief Financial Officer since June 2006. He served in High Yield Research at Goldman Sachs from 1999 until May 2006 and prior to that he was in Equity Research at Bear Stearns. Mr. Van Doren graduated from Colgate University in 1981 with a Bachelor of Arts in Political Science and International Relations and earned a Masters degree in Business Administration from Duke University, The Fuqua School of Business in 1985.

Matthew K. Grubb (Executive Vice President and Chief Operating Officer) Mr. Grubb has served as our Executive Vice President and Chief Operating Officer since June 2007. Prior to this, he had served as our Executive Vice President — Operations since August 2006. Mr. Grubb was employed by Samson Resources beginning in 1995 and served as Division Operations Manager of East Texas and Southeast U.S. Regions for Samson Resources from 2002 through July 2006. Prior to that he was in Business Development at Enogex Inc. and held various technical positions at ConocoPhillips. Mr. Grubb holds a Bachelor of Science degree in Petroleum Engineering in 1986 and a Master of Science degree in Mechanical Engineering in 1988, both from Texas A&M University.

Larry K. Coshow (Executive Vice President — Land) Mr. Coshow has served as our Executive Vice President — Land since September 2006. He previously worked in various land management capacities for Chesapeake Energy Corporation from 1999 through August 2006. Mr. Coshow also worked in various land management capacities at JMA Energy Company, Samson Resources and Texas Oil & Gas Corp. Mr. Coshow received a Bachelor of Business Administration in Petroleum Land Management from the University of Oklahoma in 1981 and earned his Masters degree in Business Administration from Oklahoma City University’s Meinders School of Business in 1993. A founding board member for the University of Oklahoma Football

87

Lettermen’s Association, Mr. Coshow serves on the board of directors for the University of Oklahoma’s Varsity “O” Club and is also an active member of the Oklahoma state board for the Fellowship of Christian Athletes.

Todd N. Tipton (Executive Vice President — Exploration) Mr. Tipton joined us as Executive Vice President of Exploration in September 2006. Prior to this, he was Exploration Manager of the Western Division from 2001 through August 2006 for Devon Energy. His career began with Conoco in geophysical acquisition, processing and interpretation and he continued to hold corporate and management positions of increasing responsibilities until he left in 1994 to join Alberta Energy Company (EnCana). After EnCana, Mr. Tipton worked for Samson Resources and in private consulting. He received a Bachelor degree in Geology from The State University of New York at Buffalo in 1977, and completed an executive development program at The Johnson Graduate School of Management at Cornell University. Mr. Tipton is a member of the Rocky Mountain Association of Geologists and a member of the Independent Petroleum Association of Mountain States.

Rodney E. Johnson (Senior Vice President — Reservoir Engineering) Mr. Johnson joined us as Vice President of Reservoir Engineering in January 2007 and was promoted to Senior Vice President — Reservoir Engineering in June 2007. He most recently served as Manager of Reservoir Engineering over Texas and Louisiana Regions for Chesapeake Energy Corporation from October 2003 through December 2006. Prior to this, Mr. Johnson served as Manager of Technology for Aera Energy (a joint venture of Exxon/Shell) where he held positions of increasing importance from 1996 through September 2003. Mr. Johnson graduated from Wichita State University in 1980 with a Bachelor of Science degree in Mechanical Engineering; he has also been a registered Professional Engineer since 1988.

V. Bruce Thompson (Senior Vice President — Legal and General Counsel) Mr. Thompson has served as our General Counsel, Senior Vice President — Legal and Secretary since March 2007. From 2003 until joining us, he was Senior Counsel with the law firm of Brownstein Hyatt Farber Schreck, working in the firm’s Washington, D.C. and Denver offices. From July 2002 until joining Brownstein Hyatt Farber Schreck, Mr. Thompson was a self employed lobbyist and consultant for oil and gas related companies, both domestically and internationally. Mr. Thompson has also served as Senior Vice President and General Counsel of Forest Oil Corporation and Chief of Staff for then Congressman, now U.S. Senator, James Inhofe. Mr. Thompson graduated from the University of Pennsylvania Wharton School of Business with a Bachelor of Science degree in Economics in 1969 and received his Juris Doctorate from the University of Tulsa College of Law in 1974.

Thomas L. Winton (Senior Vice President — Information Technology & CIO) Mr. Winton has served as our Senior Vice President — Information Technology and Chief Information Officer since May 2006. Prior to joining us, Mr. Winton served as Senior Vice President and Chief Information Officer for Chesapeake Energy Corporation from July 1998 until retiring in July 2005. Mr. Winton obtained a Bachelor of Science degree in Mathematics from Oklahoma Christian University in 1969, a Masters degree in Mathematics from Creighton University in 1973, and Masters degree in Business Administration from the University of Houston in 1980. Mr. Winton also completed the Tuck Executive Program, Tuck School of Business, Dartmouth College in 1987.

Mary L. Whitson (Senior Vice President — Human Resources) Ms. Whitson has served as our Senior Vice President — Human Resources since September 2006. Ms. Whitson was the Vice President — Human Resources for Chesapeake Energy Corporation through August 2006, where she held human resources management positions of increasing responsibility for more than eight years. Prior to 1998, she was the Human Resources Manager for FKW, Incorporated, an architecture and government services contracting firm, where she was employed for 16 years. She attended Oklahoma State University and received a Bachelor of Science degree from the University of Central Oklahoma in 1996. Certified as a Senior Professional in Human Resources (SPHR), Ms. Whitson is a graduate of Leadership Oklahoma City Class XXIV and currently serves as a member of the board of directors for the YWCA of Oklahoma City.

Randall D. Cooley (Vice President — Accounting) Mr. Cooley has served as our Vice President, Accounting since November 2006, upon the closing of the NEG acquisition. Prior to joining SandRidge, Mr. Cooley served as the senior financial officer with National Energy Group, Inc. until the time of the NEG

88

acquisition, most recently as Vice President and Chief Financial Officer. From 1989 until 2001, Mr. Cooley was Vice President, Controller and Chief Financial Officer for Shana Petroleum Company. He began his career in 1978 with Pennzoil Oil Company in Houston. From 1980 until 1984, he was employed in public accounting and from 1984 until 1989, he was controller for Rebel Drilling Company and Wildcat Well Service. Mr. Cooley earned a Bachelor of Science in Business Administration, with a major in Accounting, from the University of Southern Mississippi in 1978 and is a Certified Public Accountant.

Bill Gilliland (Director) Mr. Gilliland was appointed as a director on January 7, 2006. Mr. Gilliland has served as managing partner of several personal and family investment partnerships, including Gillco Energy, L.P. and Gillco Investments, L.P., since April 1999. Prior to this, Mr. Gilliland was the founder, Chief Executive Officer, President and Chairman of Cross-Continent Auto Retailers, Inc. Mr. Gilliland holds a Bachelor of Business Administration from North Texas State University.

Dan Jordan (Director) Mr. Jordan was appointed as a director of SandRidge in December 2005. Mr. Jordan also has served as a director of PetroSource since May 2004 and served as a Vice President and director of Symbol Underbalanced Air Services and Larco from August 2003 to September 2005. From October 2005 through August 2006, Mr. Jordan served as our Vice President, Business. Since September 2006, Mr. Jordan has been involved in private investments. Prior to joining SandRidge, Mr. Jordan founded Jordan Drilling Fluids, Inc. and served as its Chairman, President and Chief Executive Officer from March 1984 to July 2005. Mr. Jordan sold Jordan Drilling Fluids, Inc. and its wholly owned subsidiary, Anchor Drilling Fluids USA Inc., in August 2005. At that time, Anchor Drilling Fluids USA Inc. was the largest privately held domestic drilling fluids firm.

N. Malone Mitchell, 3rd, (Director) Mr. Mitchell has served as a director of our company since its inception. Mr. Mitchell founded SandRidge in 1984. He served as Operations Manager until 1989 when he assumed the role of Chairman, Chief Executive Officer and President, which he held until June 2006. From June 2006 until December 2006, Mr. Mitchell served as our President and Chief Operating Officer. Mr. Mitchell currently manages his personal investments. Prior to his involvement with SandRidge, Mr. Mitchell worked in the oil field services industry and was employed in his family’s ranching and aviation businesses. Mr. Mitchell graduated from Oklahoma State University in 1983 with a Bachelor of Science degree.

Roy T. Oliver, Jr. (Director) Mr. Oliver was appointed as a director on July 13, 2006. Mr. Oliver is President of R.T. Oliver Investments, Inc., a diversified investment company with interests in energy, energy services, media and real estate. The company presently owns the largest portfolio of class A office properties in Oklahoma. He is also President and Chairman of the Board of Valliance Bank, N.A. Prior to this time, he founded U.S. Rig and Equipment, Inc. in 1980 and served as its President until its assets were sold in August 2003. Mr. Oliver is a graduate of The University of Oklahoma with a Bachelor of Business Administration degree. He serves on The University of Oklahoma Michael F. Price College of Business Board of Advisors.

D. Dwight Scott (Director) Mr. Scott was appointed as a director on March 20, 2007. He is a Managing Director of GSO Capital Partners, an investment advisor specializing in the leveraged finance marketplace. Prior to joining GSO, Mr. Scott was Executive Vice President and Chief Financial Officer for El Paso Corporation. He is a member of the Board of Directors of MCV Investors, Inc., United Engines Holding Company LLC, KIPP, Inc. and the Board of Trustees of the Council on Alcohol and Drugs Houston. Mr. Scott earned a Bachelor’s degree from the University of North Carolina at Chapel Hill and a Master’s of Business Administration from the University of Texas at Austin.

Jeffrey Serota (Director) Mr. Serota was appointed as a director of SandRidge Energy, Inc. on March 20, 2007. He currently serves as a Senior Partner with Ares Management LLC, an independent Los Angeles based investment firm. Prior to joining Ares, Mr. Serota worked at Bear Stearns, where he specialized in providing investment banking services to financial sponsor clients of the firm. He currently serves on the Board of Directors of Marietta Holding Corporation, Douglas Dynamics, LLC, AmeriQual Group LLC, WCA Waste Corporation and White Energy, Inc. Mr. Serota graduated magna cum laude with a Bachelor of Science degree in Economics from the University of Pennsylvania’s Wharton School of Business and received a Masters of Business Administration degree from UCLA’s Anderson School of Management.

89

Board of Directors

Our board of directors currently consists of seven directors, Messrs. Ward, Gilliland, Jordan, Mitchell, Oliver, Scott and Serota. We are not currently required to comply with the corporate governance rules of any stock exchange and, as a private company, we are not currently subject to many of the provisions of the Sarbanes-Oxley Act of 2002 and related SEC rules (collectively, “Sarbanes-Oxley”). However, upon the effectiveness of the registration statement related to this prospectus, we will become subject to all of the provisions of Sarbanes-Oxley. If, as we anticipate, our common stock becomes listed on the New York Stock Exchange, a majority of our directors will be required to meet standards of independence. We believe that Messrs. Oliver, Scott and Serota currently meet these independence standards and intend to appoint an additional independent director in order to comply with the listing requirements of the New York Stock Exchange.

Our certificate of incorporation and bylaws provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, shareholders will elect a portion of our board of directors each year. Class I directors’ terms will expire at the annual meeting of shareholders to be held in 2010, Class II directors’ terms will expire at the annual meeting of shareholders to be held in 2008 and Class III directors’ terms will expire at the annual meeting of shareholders to be held in 2009. The Class I directors are Messrs. Gilliland, Scott and Serota, the Class II directors are Messrs. Ward and Oliver, and the Class III directors are Messrs. Mitchell and Jordan. At each annual meeting of shareholders held after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election until the third annual meeting following election. The division of our board of directors into three classes with staggered terms may delay or prevent a change of our management or a change in control. See “Description of Capital Stock — Anti-Takeover Effects of Provisions of Delaware Law, Our Certificate of Incorporation and Bylaws — Classified Board; Renewal of Directors.”

In addition, our bylaws provide that the authorized number of directors, which shall constitute the whole board of directors, may be changed by resolution duly adopted by the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. Vacancies and newly created directorships may be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum.

Committees of the Board

Audit Committee.  We established an audit committee during the second quarter of 2007 consisting of Messrs. Scott, Oliver and Serota, each of whom has been determined to be independent under the rules of the SEC and the listing requirements of the New York Stock Exchange by our board of directors. Mr. Scott serves as chairman of this committee and has been determined by our board of directors to be an “audit committee financial expert” as defined under the rules of the SEC. This committee oversees, reviews, acts on and reports on various auditing and accounting matters to our board of directors, including: the selection of our independent accountants, the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. In addition, the audit committee oversees our compliance programs relating to legal and regulatory requirements.

Compensation Committee.  We expect to establish a compensation committee during the third quarter of 2007. We anticipate that the compensation committee will consist of three directors, at least one of whom will be independent under the rules of the SEC and the listing requirements of the New York Stock Exchange. As required by the listing standards of the New York Stock Exchange, a majority of the compensation committee will be independent directors within 90 days of listing and consist of solely independent directors within one year of listing. This committee will establish salaries, incentives and other forms of compensation for officers and other employees. Our compensation committee will also administer our incentive compensation and benefit plans. Upon formation of the compensation committee, we expect to adopt a compensation committee charter defining the committee’s primary duties in a manner consistent with the rules of the New York Stock Exchange.

90

Nominating and Corporate Governance Committee.  We expect to establish a nominating and corporate governance committee during the third quarter of 2007. As required by the listing standards of the New York Stock Exchange, the nominating and corporate governance committee will consist of a majority of independent directors within 90 days of listing and consist of solely independent directors within one year of listing. This committee will identify, evaluate and recommend qualified nominees to serve on our board of directors, develop and oversee our internal corporate governance processes and maintain a management succession plan. Upon formation of the nominating and corporate governance committee, we expect to adopt a nominating and corporate governance committee charter defining the committee’s primary duties in a manner consistent with the rules of the New York Stock Exchange.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our board of directors. We do not currently have a compensation committee. During the last fiscal year, both Mr. Ward, our Chairman, Chief Executive Officer and President, and Mr. Mitchell, our former Chairman, Chief Executive Officer and President, participated in the deliberations of our board of directors concerning executive officer compensation.

Director Compensation

Directors who also serve as employees receive no compensation for serving on our board of directors. Non-employee directors receive a $50,000 retainer and $12,500 for each of the four regular meetings of the board of directors attended by such director. In addition, in 2006, each non-employee director received an annual restricted stock grant in the amount of $100,000 based on the fair market value of common stock at the date of grant, which will vest in 25% increments on each of the first four anniversaries following the date of grant.

From January 1, 2006 to July 10, 2006, each of our non-employee directors received an annual retainer of $30,000 and $1,000 per board meeting attended in person. Directors who also served as employees during this period received no compensation for serving on our board of directors.

The following table sets forth the aggregate compensation awarded to, earned by or paid to our directors during 2006.

	Fees Earned
	or Paid in			Stock
Name	Cash			Awards			Total
Bill Gilliland	$	78,000(1	)	$	14,385	(3)	$	92,385
Dan Jordan	$	50,000(2	)	$	12,259	(3)	$	62,259
Roy T. Oliver, Jr.	$	50,000(2	)	$	14,385	(3)	$	64,385

(1)	Consists of (i) $50,000 received as a retainer for one year of service as a non-employee director, and (ii) $28,000 for attending three meetings before July 10, 2006 and two regular meetings following July 10, 2006.
(2)	Consists of (i) $25,000 received as a retainer for six months of service as a non-employee director and (ii) $25,000 received for attending two regular meetings after July 10, 2006.
(3)	Includes the dollar amount of compensation expense we recognized for the fiscal year ended December 31, 2006 in accordance with FAS 123R. Pursuant to SEC rules and regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by our directors. Assumptions used in the calculation of these amounts are included in Note 18 to our audited financial statements included in this prospectus. As of December 31, 2006, the number of shares of stock held by each non-employee director was: Mr. Gilliland — 1,348,489; Mr. Jordan — 633,333 and Mr. Oliver — 400,000.

91

Indemnification

We intend to enter into indemnification agreements with all of our directors and executive officers. These indemnification agreements are intended to permit indemnification to the fullest extent now or hereafter permitted by the General Corporation Law of the State of Delaware. It is possible that the applicable law could change the degree to which indemnification is expressly permitted.

The indemnification agreements will cover expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement incurred as a result of the fact that such person, in his or her capacity as a director or officer, is made or threatened to be made a party to any suit or proceeding. The indemnification agreements will generally cover claims relating to the fact that the indemnified party is or was an officer, director, employee or agent of us or any of our affiliates, or is or was serving at our request in such a position for another entity. The indemnification agreements will also obligate us to promptly advance all reasonable expenses incurred in connection with any claim. The indemnitee will be, in turn, obligated to reimburse us for all amounts so advanced if it is later determined that the indemnitee is not entitled to indemnification. The indemnification provided under the indemnification agreements will not be exclusive of any other indemnity rights; however, double payment to the indemnitee will be prohibited.

We will not be obligated to indemnify the indemnitee with respect to claims brought by the indemnitee against:

•  us, except for:

•  claims regarding the indemnitee’s rights under the indemnification agreement;

•  claims to enforce a right to indemnification under any statute or law; and counter-claims against us in a proceeding brought by us against the indemnitee; or

•  any other person, except for claims approved by our board of directors.

We have also agreed to obtain and maintain director and officer liability insurance for the benefit of each of the above indemnitees. These policies will include coverage for losses for wrongful acts and omissions and to ensure our performance under the indemnification agreements. Each of the indemnitees will be named as an insured under such policies and provided with the same rights and benefits as are accorded to the most favorably insured of our directors and officers.

Web Access

We anticipate providing access through our website at http://www.sandridgenergy.com to current information relating to governance, including a copy of each board committee charter, our Code of Conduct, our corporate governance guidelines and other matters impacting our governance principles. You may also contact our chief financial officer for paper copies of these documents free of charge once they have been adopted.

92

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (1) provides an overview of our compensation policies and programs; (2) explains our compensation objectives, policies and practices with respect to our executive officers; and (3) identifies the elements of compensation for each of the individuals identified in the following table, whom we refer to in this Compensation Discussion and Analysis as our “named executive officers.”

Name	Principal Position
Current Officers:
Tom L. Ward	Chairman, Chief Executive Officer and President
Dirk M. Van Doren	Executive Vice President and Chief Financial Officer
Matthew K. Grubb	Executive Vice President and Chief Operating Officer
Former Officers:
N. Malone Mitchell, 3rd	Former Chairman, Chief Executive Officer and President
John Gaines	Former Chief Financial Officer
Barbara Pope	Former Vice President, Accounting
Todd Dutton	Former COO and Vice President — Land
Matthew McCann	Former Senior Vice President — Legal

Since our inception through June 2006, we were controlled by Mr. Mitchell, our founder and former Chairman, Chief Executive Officer and President. During this time, Mr. Mitchell held ultimate decision making power with respect to the compensation of our executive officers. In June 2006, Mr. Ward purchased a significant portion of Mr. Mitchell’s common stock and was appointed as our Chairman and Chief Executive Officer. Mr. Ward’s initial compensation level and employment agreement were recommended by a special committee consisting of our independent directors at that time and were approved by our full board of directors. Following Mr. Ward’s appointment, we have experienced significant changes in management, including replacement of substantially all of our executive officers, as well as our compensation objectives, policies and practices as described in more detail below.

Setting Executive Compensation

Role of our Board and Executive Officers.  Our board of directors does not currently have a separate compensation committee due to the size of our existing board of directors and the lack of independent directors. Prior to June 2006, Mr. Mitchell held ultimate decision making control with respect to the compensation levels of our named executive officers, including himself. In determining compensation levels, Mr. Mitchell relied primarily on his personal experience as chief executive officer and founder of the company. Mr. Mitchell did not participate in the deliberations of the special committee or the board of directors related to the compensation of Mr. Ward.

Since his appointment in June 2006, Mr. Ward has been actively involved in providing recommendations to the board of directors regarding the compensation levels of our existing named executive officers and our executive compensation program. Mr. Ward has relied primarily on his personal experience as co-founder and former President and Chief Operating Officer of Chesapeake in determining his recommendations to the board of directors.

No other named executive officer assumed an active role in the evaluation, design or administration of our 2006 executive officer compensation program.

93

Role of the Compensation Committee.  We expect to establish a compensation committee during the third quarter of 2007 consisting of two directors, both of which will have been determined by the board of directors to be independent under the standards of the New York Stock Exchange. Our board of directors will determine the members of the compensation committee and the scope of the compensation committee’s authority. We anticipate that the authority of the committee will include, among other things:

•  approving, in advance, the compensation and employment arrangements for our executive officers;

•  reviewing all of the compensation and benefit-based plans and programs in which our executive officers participate and adjusting such plans and programs based on our current management team and in anticipation of becoming a public company;

•  administration of our Well Participation Plan; and

•  reviewing and recommending all changes to our stock plan to our board of directors, as appropriate, subject to shareholder approval as required.

In addition, we anticipate that the charter of our compensation committee will grant the committee the sole authority to retain, at our expense, outside consultants or experts to assist it in its duties.

Our board of directors did not engage the services of a compensation consultant to design, review or evaluate our executive compensation arrangements for 2006 or prior thereto.

Objectives of our Executive Compensation Program

Prior to June 2006, our primary executive compensation strategy was to retain our executive officers and reward performance in a manner consistent with similar employers in Amarillo, Texas, the former location of our headquarters. Mr. Mitchell exercised ultimate decision making with respect the compensation of all named executive officers.

Since June 2006, our primary executive officer compensation strategy has been to structure our compensation program to enable us to seek out highly qualified individuals capable of growing the size and enterprise value of our company, complete a successful initial public offering and effectively transition into the new obligations we will face as a public company. Due to our significant growth, our move from Amarillo, Texas to Oklahoma City, Oklahoma and our anticipated initial public offering, we have hired numerous new employees, including several of the named executive officers. These new hires have been made in a competitive compensation environment for highly qualified and experienced energy industry executives, frequently from larger, established public companies. Accordingly, our compensation philosophy has been to strategically and opportunistically attract executive officers by offering competitive cash compensation packages with the potential for the increased returns associated with a high-growth company.

Our board of directors has established a number of processes to assist it in ensuring that our executive compensation program supports these objectives and our company culture. Among those are competitive benchmarking and assessment of individual and company performance, which are described in more detail below.

Competitive Benchmarking.  Our board of directors compares pay practices for our executives against other companies to assist it in the review and comparison of each element of compensation for our executive officers. This practice recognizes that (1) our compensation practices must be competitive in the marketplace and (2) marketplace information is one of the many factors considered in assessing the reasonableness of our executive compensation program.

The comparative compensation data used in our board of directors’ analysis is derived from comprehensive surveys performed by third parties. For the fiscal year ended December 31, 2006, our board of directors reviewed the annual reports or similar information of public companies within our industry of comparable or greater size and in Oklahoma City, Oklahoma, including Chesapeake Energy Corporation and Devon Energy Corporation (collectively, “Peer Companies”). Due to our organizational structure, comparisons of survey data to the job descriptions of our executive officers is sometimes difficult. Furthermore, the complexities of our

94

operations and the skills needed of our executive officers are, we believe, greater than those of most companies with comparable total revenues. Therefore, we at times target compensation levels of our Peer Companies, which are significantly larger or more developed. Our board of directors believes that targeting this level of compensation helps to meet our overall total rewards strategy and executive compensation objectives outlined above.

Our board of directors believes that these industry specific and general industry comparisons provide the most useful information that is reasonably assessable. In addition to the foregoing data, our board of directors may consider additional market data from other sources, from time to time. The market data described above is used collectively by our board of directors to make informed decisions regarding executive compensation.

Assessment of Individual and Company Performance.  While we generally do not adhere to rigid formulas in determining the amount and mix of compensation elements, our board of directors reviews specific company performance measures when determining the size of incentive payouts for our executive officers. In addition, a portion of the incentive payouts are based on evaluations of individual performance. These performance measures are discussed in more detail below.

Elements of our Executive Compensation Program

In furtherance of our compensation objectives, our executive compensation program during 2006 consisted of three basic components:

•  base salaries;

•  discretionary semi-annual cash bonus awards; and

•  restricted stock grants.

Base Salaries.  Since June 2006, we have provided our executive officers and other employees with an annual base salary to compensate them for services rendered during the year. Our philosophy has been to establish base salaries that are competitive with our Peer Companies. In addition to providing a base salary that is competitive with the market, we target salary compensation to align each position’s salary level so that it accurately reflects the relative importance of the position within our organization. To that end, semi-annual salary adjustments are based on individual factors, including:

•  the responsibilities of the officer;

•  period over which the officer has performed these responsibilities;

•  the scope, level of expertise and experience required for the officer’s position;

•  the strategic impact of the officer’s position; and

•  potential future contribution and demonstrated individual performance of the officer.

The base salaries of our named executive officers are currently reviewed on a semi-annual basis. Adjustments are made based on our overall performance and the contribution of the individual named executive officer. Due to the competitive market in which the majority of our current named executive officers were hired, significant emphasis was placed on the individual’s base salary level at their previous employer and the individual’s previous experience and skills.

Prior to June 2006, base salaries were established based primarily on each executive officer’s responsibilities and experience at the discretion of Mr. Mitchell. Base salary levels were competitive with employees of similar size in Amarillo, Texas and were adjusted from time to time at the discretion of Mr. Mitchell.

Cash Bonus Awards.  As one way of accomplishing our compensation objectives, our board of directors rewards our executive officers for their contribution to our financial and operational success through the award of semi-annual cash bonuses intended to encourage the attainment of our near-term strategic, operational and financial goals and individual performance measures. The payment of semi-annual bonuses also facilitates the retention of our executive officers because an executive officer must be employed by us on the relevant bonus

95

payment date in order to receive his or her bonus installment payment. In addition, we have paid several of our recently hired named executive officers cash signing bonuses. Cash bonus awards are paid in the discretion of the board of directors upon the recommendation of Mr. Ward.

The factors we consider when determining the amount of any discretionary cash bonus awards are similar to those we consider when setting and adjusting base salaries. Currently, the primary measures upon which we base cash bonus decisions are strategic and operational, rather than financial. For example, in 2006 we focused on the effective execution of the NEG acquisition, successful access to capital to fund our capital expenditures and the results of our drilling program. These goals were selected as the most appropriate measures upon which to base the bonus decisions because they will result in long term value to our shareholders.

Our board of directors approves the personal goals for our Chief Executive Officer and assesses his performance against those goals in determining the amount of the Chief Executive Officer’s cash bonus. Our board of directors expects our Chief Executive Officer to establish and approve personal performance goals for the other executive officers and to review and assess each officer’s performance against those goals, reporting the results to our board of directors.

The personal performance goals relate to the achievement of goals unique to the responsibilities of the individual officer, including, for example:

•  the successful completion of particular projects;

•  the attainment of productivity metrics unique to an officer’s responsibilities;

•  management of an officer’s budgetary responsibilities within specified parameters;

•  the acquisition and implementation of new technical knowledge;

•  the achievement of individual goals that further those of the company; and

•  exceptional performance of functional responsibility.

For 2006, Messrs. Ward, Van Doren, Grubb, Dutton and McCann each received a cash bonus payment as reflected in the Bonus column of the Summary Compensation Table.

We generally did not pay cash bonus awards prior to June 2006.

Restricted Stock Grants.  Our board of directors has the discretion to grant restricted stock under our stock plan pursuant to our restricted stock awards program. Our restricted stock awards typically vest over a four-year vesting period. We anticipate that we will continue to make grants of restricted stock awards on a semi-annual basis. We believe these awards help us to attract highly qualified individuals by providing the potential for the increased returns associated with a high growth company and better aligns the interests of our named executive officers with those of our shareholders. In addition, the gradual vesting period of these awards serves as a tool for the retention of our employees.

Other Benefits

In addition to base salaries, cash bonus awards and restricted stock grants, we provide the following forms of compensation:

Health and Welfare Benefits.  Our executive officers are eligible to participate in medical, dental, vision, disability insurance and life insurance to meet their health and welfare needs. These benefits are provided so as to assure that we are able to maintain a competitive position in terms of attracting and retaining officers and other employees. This is a fixed component of compensation and the benefits are provided on a non-discriminatory basis to all of our employees in the United States.

Perquisites and Other Personal Benefits.  We believe that the total mix of compensation and benefits provided to our executive officers is competitive and perquisites should generally not play a large role in our executive officers’ total compensation. As a result, the perquisites and other personal benefits we provide to our executive officers are limited. Pursuant to our employment agreement with Mr. Ward, we pay the fees and

96

expenses related to one country club membership in either Amarillo, Texas or Oklahoma City, Oklahoma. In addition, Mr. Ward receives accounting support from our employees for his personal investments and activities. We have also agreed to provide access to an aircraft at our expense for the personal travel of Mr. Ward and his family and other guests who accompany him. If Mr. Ward does not accompany his family or other guests, he will reimburse us for the variable cost of the use of such aircraft. Mr. Ward will pay all personal income taxes accruing as a result of aircraft use.

401(k) Savings Plan.  We have a defined contribution profit sharing/401(k) plan, which is designed to assist our eligible officers and employees in providing for their retirement. We match the contributions of our employees to the plan, in shares of our common stock, at the rate of 100% of up to 15% of an employee’s eligible wages or salary. Employees contributions are immediately 100% vested; however, company contributions vest in equal annual increments over a four-year period.

Well Participation Program.  Mr. Ward also has the opportunity to participate as a working interest owner in the oil and natural gas wells that we drill. The Well Participation Program (“WPP”) fosters and promotes the development and execution of our business by: (a) retaining and motivating our chief executive officer; (b) aligning the financial rewards and risks of Mr. Ward with the Company more effectively and directly than other performance incentive programs maintained by many of our peers; and (c) imposing on Mr. Ward the same risks we incur in our exploration and production operations.

Employment Agreements, Severance Benefits and Change in Control Provisions

Employment Agreement of Tom L. Ward.  We maintain an employment agreement with our Chairman, Chief Executive Officer and President, Mr. Ward, to ensure that he will perform his role for an extended period of time. This agreement is described in more detail elsewhere. Please read “— Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table — Employment Agreements — Employment Agreement of Tom L. Ward.” This agreement provides for severance compensation to be paid if the employment of Mr. Ward is terminated under certain conditions, such as a change in control and termination without cause, each as defined in the agreement.

The employment agreement between us and Mr. Ward and the related severance provisions are designed to meet the following objectives:

•  Change in Control.  In certain scenarios, the potential for merger or being acquired may be in the best interests of our shareholders. As a result, we have agreed to provide severance compensation to Mr. Ward if his employment is terminated following a change in control transaction to promote the ability of Mr. Ward to act in the best interests of our shareholders even though his employment could be terminated as a result of the transaction.

•  Termination without Cause.  If we terminate Mr. Ward’s employment without cause, we are obligated to pay him certain compensation and other benefits as described in greater detail in “— Potential Payments upon Termination or Change in Control” below. We believe these payments are appropriate because they represent the general market triggering events found in employment agreements of companies against whom we compete for executive-level talent at the time these provisions were negotiated. It is also beneficial for the Company and Mr. Ward to have mutually agreed to a severance package that is in place prior to any termination event. This provides us with more flexibility to make a change in senior management if such a change is in our and our shareholders’ best interests.

We believe that the triggering events and severance payments set forth under Mr. Ward’s employment agreement are appropriate for the company and fair for shareholders and represent the general market triggering events found in employment agreements of companies against whom we competed for executive-level talent at the time these provisions were negotiated.

Employment Agreement of N. Malone Mitchell, 3rd.  Prior to his resignation effective at the completion of 2006, Mr. Mitchell was party to an employment agreement with terms identical to those of the employment agreement of Mr. Ward described above. This agreement was entered into in June 2006, simultaneously with the employment agreement with Mr. Ward, and was terminated upon his resignation.

97

Other Named Executive Officers.  As of December 31, 2006, we had not entered into an employment agreement with any of our other named executive officers and there was no severance plan affecting our other named executive officers. We intend to enter into additional employment agreements and severance plans with other executive officers during 2007.

Other Matters

Stock Ownership Guidelines and Hedging Prohibition.  We do not currently have ownership requirements or a stock retention policy for our named executive officers. However, Mr. Ward’s employment agreement requires that the value of the shares of our common stock that he beneficially owns remain above 500% of his annual salary. In addition, we do not have a policy that restricts our executive officers from limiting their economic exposure to our stock. We will continue to periodically review best practices and re-evaluate our position with respect to stock ownership guidelines and hedging prohibitions.

Tax Treatment of Executive Compensation Decisions.  Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1,000,000 paid to our principal executive officer, our principal financial officer or any of the three other most highly compensated executive officers, unless the compensation qualifies as “performance-based compensation.” In order to be deemed performance-based compensation, the compensation must be based, among other things, on the achievement of pre-established, objective performance criteria and must be pursuant to a plan that has been approved by our stockholders. Our board of directors has not yet adopted a policy with respect to the limitation under Section 162(m).

Executive Compensation Changes In Fiscal 2007

During 2007, we have made the following changes and adjustments to the compensation packages of our named executive officers. We have not modified our general compensation objectives, policies or procedures.

Tom L. Ward

Mr. Ward’s annualized base salary was increased from $900,000 to $1,050,000 effective January 1, 2007 and to $1,100,000 effective July 2, 2007. On January 10, 2007, he received bonus compensation in the amount of $950,000 and a bonus payment of $950,000 was issued July 11, 2007. A restricted stock grant of 300,000 shares was issued January 10, 2007 and a restricted stock grant of 325,000 shares was issued July 11, 2007.

Dirk M. Van Doren

Mr. Van Doren’s annualized base salary was $450,000 as of December 31, 2006 and was not adjusted on January 1, 2007. His base compensation was increased to $500,000 effective July 2, 2007. On January 10, 2007, he received bonus compensation in the amount of $225,000 and a bonus payment of $300,000 was issued July 11, 2007. A restricted stock grant of 40,000 shares was issued January 10, 2007 and a restricted stock grant of 60,000 shares was issued July 11, 2007.

Matthew K. Grubb

Mr. Grubb’s annualized base salary was increased from $325,000 to $400,000 effective January 1, 2007 and to $450,000 effective July 2, 2007. On January 10, 2007, he received bonus compensation in the amount of $150,000 and a bonus payment of $200,000 was issued July 11, 2007. A restricted stock grant of 20,000 shares was issued January 10, 2007 and a restricted stock grant of 25,000 shares was issued July 11, 2007.

98

Summary Compensation

The following table sets forth the aggregate compensation awarded to, earned by or paid to our named executive officers for services rendered in all capacities during the fiscal year ended December 31, 2006.

Summary Compensation Table for the Year Ended December 31, 2006

							Stock		All Other
Name and Principal Position	Year		Salary		Bonus		Awards(9)		Compensation(10)		Total
Current Officers:
Tom L. Ward		2006	$	526,154	$	950,000		—	$	374,657	$	1,850,811
Chairman, Chief Executive Officer and President(1)
Dirk M. Van Doren		2006	$	251,923	$	225,000	$	72,512	$	7,961	$	557,396
Executive Vice President and Chief Financial Officer(2)
Matthew K. Grubb		2006	$	136,250	$	307,000	$	34,226	$	8,944	$	486,420
Executive Vice President and Chief Operating Officer(3)
Former Officers:
N. Malone Mitchell, 3rd		2006	$	611,539		—		—	$	137,692	$	749,231
Former Chairman, Chief Executive Officer and President(4)
John Gaines		2006	$	89,423		—	$	1,437,494	$	72,739	$	1,599,656
Former Chief Financial Officer(5)
Barbara Pope		2006	$	103,958		—	$	2,109,000	$	136,391	$	2,349,348
Former Vice President, Accounting(6)
Todd Dutton		2006	$	237,021	$	10,000	$	377,914	$	92,502	$	717,437
Former COO and Vice President — Land(7)
Matthew McCann		2006	$	183,173	$	100,000	$	377,914	$	72,877	$	733,964
Former Senior Vice President — Legal(8)

(1)	Mr. Ward was appointed as our Chairman and Chief Executive Officer on June 8, 2006. Prior to this date, he received no compensation from us. He was also appointed as our President upon the resignation of Mr. Mitchell effective at the end of 2006.
(2)	Mr. Van Doren was appointed as our Executive Vice President and Chief Financial Officer on June 8, 2006 and began receiving compensation effective May 15, 2007. Prior to this date, he received no compensation from us.
(3)	Mr. Grubb became an employee on August 1, 2006. Prior to this date, he received no compensation from us.
(4)	Mr. Mitchell served as our Chairman, Chief Executive Officer and President until June 8, 2006. Following this date, Mr. Mitchell served as our President and Chief Operating Officer until his resignation as an executive officer, effective as of December 31, 2006. Mr. Mitchell continues to serve as one of our directors.

99

(5)	Mr. Gaines served as our Chief Financial Officer until June 8, 2006. Upon Mr. Gaines’ resignation, the board of directors elected to accelerate the vesting of 83,333 shares of restricted stock held by Mr. Gaines.
(6)	Ms. Pope served as our Vice President, Accounting until August 31, 2006. Upon Ms. Pope’s resignation, the board of directors elected to accelerate the vesting of 111,000 shares of restricted stock held by Ms. Pope.
(7)	Mr. Dutton served as our Chief Operating Officer until June 2006 and as Vice President — Land until September 2006.
(8)	Mr. McCann served as our Senior Vice President — Legal until May 7, 2007. Mr. McCann remains our employee, but has resigned effective June 30, 2007.
(9)	This column includes the dollar amount of compensation expense we recognized for the fiscal year ended December 31, 2006 in accordance with FAS 123R. Pursuant to the Securities and Exchange Commission’s rules and regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by our named executive officers. Assumptions used in the calculation of these amounts are included in Note 18 to our audited financial statements for the fiscal year ended December 31, 2006 included in this prospectus. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” below for a description of the material features of these awards.
(10)	All Other Compensation consists of the following:

															Employee
									Company						Participation
	Club						Life		Matching		Relocation		Retention or		Plan
	Membership		Accounting		Aircraft		Insurance		Contributions to		Expenses		Severance		Participation		Reimbursement
Name	Dues		Support		Use(a)		Premiums		401(k) Plan		or Bonus		Payment		Allowance		of HSR Fees			Total
Current Officers:
Tom L. Ward	$	2,926	$	123,960	$	122,598	$	173		—		—		—		—	$	125,000	(b)	$	374,657
Dirk M. Van Doren		—		—		—	$	173	$	7,788		—		—		—		—		$	7,961
Matthew K. Grubb		—		—		—	$	173		—	$	8,771		—		—		—		$	8,944
Former Officers:
N. Malone Mitchell, 3rd	$	488		—	$	16,827	$	377		—	$	120,000		—		—		—		$	137,692
John Gaines		—		—		—	$	239		—		—	$	37,500	$	35,000		—		$	72,739
Barbara Pope		—		—		—	$	226	$	4,298	$	30,200	$	66,667	$	35,000		—		$	136,391
Todd Dutton		—		—		—	$	377	$	10,125	$	40,000			$	42,000		—		$	92,502
Matthew McCann		—		—		—	$	377		—	$	30,000	$	500	$	42,000		—		$	72,877

(a)	Value based on the incremental cost calculated per hour of use by the named executive officer.
(b)	Fees paid by Mr. Ward in connection with obtaining regulatory approval of his purchase of common stock from Mr. Mitchell on June 8, 2006 under the Hart-Scott-Rodino Act. We agreed to reimburse such fees in connection with the approval of Mr. Ward’s initial investment in the company.

100

Grants of Plan-Based Awards

The following table sets forth information about each grant of an award made to our named executive officers in 2006 under our stock plan pursuant to our restricted stock awards program, including awards, if any, that have been transferred.

Grants of Plan-Based Awards for the Year Ended December 31, 2006

			All Other
			Stock Awards:
			Number of
			Shares of
Name	Grant Date		Stock or Units
Current Officers:
Tom L. Ward		—		—
Dirk M. Van Doren		July 1, 2006		10,000
		September 29, 2006		25,000
Matthew K. Grubb		August 1, 2006		20,000
Former Officers:
N. Malone Mitchell, 3rd		—		—
John Gaines		—		—
Barbara Pope		—		—
Todd Dutton		—		—
Matthew McCann		—		—

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

The following is a discussion of material factors necessary to gain an understanding of the information disclosed in the Summary Compensation Table and the Grants of Plan-Based Awards Table.

Employment Agreements

Employment Agreement of Tom L. Ward.  Mr. Ward serves as our President and Chief Executive Officer pursuant to an employment agreement that is currently set to expire on June 30, 2009. Unless either party gives written notice to terminate the agreement, the agreement automatically renews each year on the anniversary of the effective date for a successive three-year term. Mr. Ward’s employment agreement entitles him to a base salary of not less than $950,000, subject to increase at the discretion of the board of directors, and the opportunity to earn a cash bonus in the sole discretion of the board of directors or any compensation committee thereof. The employment agreement also provides that we will pay the fees and expenses related to one country club membership in either Amarillo, Texas or Oklahoma City, Oklahoma during the term of the employment agreement. Mr. Ward receives accounting support from our employees for his personal investments and activities. He reimburses us for 50% of the salaries and bonuses paid to the employees primarily engaged in supporting Mr. Ward. We have also agreed to provide access to our aircraft at our expense for the personal travel of Mr. Ward and his family and other guests who accompany him. The employment agreement provides that Mr. Ward is entitled to participate in all of our benefit plans and programs and also contains non-compete and confidentiality provisions in the event Mr. Ward’s employment with us is terminated.

Mr. Ward’s employment agreement also includes provisions governing the payment of severance benefits if his employment is terminated by us without cause or in connection with a Change in Control. The agreement also addresses termination due to death or disability. For a description of these payments, please read “— Potential Payments Upon Termination or Change in Control” below.

Additionally, if any of the payments or benefits described above are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, then Mr. Ward is entitled to receive a gross-up payment equal to the amount of excise tax imposed plus all taxes imposed on the gross-up payment.

101

Other Named Executive Officers.  Prior to his resignation effective at the end of 2006, Mr. Mitchell was party to an employment agreement with terms identical to those of the employment agreement of Mr. Ward described above. This agreement was entered into in June 2006, simultaneously with the employment agreement with Mr. Ward and terminated upon his resignation. We have not entered into an employment agreement with any of our other named executive officers. We intend to enter into additional employment agreements with other named executive officers in 2007.

Restricted Stock Awards Program

Prior to 2006, the board of directors granted several of our named executive officers restricted stock pursuant to our restricted stock awards program which vested on the fourth and seventh anniversaries of the date of the grant. Following the resignations of Mr. Gaines and Ms. Pope, the board of directors elected to accelerate the vesting of the restricted stock that had been granted to Mr. Gaines and Ms. Pope under the program. The board of directors also accelerated the vesting of 25% of Mr. Dutton’s four-year restricted stock upon his resignation.

Following June 2006, our restricted stock award program has continued to be used to retain our named executive officers and better align their interests with those of our shareholders. In addition, the program is intended to enable us to effectively recruit highly qualified individuals by offering the potential for significant return following our initial public offering. Grants of restricted stock are made in the discretion of the board of directors. On July 1, 2006 and September 29, 2006, our board of directors approved grants of 10,000 shares of restricted stock and 25,000 shares of restricted stock, respectively, to Mr. Van Doren, 10,000 of which vest in 25% increments on each of the next four anniversaries of the date of the grant, 12,500 of which vest in 25% increments on January 1, 2008 and each of the next three anniversaries thereof, and 12,500 of which vest in 25% increments on July 1, 2008 and each of the next three anniversaries thereof. On August 1, 2006, the board of directors approved a grant of 20,000 shares of restricted stock to Mr. Grubb, 10,000 of which vest in 25% increments on January 1, 2008 and each of the next three anniversaries thereof and 10,000 of which vest in 25% increments on July 1, 2008 and each of the next three anniversaries thereof.

Salary and Cash Bonus Awards in Proportion to Total Compensation

The following table sets forth the percentage of each named executive officer’s total compensation that we paid in the form of base salary and annual cash bonus awards during 2006.

	Percentage of Total
Name	Compensation
Current Officers:
Tom L. Ward		79.7	%
Dirk M. Van Doren		85.6	%
Matthew K. Grubb		91.1	%
Former Officers:
N. Malone Mitchell, 3rd		81.6	%
John Gaines		5.6	%
Barbara Pope		4.4	%
Todd Dutton		34.4	%
Matthew McCann		38.6	%

102

Outstanding Equity Awards Value Fiscal Year-End

The following table reflects all outstanding equity awards held by our named executive officers as of December 31, 2006.

Outstanding Equity Awards as of December 31, 2006

	Stock Awards
	Number of			Market Value
	Shares or			of Shares
	Units of			or Units of
	Stock That			Stock That
Name	Have Not Vested			Have Not Vested(1)
Current Officers:
Tom L. Ward		—			—
Dirk M. Van Doren		35,000	(2)	$	630,000
Matthew K. Grubb		20,000	(3)	$	360,000
Former Officers:
N. Malone Mitchell, 3rd		—			—
John Gaines		—			—
Barbara Pope		—			—
Todd Dutton		—			—
Matthew McCann		100,000	(4)	$	1,800,000

(1)	Valuation based on $18.00 per share.
(2)	Includes (a) 10,000 shares that vest in 25% increments on each of the next four anniversaries of the date of the grant (July 1, 2006), (b) 12,500 shares that vest in 25% increments on January 10, 2008 and each of the next three anniversaries thereof, and (c) 12,500 shares that vest in 25% increments on July 2, 2008 and each of the next three anniversaries thereof.
(3)	Includes (a) 10,000 shares that vest in 25% increments on January 10, 2008 and each of the next three anniversaries thereof, and (b) 10,000 shares that vest in 25% increments on July 1, 2008 and each of the next three anniversaries thereof.
(4)	Includes (a) 66,667 shares that began to vest in 25% increments beginning on January 1, 2007 and will continue to vest on each of the next three anniversaries thereof, and (b) 33,333 shares that vest June 30, 2013. We anticipate that Mr. McCann will forfeit all unvested shares upon his resignation effective June 30, 2007.

103

Option Exercises and Stock Vested

The following table reflects the restricted stock of our named executive officers that vested during 2006. No stock options were outstanding in 2006.

Option Exercises and Stock Vested for the Year Ended December 31, 2006

	Stock Awards
	Number of
	Shares		Value
	Acquired on		Realized
Name	Vesting		on Vesting
Current Officers:
Tom L. Ward		—		—
Dirk M. Van Doren		—		—
Matthew K. Grubb		—		—
Former Officers:
N. Malone Mitchell, 3rd		—		—
John Gaines		83,333	$	1,437,494
Barbara Pope		111,000	$	2,109,000
Todd Dutton		26,667	$	490,006
Matthew McCann		10,000	$	190,000

Potential Payments Upon Termination or Change in Control

Severance Under Employment Agreement of Tom L. Ward

Termination Other Than For Cause.  In the event we terminate Mr. Ward’s employment other than for Cause (as defined below), Mr. Ward is entitled to receive (1) his base salary as in effect on the date of termination during the remaining term of the employment agreement or through the expiration date of the agreement and (2) any vacation pay accrued through the date of termination. If Mr. Ward was terminated other than for Cause on December 31, 2006, his severance would equal $2,250,000 (base salary for 30 months, which is the remaining term of his employment agreement), and the maximum value of his accrued vacation (assuming he took no time off during the year) would be $86,538.

For purposes of his employment agreement, the term “Cause” means (1) the willful and continued failure of Mr. Ward to perform substantially his duties after a written demand for substantial performance is delivered to him by the board of directors which specifically identifies the manner in which the Board believes he has not substantially performed his duties or (2) the willful engaging by Mr. Ward in illegal conduct, gross misconduct or a clearly established violation of our written policies and procedures, in each case which is materially and demonstrably injurious to us. An act or failure to act, on the part of Mr. Ward, will not be considered “willful” unless it is done, or omitted to be done, by him in bad faith or without reasonable belief that the action or omission was in our best interests.

Termination in Connection with Change in Control.  In the event that Mr. Ward’s employment is terminated within one year of a Change in Control event (as defined below) other than for Cause, death or disability, Mr. Ward is entitled to receive (1) a single, lump sum severance payment within 10 days of termination equal to 3 times his base salary for the last 12 calendar months and bonus paid (based on an average of the last three years annual bonuses or such lesser number of years as he was employed) and (2) any applicable gross-up payment (as defined below). To the extent that any payment or distribution is subject to excise tax under Section 4999 of the Code or any other interest of penalties related to such excise tax (collectively “Excise Tax”), the agreement provides we will pay an additional amount (the “Gross-Up Payment”) such that after payment by Mr. Ward of all taxes on the Gross-Up Payment, he will retain an amount of the Gross-Up Payment equal to the Excise Tax. If Mr. Ward were terminated within one year of a Change in Control event other than for Cause, death or disability, his severance would equal $5,500,000 (3 times the sum of his base salary in 2006 of $900,000 plus his bonus of $950,000) plus a Gross-Up Payment equal to $2,508,535 for a total payment of $8,058,535.

104

Under the employment agreement, a “Change in Control” is defined as follows: (1) the acquisition of any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), other than Executive or his affiliates or Malone Mitchell 3rd or his affiliates (the “Exempt persons”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (i) the then outstanding shares of our common stock of (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); (2) the individuals who, as of the date hereof, constitute the board of directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the board of directors. Any individual becoming a director subsequent to the date hereof whose election, or nomination for election by our shareholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered a member of the Incumbent Board as of the date hereof, but any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Incumbent Board will not be deemed a member of the Incumbent Board as of the date hereof; (3) the consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the company (a “Business Combination”), unless following such Business Combination: (i) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the company or all or substantially all of our assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the company or such corporation resulting from such Business Combination) other than one or more of the Exempt Persons beneficially owns, directly or indirectly, 40% or more of, respectively, the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (4) the approval by our shareholders of a complete liquidation or dissolution of the company.

In addition, notwithstanding any provision to the contrary in any option agreement, restricted stock agreement, plan or other agreement relating to equity based compensation, in the event of a termination without Cause or in connection with a Change in Control, all Mr. Ward’s units, stock options, incentive stock options, performance shares, stock appreciation rights and restricted stock (collectively “awards”) will immediately become 100% vested. Further, Mr. Ward’s right to exercise any previously unexercised options will not terminate until the latest date on which such option would expire but for Mr. Ward’s termination. To the extent, we are unable to provide for one or both of the foregoing rights, we will provide in lieu thereof a lump-sum cash payment equal to the difference between the total value of such awards with the foregoing rights and the total value without the foregoing rights. Mr. Ward currently has no unvested compensatory equity awards.

Termination for Cause.  In the event Mr. Ward is terminated for Cause, we will have no further obligation to provide further payments or benefits. If Mr. Ward desires to voluntarily terminate, he must give 90 days’ notice of his intent to termination during which time he can use accrued vacation time or be paid for such days. If Mr. Ward was terminated for Cause on December 31, 2006, the maximum value of his accrued vacation time (assuming he took no time off during the year) would be $86,538.

105

Voluntary Termination.  In the event Mr. Ward voluntarily terminates with or without Cause, we have no further obligations except for any obligations expressly surviving termination of employment.

Termination due to Disability.  If Mr. Ward’s employment is terminated due to disability, then he is entitled to receive base salary through the remaining term of his employment agreement or through the Expiration Date of the agreement. If Mr. Ward was terminated due to disability on December 31, 2006, his severance would equal $2,250,000 (base salary for 30 months, which is the remaining term of his employment agreement).

Termination due to Death.  In the event Mr. Ward’s employment terminates due to death, then he will be entitled to receive (1) base salary payment for 12 months after termination and (2) any accrued benefits. If Mr. Ward was terminated due to death on December 31, 2006, his severance would equal $900,000 (12 months’ salary) plus the maximum value of his accrued vacation (assuming he took no time off during the year) equal to $86,538.

Stock Plan

Upon disability (as defined below) or death of any named executive officer, any benefits awarded under the 2005 Stock Plan will become vested to the extent that vesting would have occurred had the named executive officer remained a participant for a period of 12 months after termination. Disability is defined as the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of 12 months. An option or stock appreciation right that is vested pursuant to disability must be exercised within 18 months or such shorter time as specified in the grant from the date on which termination occurred or the option or stock appreciation right will terminate. If a named executive officer dies who was no longer a participant at the time of death and his options or stock appreciation rights have not yet expired, those options or stock appreciation rights may be exercised within 12 months following death. Mr. Van Doren holds two separate grants of 10,000 and 25,000 shares of restricted stock respectively; only 2,500 shares of the grant of 10,000 shares of restricted stock would vest within the 12 months following his death or disability on December 31, 2006. (See — Outstanding Equity Awards Fiscal Year-End for vesting schedule). The value of the shares of restricted stock vesting upon the death or disability of Mr. Van Doren on December 31, 2006 is $45,000 ($18 per share times 2,500 shares). Mr. Grubb holds 20,000 shares of restricted stock; none of his shares would vest within 12 months of his death or disability occurring on December 31, 2006. (See — Outstanding Equity Awards Fiscal Year-End for vesting schedule).

Upon a Change in Control, the board of directors may take any action with respect to outstanding Awards under the Plan as it deems appropriate, which action may vary among Awards granted to individual participants.

Description of Stock Plan

Scope

Our board of directors and shareholders have approved our Stock Plan (the “Plan”). The Plan authorizes the granting of stock options to purchase common stock, stock appreciation rights, restricted stock, phantom stock and other stock-based awards to our employees, directors and consultants. In addition, the Plan authorizes cash-denominated awards that may be settled in cash, stock or any combination thereof. The purpose of the Plan is to attract, retain and provide incentives to our officers, other associates, directors and consultants and to thereby increase overall shareholder value.

The Plan authorizes 7,074,252 shares of common stock to be used for awards. As of June 30, 2007, 1,463,484 shares had been awarded as restricted stock subject to vesting periods of one, four and seven years (other than shares cancelled or forfeited), and 5,610,768 shares, representing     % of the outstanding shares of common stock as of          , 2007, are available to be used for future awards. If an award made under the Plan expires, terminates or is forfeited, canceled, settled in cash without issuance of shares of common stock covered by the award, or if award shares are used to pay for other award shares, those shares will be available for future awards under the Plan. We have not made any awards under the Plan to date.

106

Eligibility

Our employees, directors and consultants may be selected by the compensation committee to receive awards under the Plan. In the discretion of the compensation committee, an eligible person may receive an award in the form of a stock option, stock appreciation right, restricted stock award, phantom stock, other stock-based award or any combination thereof, including a cash-based award, and more than one award may be granted to an eligible person.

Stock Options

The Plan authorizes the award of both non-qualified and incentive stock options (“ISO”). Under the Plan and pursuant to awards made thereunder, common stock may be purchased at a fixed exercise price during a specified time. Unless otherwise provided in the award agreement, the exercise price of each share of common stock covered by a stock option shall not be less than the fair market value of the common stock on the date of the grant of such stock option, and one-third (1/3) of the shares covered by the stock option shall become exercisable on the first anniversary of its grant and an additional one-third (1/3) of such shares shall become exercisable on each of the second and third anniversaries of its grant. A limited number of options and SARs may be granted with an exercise price below fair market value on the date of grant, but not less than 75% of fair market value.

Under the Plan, an ISO may be exercised at any time during the exercise period established by the compensation committee, except that (i) no ISO may be exercised more than three months after employment with us terminates by reason other than death or disability and (ii) no ISO may be exercised more than one year after employment with us terminates by reason of death or disability. The aggregate fair market value (determined at the time of the award) of the common stock with respect to which ISOs are exercisable for the first time by any employee during any calendar year may not exceed $100,000. The term of each ISO is determined by the compensation committee, but in no event may such term exceed 10 years from the date of grant (or five years in the case of ISOs granted to shareholders owning 10% or more of our outstanding shares of common stock). The exercise price of ISOs cannot be less than the fair market value of the common stock on the date of the grant (or 110% of the fair market value of the common stock on the date of grant in the case of ISOs granted to shareholders owning 10% or more of our outstanding shares of common stock). The exercise price of options may be paid in cash, in shares of common stock through a cashless exercise program with previously owned common stock or by such other methods as the compensation committee deems appropriate.

Stock Appreciation Rights

The Plan authorizes the grant of stock appreciation rights (“SARs”). The SARs may be granted either separately or in tandem with options. An SAR entitles the holder to receive an amount equal to the excess of the fair market value of a share of common stock at the time of exercise of the SAR over the option exercise price or other specified amount (or deemed option price in the event of an SAR that is not granted in tandem with an option), multiplied by the number of shares of common stock subject to the option or deemed option as to which the SAR is being exercised (subject to the terms and conditions of the option or deemed option). An SAR may be exercised at any time when the option or deemed option to which it related may be exercised and will terminate no later than the date on which the right to exercise the tandem option (or deemed option) terminates (or is deemed to terminate).

Restricted Stock

Restricted stock awards are grants of common stock made to eligible persons subject to restrictions, terms and conditions as established by the compensation committee. An eligible person will become the holder of shares of restricted stock free of all restrictions if he or she complies with all restrictions, terms and conditions. Otherwise, the shares will be forfeited. The eligible persons will not have the right to vote the shares of restricted stock until all restrictions, terms and conditions are satisfied.

Other Stock Based Awards

The compensation committee may grant other stock based awards, upon such terms as it may elect.

107

Dollar-Denominated Awards

The compensation committee may grant an award in terms of a specific dollar amount on such terms as it may elect. Upon the vesting of such award, the award earned may be paid in cash, stock or any combination thereof as the compensation committee may choose.

Adjustments

In the event of any changes in the outstanding shares of common stock by reason of any stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, exchange of shares or other similar change, the aggregate number of shares with respect to which awards may be made under the Plan, and the terms and the number of shares of any outstanding option, restricted stock or other stock-based award, may be equitably adjusted by the compensation committee in its sole discretion.

Change of Control

Upon a change in control, which is defined in the Plan to include certain third-party acquisitions of 50% or more of our then outstanding common stock or the combined voting power of the then outstanding common stock entitled to vote generally in the election of directors, changes in the composition of the board of directors, shareholder approval of certain significant corporate transactions such as a reorganization, merger, consolidation, sale of assets or the liquidation or dissolution of the company, the board of directors may take any action with respect to outstanding Awards under the Plan as it deems appropriate, which action may vary among Awards granted to individual participants.

Administration

The Plan is administered by the board of directors or, if directed by the board of directors, the compensation committee of the board of directors or another committee designated by the board of directors (in each event, the “compensation committee”). The compensation committee makes determinations with respect to the participation of employees, directors and consultants in the Plan and, except as otherwise required by law or the Plan, the grant terms of awards, including vesting schedules, retirement and termination rights, payment alternatives such as cash, stock, contingent award or other means of payment consistent with the purposes of the Plan, and such other terms and conditions as the board or the compensation committee deems appropriate. The compensation committee has the authority at any time to provide for the conditions and circumstances under which awards shall be forfeited. The compensation committee has the authority to accelerate the vesting of any award and the time at which any award becomes exercisable.

Termination and Amendment

The board may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that the board shall not make any amendments to the Plan which require shareholder approval under applicable law, rule or regulation unless approved by the requisite vote of our shareholders. No termination, modification or amendment of the Plan may adversely affect the rights conferred by an award without the consent of the recipient thereof.

108

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 15, 2007 by:

•  each shareholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock;

•  our current directors;

•  our named executive officers; and

•  all of our directors and executive officers as a group.

Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

	Number of
	Shares
	Beneficially			Percentage of Class
	Owned			Beneficially Owned
Tom L. Ward		37,980,542	(1)		34.1	%
Dirk M. Van Doren		166,000			*
Matthew K. Grubb		—			—
Bill Gilliland		1,348,489			1.2	%
Dan Jordan		766,666			*
N. Malone Mitchell, 3rd		22,759,482	(2)		20.8	%
Roy T. Oliver, Jr.		850,000	(3)		*
D. Dwight Scott		1,111,111	(4)		*
Jeffrey Serota		—	(5)		12.3	%
Ares Management, LLC and affiliated funds		13,333,333	(6)		12.3	%
All directors and named executive officers as a group		78,315,623			70.1	%

 * Less than 1%.

(1)	Includes (a) 5,076,626 shares held by TLW LLC for which Mr. Ward exercises voting and dispositive power, (b) 2,600,911 shares issuable upon conversion of convertible preferred stock, (c) 79,000 shares held through an IRA and (d) 6,535,601 shares held by a family trust.
(2)	Includes (a) 4,548 shares and 485,672 shares issuable upon conversion of convertible preferred stock held by Dalea Partners for which Mr. Mitchell exercises voting and dispositive power and (b) shares held by Mr. Mitchell’s minor children.
(3)	Such shares are held by Oliver Active Investments, LLC for which Mr. Oliver exercises voting and dispositive power.
(4)	Such shares are held by GSO Capital Partners. Mr. Scott serves as a managing director of GSO Capital Partners and may be deemed to exercise voting and dispositive power with respect to such shares.
(5)	Mr. Serota is a senior partner in the Private Equity Group of Ares Management LLC (“Ares Management”), a private investment management firm that indirectly controls Ares Corporate Opportunities Fund II, L.P. (“ACOF II”), Ares SandRidge, L.P. (“Ares SandRidge”), Ares SandRidge 892 Investors, L.P. (“Ares 892 Investors”) and Ares SandRidge Co-Invest, LLC (together with Ares SandRidge and Ares 892 Investors, the “ACOF II AIVs”), each of which is a selling shareholder in this offering. Mr. Serota disclaims beneficial ownership of the shares owned by ACOF II and the ACOF II AIVs, except to the extent of any pecuniary interest therein.

109

(6)  The general partner of ACOF II and certain of the ACOF II AIVs is ACOF Management II, L.P. (“ACOF Management II”) and the general partner of ACOF Management II is ACOF Operating Manager II, L.P. (“ACOF Operating Manager II”). ACOF Operating Manager II is, in turn, owned by Ares Management LLC and Ares Management, Inc., each of which is indirectly owned by Ares Partners Management Company LLC. Each of the foregoing entities (collectively, the “Ares Entities”) and the partners, members and managers thereof, other than ACOF II and the ACOF II AIVs, disclaims beneficial ownership of the shares of common stock owned by ACOF II and the ACOF II AIVs, except to the extent of any pecuniary interest therein. The address of each Ares Entity is 1999 Avenue of the Stars, Suite 1900, Los Angeles, CA 90067.

110

SELLING SHAREHOLDERS

No shareholder may offer or sell shares of our common stock under this prospectus unless such shareholder has notified us of his or her intention to sell shares of our common stock and this prospectus has been declared effective by the SEC and remains effective at the time such selling stockholder offers or sells such shares. We are required to amend this prospectus to reflect material developments in our business, financial position and results of operations. Each time we file an amendment to this prospectus with the SEC, it must first be declared effective prior to the offer or sale of shares of our common stock by the selling stockholders.

The selling shareholders listed below may from time to time offer and sell pursuant to this prospectus all of the common shares covered by this prospectus as indicated in the table below, including shares issuable upon conversion of our convertible preferred stock. The selling shareholders may not offer or sell any of our convertible preferred stock pursuant to this prospectus. The common shares being offered by the selling shareholders are outstanding, issuable upon conversion of outstanding convertible preferred stock, or issuable upon conversion of convertible preferred stock that may be issued upon tender to us of outstanding common shares in connection with the exercise of outstanding warrants to purchase our convertible preferred stock, and were, or will be, originally issued as follows:

•  12,739,630 common shares issued in connection with a private placement to eligible investors in December 2005 and January 2006;

•  26,710,314 common shares that may be issued upon conversion of our convertible preferred stock initially issued to eligible investors in November 2006, including 4,433,912 common shares that may be issued upon conversion of additional shares of our convertible preferred stock that may be issued to the indicated selling shareholders pursuant to the tender of common shares in connection with the exercise of outstanding warrants held by these selling shareholders to purchase additional convertible preferred stock;

•  4,805,265 common shares issued in connection with a private placement of common shares and warrants to purchase our convertible preferred stock to eligible institutional investors in November 2006;

•  11,111,111 common shares issued in connection with a private placement to eligible institutional investors in March 2007; and

•  6,669,544 common shares issued in March 2007 to certain holders of our convertible preferred stock pursuant to the contractual preemptive rights exercised in connection with the March 2007 private placement of common shares.

The following table, which we have prepared based on information provided to us by the applicable selling stockholder, sets forth the name, the number of shares of common stock beneficially owned by the selling stockholders intending to sell our common stock and the number of shares of common stock to be offered. Unless set forth below, none of the selling stockholders selling in connection with the prospectus has held any position or office with, been employed by, or otherwise has had a material relationship with us or any of our affiliates during the three years prior to the date of the prospectus.

	Number		Number
	of Shares		of Shares
	Beneficially	Number	Beneficially
	Owned	of Shares	Owned	Percentage of Shares Beneficially Owned
	Prior	Being	After	Prior	After
Name of Beneficial Owner	to Offering	Offered	Offering	to Offering	Offering
Total:

 *  Less than 1%.

111

We prepared this table based on the information supplied to us by the selling stockholders named in the table, and we have not sought to verify such information.

The selling stockholders listed in the above table may have sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of the shares of our common stock since the date on which the information in the above table was provided to us. Information about the selling stockholders may change over time.

Because the selling stockholders may offer all or some of their shares of our common stock from time to time, we cannot estimate the number of shares of our common stock that will be held by the selling stockholders upon the termination of any particular offering by such selling stockholder. Please refer to “Plan of Distribution.”

112

PLAN OF DISTRIBUTION

We are registering the common stock covered by this prospectus to permit selling stockholders to conduct public secondary trading of these shares from time to time after the date of this prospectus. In connection with our December 2005 private placement, we entered into a Registration Rights Agreement with the selling stockholders, pursuant to which we agreed to, among other things, bear all expenses, other than brokers’ or underwriters’ discounts and commissions, in connection with the registration and sale of the common stock covered by this prospectus. We will not receive any of the proceeds of the sale of the common stock offered by this prospectus. The aggregate proceeds to the selling stockholders from the sale of the common stock will be the purchase price of the common stock less any discounts and commissions. A selling stockholder reserves the right to accept and, together with their agents, to reject, any proposed purchases of common stock to be made directly or through agents.

The common stock offered by this prospectus may be sold from time to time to purchasers:

•  directly by the selling stockholders and their successors, which includes their donees, pledgees or transferees or their successors-in-interest, or

•  through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, commissions or agent’s commissions from the selling stockholders or the purchasers of the common stock. These discounts, concessions or commissions may be in excess of those customary in the types of transactions involved.

The selling stockholders and any underwriters, broker-dealers or agents who participate in the sale or distribution of the common stock may be deemed to be “underwriters” within the meaning of the Securities Act. The selling stockholders identified as registered broker-dealers in the selling stockholders table above (under “Selling Shareholders”) are deemed to be underwriters. As a result, any profits on the sale of the common stock by such selling stockholders and any discounts, commissions or agent’s commissions or concessions received by any such broker-dealer or agents may be deemed to be underwriting discounts and commissions under the Securities Act. Selling shareholders who are deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to prospectus delivery requirements of the Securities Act. Underwriters are subject to certain statutory liabilities, including, but not limited to, Sections 11, 12 and 17 of the Securities Act.

The common stock may be sold in one or more transactions at:

•  fixed prices;

•  prevailing market prices at the time of sale;

•  prices related to such prevailing market prices;

•  varying prices determined at the time of sale; or

•  negotiated prices.

These sales may be effected in one or more transactions:

•  on any national securities exchange or quotation on which the common stock may be listed or quoted at the time of the sale;

•  in the over-the-counter market;

•  in transactions other than on such exchanges or services or in the over-the-counter market;

•  through the writing of options (including the issuance by the selling stockholders of derivative securities), whether the options or such other derivative securities are listed on an options exchange or otherwise;

•  through the settlement of short sales; or

•  through any combination of the foregoing.

113

These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade.

In connection with the sales of the common stock, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions which in turn may:

•  engage in short sales of the common stock in the course of hedging their positions;

•  sell the common stock short and deliver the common stock to close out short positions;

•  loan or pledge the common stock to broker-dealers or other financial institutions that in turn may sell the common stock;

•  enter into option or other transactions with broker-dealers or other financial institutions that require the delivery to the broker-dealer or other financial institution of the common stock, which the broker-dealer or other financial institution may resell under the prospectus; or

•  enter into transactions in which a broker-dealer makes purchases as a principal for resale for its own account or through other types of transactions.

To our knowledge, there are currently no plans, arrangements or understandings between any selling stockholders and any underwriter, broker-dealer or agent regarding the sale of the common stock by the selling stockholders.

We intend to apply to list our common stock on NYSE under the symbol SD. However, we can give no assurances as to the development of liquidity or any trading market for the common stock.

There can be no assurance that any selling stockholder will sell any or all of the common stock under this prospectus. Further, we cannot assure you that any such selling stockholder will not transfer, devise or gift the common stock by other means not described in this prospectus. In addition, any common stock covered by this prospectus that qualifies for sale under Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than under this prospectus. The common stock covered by this prospectus may also be sold to non-U.S. persons outside the U.S. in accordance with Regulation S under the Securities Act rather than under this prospectus. The common stock may be sold in some states only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification is available and complied with.

The selling stockholders and any other person participating in the sale of the common stock will be subject to the Exchange Act. The Exchange Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the common stock by the selling stockholders and any other such person. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the common stock to engage in market-making activities with respect to the particular common stock being distributed. This may affect the marketability of the common stock and the ability of any person or entity to engage in market-making activities with respect to the common stock.

We have agreed to indemnify the selling stockholders against certain liabilities, including liabilities under the Securities Act.

We have agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the common stock to the public, including the payment of federal securities law and state blue sky registration fees, except that we will not bear any underwriting discounts or commissions or transfer taxes relating to the sale of shares of our common stock.

114

RELATED PARTY TRANSACTIONS

The following is a discussion of transactions between us and our officers, directors and beneficial owners of more than 5% of our common stock. We intend to adopt a written policy with respect to the review, approval and ratification of the related party transactions during the third quarter of 2007.

Well Participation Plan

On June 8, 2006, we adopted the Well Participation Program (the “WPP”) which permitted Messrs. Ward and Mitchell to participate as working interest owners in the wells that we drill in the future. The WPP was adopted at a time when Mr. Ward proposed to become a significant shareholder of the Company. Our board of directors’ view was that drilling participation by senior management with significant ownership in us was in our best interest. The payment of proportionate costs of drilling of these wells is similar to a “heads up” drilling participation that we may, from time to time, enter into with unaffiliated industry participants on specific wells. Mr. Mitchell ceased to participate in the WPP upon his resignation, effective December 31, 2006. However, Mr. Mitchell has the right to participate independently in additional wells drilled on acreage earned through December 31, 2006 under the WPP. Mr. Ward remains a participant.

Under the WPP, Mr. Ward is permitted to participate in all of the Program Wells, as defined in the WPP, spudded by or on behalf of SandRidge during each calendar year. In order to participate, at least 30 days prior to the beginning of each year, Mr. Ward must provide written notice to the members of the board of directors of his election to participate in the WPP and the percentage working interest which the participant proposes to participate with during the year. Mr. Ward’s working interest percentage may not exceed a 3.0% working interest. Mr. Mitchell participated for a 2.0% working interest from June 8, 2006 through December 31, 2006, his effective date of resignation as an officer of SandRidge. Mr. Ward does not participate in any well where our working interest after Mr. Ward’s participation would be reduced to below 12.5%. If Mr. Ward fails to provide notice of his election to participate or of the working interest percentage, the amount of the working interest percentage for the relevant calendar year will be deemed to be equal to the working interest percentage for the immediately preceding calendar year. Mr. Ward has participated for a 3.0% working interest in 2006 and elected to a 3.0% working interest for 2007. Mr. Ward and Mr. Mitchell contributed $64,765 and $43,177, respectively, in connection with their 2006 participation in the WPP. No contributions have been made in connection with Mr. Ward’s 2007 participation in the WPP.

The WPP is administered and interpreted by a committee of the board of directors consisting of Messrs. Gilliland and Jordan. Once a compensation committee is established, it will administer and interpret the WPP. In addition, the board of directors, in its sole discretion, may take any action with respect to the WPP that would otherwise be the responsibility of or delegated to the compensation committee. The board of directors has the right to suspend or terminate the WPP after December 31, 2015 by providing written notice of termination to Mr. Ward one year before the effective date of such termination. Mr. Ward’s right to participate in the WPP during any calendar year will terminate on the earlier of (1) December 31 of such year; (2) the termination of Mr. Ward’s employment by us for cause or death; or (3) the expiration or termination of any and all covenants not to compete subsequent to the termination of Mr. Ward for any reason not included in the foregoing clause (2).

Mr. Ward’s working interest percentage cannot be changed during any calendar year without the prior approval of the compensation committee. Participation by Mr. Ward under the WPP is conditioned on his participation in each Program Well spudded during the calendar year in an amount equal to the greater of the elected working interest percentage or his prior interest in the drilling unit for such Program Well.

The amount paid by Mr. Ward for the acreage assigned in connection with his participation in the WPP is computed as of the first day of each calendar year and is equal to the following amount computed on a per acre basis: (1) all direct third-party costs paid by the Company Entities (as defined in the WPP) and capitalized in the appropriate accounting pool in accordance with our accounting procedures (including capitalized interest, leasehold payments, acquisition costs, landman charges and seismic charges); divided by (2) the acreage in the applicable pool. The acreage charge amount is recomputed by us as of the first day of each calendar year and submitted to the compensation committee for approval. All other costs for Program Wells are billed in accordance with our accounting procedures applicable to third-party participants pursuant to

115

any applicable joint operating agreement or exploration agreement relating to a particular Program Well. Notwithstanding anything to the contrary, in each case the participant’s participation in a Program Well will be on no better terms than the terms agreed to by unaffiliated third-party participants in connection with the participation in such Program Well or similar wells operated by the Company Entities.

Employee Participation Plan

We adopted an Employee Participation Plan in December 2005 that allowed certain employees to participate in the drilling of natural gas and oil wells of our company for up to 5% of our interest in the well. Before that date, a similar plan was informally administered. Our board of directors’ view was that drilling participation by these key employees was in our best interest. We provided certain employees, including our named executive officers, an allowance to participate in these wells. These allowances were funded by us and treated as compensation. Participating employees were all entitled to invest amounts in addition to the Company funded allocations under the plan. The purpose of the plan was to associate the interest of our employees with the shareholders, maintain competitive compensation levels and provide an incentive for employees to continue employment with us. The plan was terminated effective for all wells drilled on or after May 1, 2006. From January 1, 2006 through the termination of the plan, we awarded $707,000 in allowances under the plan, including $35,000 for each of Mr. Gaines and Ms. Pope and $42,000 for each of Mr. Dutton and Mr. McCann. Following the termination of the plan, all interests in the plan were assigned to the applicable participant and no further payments were made pursuant to the plan.

Other Transactions

Mr. Mitchell, a director and our former Chairman, Chief Executive Officer and President, and his family, on September 30, 2005, traded 2.5% of our then outstanding common stock to us for our 100% interest in Longfellow Ranch Partners, LP (“Longfellow”). The purpose of this transaction was to separate the Longfellow ranch operations from our ongoing energy operations. The transaction was reviewed and approved by our directors and shareholders. Longfellow owns surface or minerals or royalty under a significant amount of our exploration and development lands in West Texas, including the WTO. We have natural gas and oil leaseholds that cover all of Longfellow’s minerals. Under the leases, we will pay Longfellow royalties, based on production. The lease is for a seven-year primary term, with the option of extending the primary term another three years by paying a market value bonus. The lease royalty is 20% for wells completed before 2009, escalating to maximum of 25% in 2012. At the end of the primary term, the lease will break into approximately 3,000-acre tracts, and each tract will be subject to a 120-day continuous development clause. We also have an agreement with Longfellow for use of the surface of the Longfellow Ranch. Under this agreement, we pay Longfellow fees, pursuant to a set schedule, for use of the surface for our natural gas and oil operations and for damages and rights of way. We believe the rates are equivalent to, or less than, the rates paid to other landowners in the area. For 2003, 2004 and the nine months ended September 30, 2005, when operations were discontinued income (loss) from Longfellow’s operations were ($128,000), $683,000 and $638,000, respectively. These numbers included, among other things, royalties, damages and agricultural operations on the lands, minerals and royalties now indirectly owned by the Mitchell family. For the last three months of 2005, the year ended 2006, and the three months ended 2007, we paid Longfellow $1,019,710, $4,156,082 and $1,054,384, respectively. In addition, to his involvement with Longfellow, Mr. Mitchell owns small working interests in some of our wells and a small interest in our Cholla Pipeline. For the years 2004, 2005, 2006 and the three months ended March 31, 2007, we paid Mr. Mitchell $147,000, $170,963, $140,538 and $8,684, respectively, in connection with his ownership interest in these assets. In August 2006, Mr. Mitchell acquired our interest in several non-core investments for an aggregate purchase price of $6,128,899. Any material transaction with family members of Mr. Mitchell has been and will be approved by a committee consisting of independent directors.

Mr. Jordan, a director and our former Vice President, Business, has participated in projects since 2000. In December 2005 we acquired Mr. Jordan’s interest in our Piceance Basin acreage, West Texas undeveloped acreage and Larco for 1,418,182 shares of common stock. Following this acquisition, Mr. Jordan still owned working interests in much of our production in West Texas, a small interest in our marketing company, and a 12.5% interest in PetroSource. In March 2006, we acquired Mr. Jordan’s 12.5% interest in PetroSource for $5,489,401. In July 2006 we acquired Mr. Jordan’s interests in our producing natural gas and oil properties for

116

$9,000,000. Mr. Jordan still owns an interest in our marketing company, the Sabino pipeline, and small working interests in several leases covering mineral classified tracts. For the years 2004, 2005, 2006 and the three months ended March 31, 2007, we recognized the capital contributions from Mr. Jordan related to our drilling projects of $4,274,000, $5,670,081, $2,397,188 and $209,681, respectively. For the same periods, we paid Mr. Jordan $1,532,000, $2,113,020, $1,496,598 and $974, respectively. From August 2002 until October 2005, he received consulting fees from Larco of $40,000 per month. In June 2007, we purchased all of the interests in twelve producing wells and one well being drilled, which interests were owned by Wallace Jordan, LLC, a limited liability company a majority interest in is owned and controlled by Mr. Jordan (“Wallace Jordan”). In addition and as a part of this same transaction, we purchased the interest owned by Wallace Jordan in the Sabino pipeline and the West Piñon Gathering System and certain oil and gas leases covering lands in Pecos County, Texas as well as the interest owned by Mr. Jordan individually in Integra Energy, our marketing subsidiary. The purchase price for these assets was $3.3 million plus the reimbursement of approximately $236,000 of costs attributable to Wallace Jordan’s 10% working interest in the well being drilled.

Mr. Gilliland has served as a director since January 2006. In 2003, Mr. Gilliland assisted us in the acquisition of the PetroSource assets and acquired an approximate 18.8% interest in PetroSource through Gillco Energy, L.P. Through that same entity, he also participated in our Piceance Basin acreage, and various drilling projects in Missouri and Nevada. In December 2005, we acquired Gillco Energy’s interest in PetroSource, the Piceance Basin and our Missouri and Nevada projects for 1,406,000 shares of common stock. In February 2006, we acquired an office building in Midland, Texas from a partnership affiliated with Mr. Gilliland for $950,000.

Mr. McCann, Former Senior Vice President — Legal, owned an interest in PetroSource. In December 2005, we acquired his interest in PetroSource for $135,000. In addition he owns small working interests in most of our wells drilled from 2001 through May 2006, pursuant to our Employee Well Participation Program that was in effect at that time, an interest in Cholla Pipeline and an interest in Sagebrush Pipeline, LLC. Mr. McCann also owns a small interest in a business in which we owned a minority interest and sold to Mr. Mitchell in August of 2006.

The purpose of the transactions described above with Messrs. Jordan, Gilliland and McCann was to consolidate various interests in energy assets held by management. The board of directors reviewed and approved the terms of these transactions.

In September 2006, we entered into a new facilities lease with a director, Mr. Oliver. The lease extends to August 2009 with annual future rental payments of $1.1 million in 2007 and 2008 and $0.7 million in 2009. The terms of the lease were received and approved by our board of directors and we believe that the rent expense it must pay under this lease is at fair market rates. Rent expense in 2006 related to this facilities lease was $0.3 million.

We are party to a joint venture, Larclay, L.P., with Clayton Williams Energy, Inc. to acquire drilling rigs and provide land drilling services. We purchased the investment in 2006 and account for it under the equity method of accounting. For the period ended December 31, 2006 and the three months ended March 31, 2007, we had sales to Clayton Williams Energy, Inc. or its affiliates of approximately $5,703,000 and $849,000, respectively. For the period ended December 31, 2006 and the three months ended March 31, 2007, we had purchases from Clayton Williams Energy, Inc. or its affiliates of approximately $1,394,000 and $595,000, respectively.

117

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 400,000,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, no par value. As of          , 2007, we had           outstanding shares of common stock and 2,184,286 shares of convertible preferred stock outstanding. We have no outstanding options to purchase common stock, however, we have granted restricted stock awards for approximately 1.6 million shares.

Common Stock

Subject to any special voting rights of any series of preferred stock that we may issue in the future, each share of common stock has one vote on all matters voted on by our shareholders, including the election of our directors. Because holders of common stock do not have cumulative voting rights, the holders of a majority of the shares of common stock can elect all of the members of the board of directors standing for election, subject to the rights, powers and preferences of any outstanding series of preferred stock.

No share of common stock affords any preemptive rights or is convertible, redeemable, assessable or entitled to the benefits of any sinking or repurchase fund. Holders of common stock will be entitled to dividends in the amounts and at the times declared by our board of directors in its discretion out of funds legally available for the payment of dividends.

Holders of common stock will share equally in our assets on liquidation after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. All outstanding shares of common stock are fully paid and non-assessable.

Preferred Stock

Convertible Preferred Stock

Dividends.  Each holder of our convertible preferred stock is entitled to receive a quarterly cash dividend at an annual rate of 7.75% of the accreted value of each share of convertible preferred stock held by such holder. The accreted value is currently $210 per share. In lieu of making any such quarterly cash dividend, we may, at our option, increase the accreted value of each share of convertible preferred stock by 2.3125% of the existing accreted value. We are prohibited from paying any cash dividends on any capital stock junior or equal in rank to our convertible preferred stock, including our common stock. In addition, each holder is entitled to any dividend or distribution made with respect to our common stock as if such holder had converted its shares of convertible preferred stock to common stock on the record date.

Voting.  Each holder of our convertible preferred stock is entitled to vote with the holders of our common stock on all matters submitted to a vote of stockholders as if such holder had converted its shares of convertible preferred stock to common stock on the record date for such vote. In addition, certain actions, including the issuance of any capital stock senior or equal in rank to our convertible preferred stock, any amendment to our Certificate of Incorporation and certain other fundamental transactions, shall require the approval of the holders of a majority of our convertible preferred stock.

Liquidation.  In the event of any voluntary or involuntary liquidation, dissolution or winding-up of SandRidge, subject to the payments of any debts or other liabilities of SandRidge and prior to any payment to the holders of our common stock, each holder of our convertible preferred stock shall receive with respect to each share an amount equal to the greater of (i) the accreted value as of the date of the liquidation and (ii) the amount that such holder would have received had it converted its shares of convertible preferred stock on the date of such liquidation, dissolution or winding-up.

Conversion at the Option of the Holders.  Each holder of our convertible preferred stock may convert any or all of its shares into common stock at any time. The shares of convertible preferred stock shall be converted into a number of shares of common stock equal to the product of the number of shares of convertible preferred stock being converted multiplied by the quotient of (i) the accreted value and (ii) the conversion price. The conversion price is currently $20.59 per share.

118

Issuances of common stock following our proposed initial public offering will not result in any adjustment to the conversion price.

Conversion at the Option of SandRidge.  At any time after 180 days following our proposed initial public offering, if the conditions described below have been satisfied, we may, at our option, cause all the shares of convertible preferred stock to be converted into a number of shares of common stock equal to the number of shares of convertible preferred stock multiplied by the quotient of (i) the accreted value and (ii) the conversion price. We may not effect such a conversion unless the following conditions have been satisfied:

•  we have completed our proposed initial public offering or an offering of similar size and price;

•  this shelf registration statement shall be effective;

•  the common stock is listed on a national exchange and the closing price exceeds 100% of the conversion price for at least 20 trading days in any 30 consecutive trading day period; and

•  certain other conditions, including no event of default.

In connection with any conversion by us, we must make a payment to each holder of shares of convertible preferred stock equal to (i) the accreted value, multiplied by (ii) 0.0775, multiplied by (iii) the specified years. The specified years shall be determined by the following table:

Offering Price of Our Proposed Initial Public Offering	Specified Years
$24.39 or less		2.0
$24.40 to $26.78		1.5
$26.79 or greater		1.0

We intend to cause the conversion of all outstanding shares of our convertible preferred stock 180 days following the completion of our proposed initial public offering.

Warrant to Purchase Convertible Preferred Stock

We have issued warrants to purchase 482,381 shares of our convertible preferred stock. Generally, the warrant entitles the warrantholder to exercise the warrant by tendering a certain number of shares of common stock purchased in connection with the warrant for a number of shares of convertible preferred stock with an aggregate accreted value at the time of exercise equal the number of shares of common stock tendered as exercise consideration multiplied by $19. The accreted value of a share of convertible preferred stock is subject to increase in the event of non-payment of preferred stock dividends in cash, in which event the number of shares of convertible preferred stock that may be issued upon exercise of the Warrant and tender of common stock will be reduced.

The warrant may be exercised in whole or in part (through the tender of whole shares of common stock) commencing on the date of issue and ending at 5:00 p.m., New York time, on the earlier of (i) May 15, 2013 and (ii) the first day in which all outstanding shares of convertible preferred stock have been fully redeemed or converted (voluntarily or involuntarily) pursuant to the Certificate of Designations of the convertible preferred stock. Holders of warrants are entitled to all notices delivered to holders of convertible preferred stock and certain other notices as set forth in the warrant.

Additional Preferred Stock

Our board of directors may, without any action by holders of the common stock:

•  adopt resolutions to issue preferred stock in one or more classes or series;

•  fix or change the number of shares constituting any class or series of preferred stock; and

•  establish or change the rights of the holders of any class or series of preferred stock.

The rights of any class or series of preferred stock may include, among others:

•  general or special voting rights;

119

•  preferential liquidation or preemptive rights;

•  preferential cumulative or noncumulative dividend rights;

•  redemption or put rights; and

•  conversion or exchange rights.

We may issue shares of, or rights to purchase, preferred stock the terms of which might:

•  adversely affect voting or other rights evidenced by, or amounts otherwise payable with respect to, the common stock;

•  discourage an unsolicited proposal to acquire us; or

•  facilitate a particular business combination involving us.

Any of these actions could discourage a transaction that some or a majority of our shareholders might believe to be in their best interests or in which our shareholders might receive a premium for their stock over its then market price.

Amended and Restated Shareholders Agreement

In connection with the closing of the NEG acquisition, we entered into a Shareholders Agreement with certain of our shareholders, including Mr. Ward, our Chairman, Chief Executive Officer and President, Mr. Mitchell, a director, and affiliates of AREP. The Shareholders Agreement was subsequently amended and restated in connection with the sale of the shares held by AREP to other shareholders (the “New Investors”). The Amended and Restated Shareholders Agreement contains certain restrictions on transfer, tagalong rights, a selected preemptive right and registration rights, each of which is described more fully below.

Transfer Restrictions.  The Amended and Restated Shareholders Agreement prohibits the parties from transferring any of their securities prior to 180 days following the consummation of a “qualified public offering,” other than to family members and affiliates other than SandRidge or pursuant to the tagalong provisions described below. However, the Amended and Restated Shareholders Agreement allows Messrs. Ward and Mitchell to pledge their shares subject to certain conditions, in connection with a bona fide loan. The New Investors may also transfer their securities on the PORTAL market or pursuant to an exemption under the securities laws. “Qualified public offering” is defined as an underwritten, broad based public offering in excess of $100 million of common stock (which results in gross proceeds to the sellers of at least $100 million) and results in not less than 20 million shares of common stock (including common stock covered by any registration rights agreement and any shares sold pursuant to any previous public offerings) being listed for trading on a national securities exchange (including Nasdaq). We anticipate that our proposed initial public offering will be a qualified public offering for the purposes of the Amended and Restated Shareholders Agreement.

Tag-Along Rights.  If Messrs. Ward or Mitchell propose to sell shares of our common stock (other than to family members and affiliates other than SandRidge) prior to a qualified public offering, the New Investors have the right to elect to sell all of their shares of our common stock on the same terms. Following a qualified public offering, if Messrs. Ward or Mitchell propose to sell shares of our common stock in excess of 3% of our outstanding common stock on a fully diluted basis (other than to family members and affiliates other than SandRidge to Rule 144 or in a registered offering other than a block trade), the New Investors have the right to elect to sell their proportionate number of shares of our common stock on the same terms. The tagalong rights expire on the earlier of (i) the date upon which the New Investors cease to own at least 20% of our shares of common stock on purchased from affiliates of AREP and (ii) two years following a qualified public offering.

Registration Rights.  The Amended and Restated Shareholders Agreement provides each of Mr. Ward, Mr. Mitchell and the affiliates of AREP certain registration rights. For a description of these rights, please read “— Registration Rights — Amended and Restated Shareholders Agreement.”

120

Registration Rights

Amended and Restated Shareholders Agreement.  Pursuant to a Amended and Restated Shareholders Agreement among us and certain of our shareholders, including Messrs. Ward and Mitchell and certain of their respective affiliates, we have agreed to allow such parties to offer their shares of our common stock in certain future registered offerings of our common stock, subject to our priority and customary limitations. We have also agreed to use our reasonable best efforts to cause a shelf registration statement to become effective with respect to the securities held by the shareholders party to the Amended and Restated Shareholders Agreement upon their request. Such request may not be made within 120 days of the effectiveness of a registration statement requested pursuant to the Amended and Restated Shareholders Agreement or that such shareholders are entitled to participate in pursuant to the Amended and Restated Shareholders Agreement. In addition, the shareholders party to the agreement (other than Messrs. Ward and Mitchell and their affiliates) may not request that we file a shelf registration statement prior to the date which is 201 days following the consummation of our proposed initial public offering. The shareholders party to the agreement (other than Messrs. Ward and Mitchell and their affiliates) may transfer their registration rights under this agreement in connection with sales in excess of 2,000,000 shares of our common stock. Each of the parties to the Amended and Restated Shareholders Agreement have agreed not to effect any sale or distribution of our common stock or securities convertible or exchangeable or exercisable for our common stock for a period of 180 days from the date of our proposed initial public offering.

Anti-Takeover Provisions of Delaware Law, Our Certificate of Incorporation and Bylaws

Written Consent of Stockholders

Our certificate of incorporation and bylaws provide that any action required or permitted to be taken by our stockholders must be taken at a duly called meeting of stockholders and not by written consent.

Amendment of the Bylaws

Under Delaware law, the power to adopt, amend or repeal bylaws is conferred upon the stockholders. A corporation may, however, in its certificate of incorporation also confer upon the board of directors the power to adopt, amend or repeal its bylaws. Our charter and bylaws grant our board the power to adopt, amend and repeal our bylaws on the affirmative vote of a majority of the directors then in office. Our stockholders may adopt, amend or repeal our bylaws but only at any regular or special meeting of stockholders by the holders of not less than 662/3% of the voting power of all outstanding voting stock.

Special Meetings of Stockholders

Our bylaws preclude the ability of our stockholders to call special meetings of stockholders.

Other Limitations on Stockholder Actions

Advance notice is required for stockholders to nominate directors or to submit proposals for consideration at meetings of stockholders. In addition, the ability of our stockholders to remove directors without cause is precluded.

Classified Board

Only one of three classes of directors is elected each year. See “Management — Board of Directors.”

Limitation of Liability of Officers and Directors

Our certificate of incorporation provides that no director shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability as follows:

•  for any breach of the director’s duty of loyalty to us or our stockholders;

121

•  for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws;

•  for unlawful payment of a dividend or unlawful stock purchase or stock redemption; and

•  for any transaction from which the director derived an improper personal benefit.

The effect of these provisions is to eliminate our rights and our stockholders’ rights, through stockholders’ derivative suits on our behalf, to recover monetary damages against a director for a breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above.

Business Combination Under Delaware Law

We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Section 203 defines a “business combination” as a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholders. Section 203 defines an “interested stockholder” as a person who, together with affiliates and associates, owns, or, in some cases, within three years prior, did own, 15% or more of the corporation’s voting stock. Under Section 203, a business combination between us and an interested stockholder is prohibited unless:

•  our board of directors approved either the business combination or the transaction that resulted in the stockholders becoming an interested stockholder prior to the date the person attained the status;

•  upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, shares owned by persons who are directors and also officers and issued employee stock plans, under which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

•  the business combination is approved by our board of directors on or subsequent to the date the person became an interested stockholder and authorized at an annual or special meeting of the stockholders by the affirmative vote of the holders of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder.

This provision has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our common stock. With approval of our stockholders, we could amend our certificate of incorporation in the future to elect not to be governed by the anti-takeover law. This election would become effective twelve months after the adoption of the amendment and would not apply to any business combination with any person who became an interested stockholder on or before the adoption of the amendment.

122

CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general discussion of the principal U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a non-U.S. holder. As used in this discussion, the term “non-U.S. holder” means a beneficial owner of our common stock that is not, for U.S. federal income tax purposes:

•  an individual who is a citizen or resident of the United States;

•  a corporation or partnership (including any entity treated as a corporation or partnership for U.S. federal income tax purposes) created or organized in or under the laws of the United States, or of any political subdivision of the United States (unless, in the case of a partnership, U.S. Treasury Regulations are adopted which provide otherwise);

•  an estate whose income is subject to U.S. federal income taxation regardless of its source; or

•  a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or if it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person.

In any calendar year, an individual may be treated for U.S. federal income tax purposes as a resident of the United States by, among other ways, being present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of the 183-day calculation, all of the days on which such individual was present in the current year, one-third of the days in the immediately preceding year and one-sixth of the days in the second preceding year are counted. Residents are taxed for U.S. federal income tax purposes as if they were U.S. citizens. This discussion does not consider:

•  U.S. state or local or non-U.S. tax consequences;

•  all aspects of U.S. federal income and estate taxes or specific facts and circumstances that may be relevant to a particular non-U.S. holder’s tax position, including, in the case of a non-U.S. holder that is an entity treated as a partnership for U.S. federal income tax purposes, the fact that the U.S. tax consequences of holding and disposing of our common stock may be affected by certain determinations made at the partner level;

•  the tax consequences for the shareholders, partners or beneficiaries of a non-U.S. holder;

•  special tax rules that may apply to particular non-U.S. holders, such as financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, broker-dealers, and traders in securities; or

•  special tax rules that may apply to a non-U.S. holder that holds our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment.

The following discussion is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury Regulations and administrative and judicial interpretations, all as of the date of this prospectus, and all of which are subject to change, retroactively or prospectively. The following summary assumes that a non-U.S. holder holds our common stock as a capital asset. Each non-U.S. holder should consult a tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock.

Distributions on Common Stock

We do not expect to pay any cash distributions on our common stock in the foreseeable future; however, in the event that we do make such cash distributions, these distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Any amount paid in excess of such earnings and profits generally will be treated as a recovery of tax basis, to the extent thereof, and then gain from sale. Distributions

123

paid to non-U.S. holders of our common stock that are not effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business generally will be subject to U.S. withholding tax at a 30% rate, or if a tax treaty applies, a lower rate specified by the treaty.

A non-U.S. holder that claims the benefit of an applicable income tax treaty generally will be required to provide an Internal Revenue Service Form W-8 BEN and meet certain other requirements. However,

•  in the case of common stock held by a foreign partnership, the certification requirement will generally be applied to the partners of the partnership and the partnership will be required to provide certain information;

•  in the case of common stock held by a foreign trust, the certification requirement will generally be applied to the trust or the beneficial owners of the trust depending on whether the trust is a “foreign complex trust,” “foreign simple trust” or “foreign grantor trust” as defined in the U.S. Treasury Regulations; and

•  look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.

A non-U.S. holder that is a foreign partnership or a foreign trust is urged to consult its own tax advisor regarding its status under these U.S. Treasury Regulations and the certification requirements applicable to it.

A non-U.S. holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for refund with the U.S. Internal Revenue Service. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

Dividends that are effectively connected with a non-U.S. holder’s conduct of a trade or business in the United States and, if an income tax treaty applies, are attributable to a permanent establishment in the United States, are taxed on a net income basis at the regular graduated rates and in the manner applicable to United States persons. In that case, we will not withhold U.S. federal withholding tax if the non-U.S. holder complies with applicable certification and disclosure requirements (including providing Internal Revenue Service Form W-8 ECI). In addition, a “branch profits tax” may be imposed at a 30% rate, or a lower rate under an applicable income tax treaty, on dividends received by a foreign corporation that are effectively connected with its conduct of a trade or business in the United States.

Disposition of Common Stock

We believe that we are a United States real property holding corporation. Generally, a corporation is a United States real property holding corporation if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. Notwithstanding our status as a United States real property holding corporation, a non-U.S. holder of our common stock generally will not be subject to U.S. federal income tax on gain recognized on a disposition of our common stock unless:

•  the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if an income tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; in these cases, the gain will be taxed on a net income basis at the rates and in the manner applicable to United States persons, and if the non-U.S. holder is a foreign corporation, the branch profits tax described above may also apply;

•  the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and meets other requirements; or

•  the non-U.S. holder actually or constructively owns more than five percent of our common stock at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held our common stock, provided that our common stock is “regularly traded on an established securities market,” within the meaning of Section 897 of the Code and applicable Treasury Regulations, during the calendar year in which the sale or other disposition occurs.

124

Non-United States holders should consult their own tax advisors with respect to the application of the foregoing rules.

U.S. Federal Estate Tax

Common stock owned or treated as owned by an individual who is a non-U.S. holder for U.S. federal estate tax purposes at the time of death will be included in the individual’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax or other treaty provides otherwise, and therefore may be subject to U.S. federal estate tax.

Information Reporting and Backup Withholding Tax

Generally, we must report annually to any non-U.S. holder and the U.S. Internal Revenue Service the amount of any dividends paid to such holder, the holder’s name and address, and the amount, if any, of tax withheld. Copies of the information returns reporting those dividends and amounts withheld also may be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of any applicable tax treaty or exchange of information agreement.

In addition to information reporting requirements, dividends paid to a non-U.S. holder may be subject to U.S. backup withholding tax. A non-U.S. holder generally will be exempt from this backup withholding tax, however, if such holder properly provides a Form W-8BEN certifying that such holder is a non-United States person or otherwise establishes an exemption and we do not know or have reason to know that the holder is a United States person.

The gross proceeds from the disposition of our common stock may be subject to information reporting and backup withholding. If a non-U.S. holder sells shares of our common stock outside the United States through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to such holder outside the United States, then the U.S. backup withholding and information reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not backup withholding, generally will apply to a payment of sales proceeds, even if that payment is made outside the United States, if the non-U.S. holder sells shares of our common stock through a non-U.S. office of a broker that:

•  is a United States person;

•  derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States;

•  is a “controlled foreign corporation” for U.S. federal tax purposes; or

•  is a foreign partnership, if at any time during its tax year:

•  one or more of its partners are United States persons who in the aggregate hold more than 50% of the income or capital interests in the partnership; or

•  the foreign partnership is engaged in a U.S. trade or business,

unless the broker has documentary evidence in its files that the holder is not a U.S. person and certain other conditions are met, or the holder otherwise establishes an exemption.

If a non-U.S. holder receives payments of the proceeds of a sale of our common stock to or through a U.S. office of a broker, the payment will be subject to both U.S. backup withholding and information reporting unless such holder properly provides a Form W-8BEN certifying that such holder is not a United States person or otherwise establishes an exemption, and we do not know or have reason to know that such holder is a United States person.

A non-U.S. holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed such holder’s U.S. federal income tax liability by timely filing a properly completed claim for refund with the U.S. Internal Revenue Service.

125

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for us by Vinson & Elkins L.L.P.

EXPERTS

The financial statements of SandRidge Energy, Inc. as of December 31, 2005 and 2006 and for each of the three years in the period ended December 31, 2006 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The combined financial statements of NEG Oil & Gas LLC and subsidiaries, excluding National Energy Group, Inc. and the 103/4% Senior Notes due from National Energy Group Inc., but including National Energy Group Inc.’s 50% membership interest in NEG Holding LLC as of December 31, 2004 and 2005 and for each of the three years in the period ended December 31, 2005 included in this prospectus and elsewhere in the registration statement have been audited by Grant Thornton LLP, independent registered public accounting firm, as indicated in their report with respect thereto, and is included herein in reliance upon the authority of said firm as experts in giving said report.

The estimated reserve evaluations and related calculations for our WTO properties as of December 31, 2005 and PetroSource properties as of December 31, 2005 and 2006 have been included in this prospectus in reliance upon the report of DeGolyer and MacNaughton, independent petroleum engineering consultants, given upon their authority as experts in petroleum engineering. The estimated reserve evaluations and related calculations for our Piceance Basin properties as of December 31, 2005 and our WTO, East Texas, Gulf of Mexico, Gulf Coast and certain other properties as of December 31, 2006 have been included in this prospectus in reliance upon the report of Netherland, Sewell & Associates, Inc., independent petroleum engineering consultants, given upon their authority as experts in petroleum engineering.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock being sold in this offering. This prospectus, which forms part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and our common stock being sold in this offering, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed as an exhibit and is qualified in all respects by the filed exhibit. The registration statement, including exhibits and schedules filed, may be inspected without charge at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, and copies of all or any part of it may be obtained from that office after payment of fees prescribed by the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The other information we file with the SEC is not part of the registration statement of which this prospectus forms a part.

After we have completed our proposed initial public offering, we will file annual, quarterly and current reports, proxy statements and other information with the SEC. We intend to make these filings available on our website at http://www.sdrge.com once the offering is completed. Information on, or accessible through, this website is not a part of, and is not incorporated into, this prospectus. In addition, we will provide copies of our filings free of charge to our stockholders upon request.

126

FINANCIAL STATEMENTS

SandRidge Energy, Inc. Audited Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2005 and 2006	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2004, 2005, and 2006	F-4
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2004, 2005, and 2006	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2005, and 2006	F-6
Notes to Consolidated Financial Statements	F-7
SandRidge Energy, Inc. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2006 and March 31, 2007	F-44
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2007	F-45
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2007	F-46
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2007	F-47
Notes to Condensed Consolidated Financial Statements	F-48
NEG Oil & Gas LLC Audited Financial Statements
Report of Independent Registered Public Accounting Firm	F-60
Combined Balance Sheets as of December 31, 2005	F-61
Combined Statements of Operations for the Years Ended December 31, 2004 and 2005	F-62
Combined Statements of Cash Flows for the Years Ended December 31, 2003, 2004, and 2005	F-63
Combined Statements of Changes in Total Member’s Equity for the Years Ended December 31, 2003, 2004, and 2005	F-64
Notes to Combined Financial Statements	F-65
NEG Oil & Gas LLC Unaudited Financial Statements
Combined Balance Sheets as of December 31, 2005 and September 30, 2006	F-90
Combined Statements of Operations for the Nine Months Ended September 30, 2005 and 2006	F-91
Combined Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2006	F-92
Combined Statement of Changes in Total Member’s Equity for the Nine Months Ended September 30, 2006	F-93
Notes to Combined Financial Statements	F-94

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors

and Stockholders of SandRidge Energy, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of SandRidge Energy, Inc. and its subsidiaries at December 31, 2005 and 2006, and the results of their operations and their cash flows for each of the three years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, the Company changed the manner in which it accounts for oil and gas operations from the successful efforts method to the full cost method in 2006, and accordingly, the financial statements have been retroactively restated. Also, as discussed in Note 1, the 2006 consolidated financial statements have been restated to correct the fair value of derivative contracts.

PricewaterhouseCoopers LLP

Houston, Texas

March 30, 2007, except for Restatement section of Note 1 to the consolidated financial statements, as to which the date is May 11, 2007.

F-2

SandRidge Energy, Inc. and Subsidiaries

Consolidated Balance Sheets

	As of December 31,
	2005			2006
	(Restated)			(Restated)
	(In thousands except per share amount)
ASSETS
Current assets:
Cash and cash equivalents	$	45,731		$	38,948
Restricted cash		2,373			—
Accounts receivable, net:
Trade		59,180			89,774
Related parties		5,376			5,731
Inventories		1,606			2,544
Deferred income taxes		1,323			6,315
Other current assets		3,244			31,494
Total current assets		118,833			174,806
Oil and natural gas properties, using full cost method of accounting
Proved		160,789			1,636,832
Unproved		33,974			282,374
Less: accumulated depreciation and depletion		(35,029	)		(60,752	)
		159,734			1,858,454
Other property, plant and equipment, net		178,147			276,264
Goodwill		—			26,198
Investments		1,614			3,584
Restricted deposits		—			33,189
Other assets		355			15,889
Total assets	$	458,683		$	2,388,384
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	12,997		$	26,201
Accounts payable and accrued expenses:
Trade		95,435			129,799
Related parties		78			1,834
Derivative contracts		2,132			958
Total current liabilities		110,642			158,792
Long-term debt		30,136			1,040,630
Derivative contracts		—			3,052
Other long-term obligations		—			21,219
Asset retirement obligation		6,979			45,216
Deferred income taxes		13,747			24,922
Total liabilities		161,504			1,293,831
Commitments and contingencies (Note 16)
Minority interest		8,177			5,092
Redeemable convertible preferred stock, $0.001 par value, 2,650 shares authorized, 2,137 shares issued and outstanding at December 31, 2006		—			439,643
Stockholders’ equity:
Preferred stock, no par; 50,000 shares authorized; no shares issued and outstanding in 2005 and 2006		—			—
Common stock, $0.001 par value, 400,000 shares authorized; 74,332 issued and 72,917 outstanding at 2005 and 93,048 issued and 91,604 outstanding at 2006		73			92
Additional paid-in capital		243,920			574,868
Deferred compensation		(14,885	)		—
Treasury stock, at cost		(17,335	)		(17,835	)
Retained earnings		77,229			92,693
Total stockholders’ equity		289,002			649,818
Total liabilities and stockholders’ equity	$	458,683		$	2,388,384

The accompanying notes are an integral part of these consolidated financial statements.

F-3

SandRidge Energy, Inc. and Subsidiaries

Consolidated Statements of Operations

	Years Ended December 31,
	2004			2005			2006
	(Restated)			(Restated)			(Restated)
	(In thousands except per share amounts)
Revenues:
Natural gas and crude oil	$	33,685		$	49,987		$	101,252
Drilling and services		39,417			80,343			139,049
Midstream and marketing		98,906			147,133			122,896
Other		3,987			10,230			25,045
Total revenues		175,995			287,693			388,242
Expenses:
Production		10,230			16,195			35,149
Production taxes		2,497			3,158			4,654
Drilling and services		26,442			52,122			98,436
Midstream and marketing		96,180			141,372			115,076
Depreciation, depletion and amortization — natural gas and crude oil		4,770			8,995			25,723
Depreciation, depletion and amortization — other		7,904			15,211			29,903
General and administrative		6,554			11,908			55,634
Loss (gain) on change in fair value of derivatives		878			4,132			(12,291	)
Loss (gain) on sale of assets		(210	)		547			(1,023	)
Total expenses		155,245			253,640			351,261
Income from operations		20,750			34,053			36,981
Other income (expense):
Interest income		56			206			1,109
Interest expense		(1,678	)		(5,277	)		(16,904	)
Minority interest		(262	)		(737	)		(296	)
Income (loss) from equity investments		(36	)		(384	)		967
Total other expense		(1,920	)		(6,192	)		(15,124	)
Income before income tax expense		18,830			27,861			21,857
Income tax expense		6,433			9,968			6,236
Income from continuing operations		12,397			17,893			15,621
Income from discontinued operations (net of tax expense of $232 and $118 in 2004 and 2005, respectively)		451			229			—
Income before extraordinary gain		12,848			18,122			15,621
Extraordinary gain on Foreland acquisition		12,544			—			—
Net income		25,392			18,122			15,621
Preferred stock dividends and accretion		—			—			3,967
Income available to common stockholders	$	25,392		$	18,122		$	11,654
Basic and Diluted Earnings Per Share:
Income from continuing operations	$	0.22		$	0.31		$	0.21
Income from discontinued operations, net of income tax		0.01			0.01			—
Extraordinary gain on Foreland acquisition		0.22			—			—
Preferred dividends		—			—			(0.05	)
Basic and diluted income per share available to common stockholders	$	0.45		$	0.32		$	0.16
Weighted average number of shares outstanding:
Basic		56,312			56,559			73,727
Diluted		56,312			56,737			74,664

The accompanying notes are an integral part of these consolidated financial statements.

F-4

SandRidge Energy, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

							Additional
	Preferred			Common			Paid-In			Deferred			Treasury			Retained
	Stock			Stock			Capital			Compensation			Stock			Earnings			Total
	(Restated for 2004, 2005 and 2006)
	(In thousands)
Balance, January 1, 2004 (previously reported)	$	23		$	200		$	—		$	—		$	—		$	27,628		$	27,851
Prior period adjustments		—			—			—			—			—			6,090			6,090
Balance, January 1, 2004 (restated)		23			200			—			—			—			33,718			33,941
Net income		—			—			—			—			—			25,392			25,392
Dividends on preferred stock		—			—			—			—			—			(2	)		(2	)
Balance, December 31, 2004		23			200			—			—			—			59,108			59,331
Exchange of preferred stock for common stock		(23	)		1			22			—			—			—			—
Purchase of treasury shares		—			(5	)		—			—			(17,335	)		—			(17,340	)
Stock split (change in par value)		—			(141	)		141			—			—			—			—
Issuance of stock in acquisitions		—			4			55,281			—			—			—			55,285
Stock offering, net of $18.0 million in offering costs		—			12			173,110			—			—			—			173,122
Restricted shares		—			2			15,366			(15,366	)		—			—			2
Amortization of deferred compensation		—			—			—			481			—			—			481
Net income		—			—			—			—			—			18,122			18,122
Dividends on preferred stock		—			—			—			—			—			(1	)		(1	)
Balance, December 31, 2005		—			73			243,920			(14,885	)		(17,335	)		77,229			289,002
Stock offering		—			—			3,343			—			—			—			3,343
Change in accounting principle for stock-based compensation		—			—			(14,885	)		14,885			—			—			—
Issuance of stock in acquisitions		—			13			236,271			—			—			—			236,284
Stock offering, net of $3.9 million in offering costs		—			6			97,427			—			—						97,433
Stock-based compensation		—			—			8,792			—			—			—			8,792
Accretion on redeemable convertible preferred stock		—			—			—			—			—			(157	)		(157	)
Purchase of treasury shares		—			—			—			—			(500	)		—			(500	)
Net income		—			—			—			—			—			15,621			15,621
Balance, December 31, 2006	$	—		$	92		$	574,868		$	—		$	(17,835	)	$	92,693		$	649,818

The accompanying notes are an integral part of these consolidated financial statements.

F-5

SandRidge Energy, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2004			2005			2006
	(Restated)			(Restated)			(Restated)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	25,392		$	18,122		$	15,621
Income from discontinued operations, net of tax		451			229			—
Income from continuing operations		24,941			17,893			15,621
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts		761			33			2,528
Depreciation, depletion and amortization		12,674			24,206			55,626
Debt issuance cost amortization		—			—			299
Deferred income taxes		6,433			9,460			348
Extraordinary gain		(12,544	)		—			—
Unrealized loss (gain) on derivatives		(1,803	)		1,296			1,878
Loss (gain) on sale of assets		(210	)		547			(1,023	)
Interest income — restricted deposits		—			—			(151	)
Loss (gain) from equity investments, net of distributions		1,066			846			(956	)
Stock-based compensation		—			481			8,792
Minority interests		262			737			296
Changes in operating assets and liabilities increasing (decreasing) cash:
Receivables		(6,950	)		(25,494	)		(2,648	)
Inventories		(481	)		(46	)		(938	)
Other current assets		(584	)		(1,146	)		(22,238	)
Other assets and liabilities, net		324			775			(2,131	)
Accounts payable and accrued expenses		14,569			33,709			12,046
Net cash provided by operating activities by continuing operations		38,458			63,297			67,349
Net cash provided by operating activities by discontinued operations		978			347			—
Net cash provided by operating activities		39,436			63,644			67,349
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant and equipment		(57,926	)		(134,596	)		(306,541	)
Proceeds from sale of assets		1,443			3,327			19,742
Contributions on equity investments		(1,976	)		(1,350	)		(3,388	)
Acquisitions of assets, net of cash received of $0, $66 and $21,100		(1,169	)		(21,247	)		(1,054,075	)
Proceeds from sale of investments		220			413			2,373
Restricted deposits		—			—			(1,051	)
Restricted cash		—			(2,373	)		2,373
Net cash used in investing activities for continuing operations		(59,408	)		(155,826	)		(1,340,567	)
Net cash used in investing activities for discontinued operations		(1,931	)		(1,473	)		—
Net cash used in investing activities		(61,339	)		(157,299	)		(1,340,567	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings		41,620			247,460			1,261,910
Repayments of borrowings		(6,840	)		(301,285	)		(518,870	)
Dividends paid-preferred		(2	)		(1	)		—
Minority interests contributions (distributions)		(78	)		7,117			(618	)
Proceeds from issuance of common stock		—			173,122			100,776
Proceeds from issuance of redeemable convertible preferred stock		—			—			439,486
Purchase of treasury shares		—			—			(500	)
Debt issuance costs		—			—			(15,749	)
Net cash provided by financing activities for continuing operations		34,700			126,413			1,266,435
Net cash provided by financing activities for discontinued operations		—			—			—
Net cash provided by financing activities		34,700			126,413			1,266,435
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		12,797			32,758			(6,783	)
CASH AND CASH EQUIVALENTS, beginning of year		176			12,973			45,731
CASH AND CASH EQUIVALENTS, end of year	$	12,973		$	45,731		$	38,948
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of amounts capitalized	$	2,024		$	7,222		$	15,079
Cash paid for income taxes		—			—			1,599
Supplemental Disclosure of Noncash Investing and Financing Activities:
Common stock issued in connection with acquisitions	$	—		$	55,285		$	236,284
Assumption of restricted deposits and notes payable in connection with acquisition		—			—			313,628
Assets disposed in exchange for common stock		—			17,335			—
Insurance premium financed		1,137			2,133			5,023
Accretion on redeemable convertible preferred stock		—			—			157

The accompanying notes are an integral part of these consolidated financial statements.

F-6

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Restated)

1.   Summary of Significant Accounting Policies

Nature of Business.  SandRidge Energy, Inc. and its subsidiaries (formerly known as Riata Energy Inc.) (collectively, the “Company” or “SandRidge”) is an oil and gas company with its principal focus on exploration, development and production related to oil and gas activities. SandRidge also owns and operates drilling rigs and provides related oil field services, midstream services operations, and CO₂ and tertiary oil recovery operations. SandRidge’s primary exploration, development and production areas are concentrated in West Texas. The Company also operates significant interests in the Cotton Valley Trend in East Texas and Gulf Coast area.

On November 21, 2006, the Company acquired all of the outstanding membership interests of NEG Oil & Gas LLC (“NEG”) (See Note 3).

Principles of Consolidation.  The consolidated financial statements include the accounts of SandRidge Energy, Inc. and its wholly owned or majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications.  Certain reclassifications have been made in prior period financial statements to conform with current period presentation.

Restatement.  The Company has restated the consolidated financial statements for the year ended December 31, 2006. The restatement relates to the loss (gain) on change in fair value of derivative in the statement of operations. In 2006, the Company recognized an unrealized gain on change in fair value of derivatives related to mark-to-market adjustments of derivative contracts with a counterparty for approximately $3.0 million. The Company recently discovered that the mark-to-market adjustments booked in 2006 for the derivative contracts with this counterparty were recorded incorrectly. As part of its normal closing procedures, the Company requests from the counterparty the Company’s mark-to-market position. Historically, the Company’s counterparties have sent the statement in terms of SandRidge’s position. During the fourth quarter of 2006, the Company entered into derivative contracts with a new counterparty. The new counterparty confirmed to the Company the mark-to-market loss (gain) in their position, not the Company’s. The position terms of the statement were not specified on the report and recorded in error during the 2006 year end closing process. As part of the first quarter 2007 closing process, the Company discovered the error.

F-7

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

The restatement affects Note 12 — Derivatives, Note 14 — Income Taxes, and Note 21 — Industry Segment Information. The restatement had no effect on the Company’s previously presented net cash provided by (used in) operating activities, investing activities, or financing activities for any period presented. A comparison of the Company’s previously presented deferred tax assets, derivative contracts — current assets, derivative contracts — non current assets, derivative contracts — current liabilities, derivative contracts — non current liabilities, deferred tax liabilities, and retained earnings to its restated financial position disclosed herein are as follows (in thousands):

	December 31,		December 31,
	2006		2006
	(As originally		(As restated)
	presented)
Deferred tax assets	$	5,244	$	6,315
Derivative contracts — current assets	$	279	$	—
Derivative contracts — non current assets	$	1,736	$	—
Derivative contracts — current liabilities	$	—	$	958
Derivative contracts — non current liabilities	$	—	$	3,052
Deferred tax liabilities	$	26,020	$	24,922
Retained earnings	$	96,549	$	92,693

A comparison of the Company’s previously presented net income, income available to common stockholders, and earnings per share to its results of operations disclosed herein are as follows (in thousands, except per share amounts):

	2006		2006
	(As originally		(As restated)
	presented)
Net income	$	19,477	$	15,621
Income available to common stockholders	$	15,510	$	11,654
Basic and diluted earnings per share available to common stockholders	$	0.21	$	0.16

Change in Method of Accounting for Oil and Gas Operations.  In the fourth quarter of 2006, the Company changed from the successful efforts method to the full cost method of accounting for its oil and gas operations. All prior year’s financial statements presented herein have been restated to reflect the change.

Management believes that the full cost method is preferable for a company more actively involved in the exploration and development of oil and gas reserves. The full cost method was also utilized by NEG prior to the acquisition, and the assets acquired from NEG constitute more than SandRidge’s total oil and gas assets.

SandRidge’s financial results have been retroactively restated to reflect the conversion to the full cost method. As prescribed by full cost accounting rules, all costs associated with property acquisition, exploration, and development activities are capitalized. Exploration and development costs include dry hole costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding oil and gas reserves.

In accordance with full cost accounting rules, SandRidge is subject to a limitation on capitalized costs. The capitalized cost of oil and gas properties, net of accumulated depreciation, depletion, and amortization, may not exceed the estimated future net cash flows from proved oil and gas reserves discounted at 10%, plus the lower of cost or fair market value of unproved properties as adjusted for related tax effects. If capitalized

F-8

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

costs exceed this limit (the “ceiling limitation”), the excess must be charged to expense. SandRidge did not have any adjustment to earnings due to the ceiling limitation for the periods presented herein.

A comparison of the Company’s previously presented property, plant and equipment, net, deferred income taxes and retained earnings under the successful efforts method of accounting to its financial position disclosed herein are as follows (in thousands):

	December 31,		December 31,
	2005		2005
	(As originally		(As restated)
	presented)
Property, plant and equipment, net	$	318,284	$	337,881
Deferred tax liabilities	$	6,857	$	13,747
Retained earnings	$	64,522	$	77,229

A comparison of the Company’s previously presented income from continuing operations, net income, and earnings per share under the successful efforts method of accounting to its results of operations disclosed herein are as follows (in thousands, except per share amounts):

	Year Ended December 31
	2004		2005
Income from continuing operations, as originally presented	$	8,327	$	15,346
Net income, as originally presented	$	21,322	$	15,575
Basic and diluted earnings per share, as originally presented	$	0.38	$	0.28
Income from continuing operations, as restated	$	12,397	$	17,893
Net income, as restated	$	25,392	$	18,122
Basic and diluted earnings per share, as restated	$	0.45	$	0.32

Use of Estimates.  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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Estimates of oil and natural gas reserves and their values, future production rates and future costs and expenses are inherently uncertain for numerous reasons, including many factors beyond the Company’s control. Reservoir 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 any reserve estimate is a function of the quality of data available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be revised based on actual production, results of subsequent exploitation and development activities, prevailing commodity prices, operating cost and other factors. These revisions may be material and could materially affect the Company’s future depletion, depreciation and amortization expenses.

The Company’s revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which are dependent upon numerous factors beyond its control such as economic, regulatory developments and competition from other energy sources. The energy markets have historically been volatile and there can be no assurance that oil and natural gas prices will not be subject to wide fluctuations in the future. A substantial or extended decline in oil and natural gas prices could have a

F-9

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

material adverse effect on the Company’s financial position, results of operations, cash flows and quantities of oil and natural gas reserves that may be economically produced.

Cash and Cash Equivalents.  The Company considers all highly-liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Those securities are readily convertible to known amounts of cash and bear insignificant risk of changes in value due to their short maturity period.

Restricted Cash.  Restricted cash of approximately $2.4 million at December 31, 2005 was pledged as collateral on certain bank debt and is classified as restricted cash on the consolidated balance sheets. The restriction was released in April 2006.

Accounts Receivable, net.  The Company has receivables for sales of oil, gas and natural gas liquids, as well as receivables related to the exploration and extraction services for oil, gas and natural gas liquids. Management has established an allowance for doubtful accounts. The allowance is evaluated by management and is based on management’s periodic review of the collectibility of the receivables in light of historical experience, the nature and volume of the receivables, and other subjective factors.

Inventories.  Inventories consist of oil field services supplies and are stated at the lower of cost or market with cost determined on an average cost basis.

Goodwill.  Goodwill represents the amount by which the total purchase price SandRidge has paid to acquire businesses accounted for as purchases exceeds the estimated fair value of the net assets acquired. The Company tests goodwill for impairment annually and charges income for any impairment recognized, but goodwill is not otherwise amortized.

Debt Issue Costs.  The Company amortizes debt issue costs related to its senior credit facility and senior bridge facility as interest expense over the scheduled maturity period of the debt. Unamortized debt issuance costs were $0 as of December 31, 2005 and approximately $15.5 million as of December 31, 2006. The Company includes those unamortized costs in other assets.

Revenue Recognition and Gas Balancing.  Oil and natural gas revenues are recorded when title passes to the customer, net of royalties, discounts and allowances, as applicable. The Company accounts for oil and natural gas production imbalances using the sales method, whereby the Company recognizes revenue on all oil and natural gas sold to its customers notwithstanding the fact that its ownership may be less than 100% of the oil and natural gas sold. Liabilities are recorded by the Company for imbalances greater than the Company’s proportionate share of remaining estimated oil and natural gas reserves. The Company did not have significant gas imbalance positions at December 31, 2005. The Company has recorded a liability for gas imbalance positions related to gas properties with insufficient proved reserves of $0.9 million at December 31, 2006. The Company includes the gas imbalance positions in other long-term obligations.

The Company recognizes revenues and expenses generated from “daywork” drilling contracts as the services are performed, since the Company does not bear the risk of completion of the well. Under “footage” and “turnkey” contracts, the Company bears the risk of completion of the well; therefore, revenues and expenses are recognized when the well is substantially completed. Under this method, substantial completion is determined when the well bore reaches the negotiated depth as stated in the contract. The duration of all three types of contracts range typically from 20 to 90 days. The entire amount of a loss, if any, is recorded when the loss is determinable. The costs of uncompleted drilling contracts include expenses incurred to date on “footage” or “turnkey” contracts, which are still in process at the end of the period.

The Company may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees received and costs incurred to mobilize a rig from one market to another are recognized over the term of the related drilling contract. The contract terms are typically from 20 to 90 days.

F-10

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

Revenues from the midstream services segment are derived from providing supply, transportation, balancing and sales services for producers and wholesale customers on natural gas pipelines, as well as other interconnected pipeline systems. Midstream services are primarily undertaken to realize incremental margins on gas purchased at the wellhead, and provide value-added services to customers. In general, natural gas purchased and sold by the midstream gas business is priced at a published daily or monthly index price. Sales to wholesale customers typically incorporate a premium for managing their transmission and balancing requirements. Revenues are recognized upon delivery of natural gas to customers and/or when services are rendered, pricing is determinable and collectibility is reasonably assured.

Revenue from sales of CO₂ is recognized when the product is delivered to the customer. The Company recognizes service fees related to the transportation of CO₂ as revenue when the related service is provided.

Environmental Costs.  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 costs can be reasonably estimated. Environmental costs accrued at December 31, 2005 and 2006 were not material.

Oil and Natural Gas Operations.  The Company uses the full cost method to account for its natural gas and oil properties. Under full cost accounting, all costs directly associated with the acquisition, exploration and development of natural gas and oil reserves are capitalized into a “full cost pool.” These capitalized costs include costs of all unproved properties, internal costs directly related to the Company’s acquisition, exploration and development activities and capitalized interest. These costs are amortized using a unit-of-production method. Under this method, the provision for depreciation, depletion and amortization is computed at the end of each quarter by multiplying total production for such quarter by a depletion rate. The depletion rate is determined by the dividing total unamortized cost base by net equivalent proved reserves at the beginning of the quarter.

Costs associated with unproved properties are excluded from total unamortized cost base until a determination has been made as to the existence of proved reserves. Unproved properties are reviewed at the end of each quarter to determine whether the costs incurred should be reclassified to the full cost pool and, thereby, subject to amortization. Sales and abandonments of natural gas and oil properties being amortized are accounted for as adjustments to the full cost pool, with no gain or loss recognized, unless the adjustments would significantly alter the relationship between capitalized costs and proved natural gas and oil reserves. A significant alteration would not ordinarily be expected to occur upon the sale of reserves involving less than 25% of the reserve quantities of a cost center.

Under full cost accounting, total capitalized costs (net of accumulated depreciation, depletion and amortization) less related deferred taxes may not exceed an amount equal to the present value of future net revenues from proved reserves, discounted at 10% per annum, plus the lower of cost or fair value of unevaluated properties, plus estimated salvage value, less income tax effects (the “ceiling limitation”). A ceiling limitation calculation is performed at the end of each quarter. If total capitalized costs (net of accumulated depreciation, depletion and amortization) less related deferred taxes are greater than the ceiling limitation, a write-down or impairment of the full cost pool is required. A write-down of the carrying value of the full cost pool is a non-cash charge that reduces earnings and impacts stockholders’ equity in the period of occurrence and typically results in lower depreciation, depletion and amortization expense in future periods. Once incurred, a write-down is not reversible at a later date.

The ceiling test is calculated using natural gas and oil prices in effect as of the balance sheet date, as adjusted for “basis” or location differentials as of the balance sheet date and held constant over the life of the reserves (“net wellhead prices”). If applicable, these net wellhead prices would be further adjusted to include the effects of any fixed price arrangements for the sale of natural gas and oil. The Company may, from time-

F-11

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

to-time, use derivative financial instruments to hedge against the volatility of natural gas prices. Derivative contracts that qualify and are designated as cash flow hedges and, are included in estimated future cash flows. Historically, the Company has not designated any of its derivatives contracts as cash flow hedges. In addition, the future cash outflows associated with future development wells are included in the computation of the discounted present value of future net revenues for the purposes of the ceiling test calculation.

The costs associated with unproved properties are not initially included in the amortization base and relate to unproved leasehold acreage, wells and production facilities in progress and wells pending determination of the existence of proved reserves, together with capitalized interest costs for these projects. Unproved leasehold costs are transferred to the amortization base with the costs of drilling the related well once a determination of the existence of proved reserves has been made or upon impairment of a lease. Costs of seismic data are allocated to various unproved leaseholds and transferred to the amortization base with the associated leasehold costs on a specific project basis. Costs associated with wells in progress and completed wells that have yet to be evaluated are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry holes are transferred to the amortization base immediately upon determination that the well is unsuccessful. The Company capitalized exploration expense of $3.7 million in 2004, $2.1 million in 2005 and $13.7 million in 2006.

All items classified as unproved property are assessed on a quarterly basis for possible impairment or reduction in value. Properties are assessed on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to amortization.

Property, Plant and Equipment, net.  Other capitalized costs, including drilling equipment, natural gas gathering and processing equipment, transportation equipment and other property and equipment are carried at cost. Renewals and improvements are capitalized while repairs and maintenance are expensed. Depreciation of drilling equipment is recorded using the straight-line method based on estimated useful lives. Depreciation of other property and equipment is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 39 years.

Realization of the carrying value of property and equipment is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are determined to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset including disposal value if any, is less than the carrying amount of the asset. If any asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. An estimate of fair value is based on the best information available, including prices for similar assets. Changes in such estimates could cause the Company to reduce the carrying value of property and equipment.

When property and equipment components are disposed of, the cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is generally reflected in operations.

Investments.  Investments in affiliated companies are accounted for under the cost or equity method, based on the Company’s ability to exercise significant influence.

Asset Retirement Obligation.  The Company owns oil and natural gas properties which require expenditures to plug and abandon the wells when the oil and natural gas reserves in the wells are depleted. These expenditures are recorded in the period in which the liability is incurred (at the time the wells are drilled or acquired). Asset retirement obligations are recorded as a liability at their estimated present value at the asset’s

F-12

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

inception, with the offsetting charge to property cost. Periodic accretion expense of the estimated liability is recorded in the statement of operations.

The asset retirement obligations primarily represent the Company’s estimate of fair value to plug, abandon and remediate the oil and natural gas properties at the end of their productive lives, in accordance with applicable state laws. The Company has determined the asset retirement obligations by calculating the present value of estimated expenses related to the liability. Estimating the future asset retirement obligations requires management to make estimates and judgments regarding timing, existence of a liability, and what constitutes adequate restoration. Inherent in the present value calculation rates, are the timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligations liability, a corresponding adjustment is made to the related asset. The following is a reconciliation of the asset retirement obligation for the years ended December 31, (in thousands).

	2004		2005			2006
Asset retirement obligation, January 1	$	3,883	$	4,394		$	6,979
Liability incurred upon acquiring and drilling wells		372		2,779			2,996
NEG acquisition		—		—			40,343
Revisions in estimated cash flows		—		—			(5,700	)
Liability settled in current period		—		(512	)		—
Accretion of discount expense		139		318			598
Asset retirement obligation, December 31	$	4,394	$	6,979		$	45,216

Income Taxes.  Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns.

Minority Interest.  As of December 31, 2006, minority interest in the Company’s consolidated subsidiaries consisted of the following:

•  the 15.00% interest in Integra Energy;

•  the 30.38% interest in Sagebrush Pipeline;

•  the 46.71% interest in Cholla Pipeline.

Concentration of Risk.  The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. From time to time, the Company may have balances in these accounts that exceed the federally insured limit. The Company does not anticipate any loss associated with balances in excess of the federally insured limit.

Fair Value of Financial Instruments.  For certain of the Company’s financial instruments, including cash, accounts receivable and accounts payable, the carrying value approximates fair value because of their short maturity. The carrying value of borrowings under the senior credit facility and the notes payable approximates fair value because their interest rates are based on fair value indexes. The fair value of the Company’s senior bridge facility and convertible preferred stock approximate book value based on current material transactions completed by the Company subsequent to year end.

F-13

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

Derivative Financial Instruments.  To manage risks related to increases in interest rates and changes in oil and gas prices, the Company occasionally enters into interest rate swaps and oil and gas futures contracts.

The Company recognizes all of its derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company designates the hedging instrument, based on the exposure being hedged, as either a fair value hedge or a cash flow hedge. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. None of the Company’s derivatives were designated as hedging instruments during 2004, 2005 and 2006.

Stock-Based Compensation.  Effective January 1, 2006, the Company adopted SFAS No. 123-R, “Share-Based Payment” (“SFAS 123R”). SFAS 123R establishes the accounting for equity instruments exchanged for employee services. Under SFAS 123R, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees’ requisite service period, generally the vesting period of the award. SFAS 123R also requires the related excess tax benefit received upon exercise of stock options or vesting of restricted stock, if any, to be reflected in the statement of cash flows as a financing activity rather than an operating activity. The Company does not have any excess tax benefits.

Recent Accounting Pronouncements.  In July 2006, the Financial Accounting Standards Board (“FASB”) issued FIN 48, “Accounting for Uncertainty in Income Taxes,” or FIN 48, which is effective for the Company as of the interim reporting period beginning January 1, 2007. The validity of any tax position is a matter of tax law, and generally there is no controversy about recognizing the benefit of a tax position in a company’s financial statements when the degree of confidence is high that the tax position will be sustained upon examination by a taxing authority. The tax law is subject to varied interpretation, and whether a tax position will ultimately be sustained may be uncertain. Under FIN 48, the impact of an uncertain income tax position on the income tax provision must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. A benefit based on an uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. FIN 48 also requires additional disclosures about unrecognized tax benefits associated with uncertain income tax positions and a reconciliation of the change in the unrecognized benefit. In addition, FIN 48 requires interest to be recognized on the full amount of deferred benefits for uncertain tax positions. An income tax penalty is recognized as expense when the tax position does not meet the minimum statutory threshold to avoid the imposition of a penalty. The Company continues to evaluate the impact of FIN 48 on the consolidated financial statements. At this time, the Company is evaluating the impact of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S generally accepted accounting principles (“GAAP”) to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (“CON”) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this Statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on the financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option For Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits an entity to choose to measure certain financial assets and liabilities at fair value. SFAS No. 159 also revises provisions of SFAS No. 115 that apply to available-for-sale and trading securities. This statement is

F-14

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

effective for fiscal years beginning after November 15, 2007. The Company has not yet evaluated the potential impact of this standard.

2.   Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company performs an annual impairment test (or more frequently if impairment indicators arise) for goodwill and other intangibles with indefinite lives. The Company allocates goodwill to various reporting units to perform its impairment test. SFAS No. 142 requires that the implied fair value of the reporting unit be compared with its carrying amount on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, the Company would record an impairment loss to the extent of that difference. The Company bases the fair values of its reporting units on a combination of valuation approaches, including discounted cash flows, multiples of sales and earnings before interest, taxes, depreciation, depletion and amortization and comparisons of recent transactions. In the fourth quarter of 2006, the Company conducted its annual valuation test and determined it was not required to recognize any goodwill impairment. As of December 31, 2005, the Company had no intangible assets and goodwill. As of December 31, 2006, the Company had no intangible assets.

The change in the carrying amount of goodwill for 2006 was as follows (in thousands):

	2006
Balance at January 1, 2006	$	—
Acquisition		26,198
Balance at December 31, 2006	$	26,198

3.   Acquisitions and Dispositions

2005 Acquisitions

The Company closed the following acquisitions in 2005:

•  The acquisition of additional equity interests in PetroSource, which increased the Company’s ownership from 22.4% to 86.5%, resulting in the consolidation of PetroSource in the Company’s financial statements;

•  The acquisition from an executive officer and director of the remaining 50% equity interest in the Company’s compression services subsidiary, Larco, resulting in it becoming a wholly-owned subsidiary;

•  The acquisition from an executive officer and director of approximately 7,400 net acres of additional leasehold interest in West Texas in properties in which the Company previously held interests;

•  The acquisition of approximately 2,503 net acres of additional leasehold interest in property in the Piceance Basin in which the Company previously held interests;

•  The acquisition from a director of additional working interests in Missouri and Nevada leases in which the Company previously held interests; and

•  The acquisition of an additional 19.5% before pay-out interest in the Company’s subsidiary, Sagebrush Pipeline LLC.

•  The acquisition of certain interests in several oil and natural gas properties in West Texas from Carl E. Gungoll Exploration, LLC and certain other parties. The purchase price was approximately $8.0 million, comprised of $5.4 million in cash, and 174,833 shares of common stock (valued at $2.6 million).

F-15

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

The acquisitions were financed with approximately $21.3 million in cash and the issuance of 3,685,690 shares of common stock with an aggregate value of approximately $55.3 million. Details are set forth below for each of the acquisition transactions (in thousands):

	Addition to											Consideration Paid
	Property,								Change in			Common		Common		Cash, Net
	Plant &		Addition to Net			Elimination of			Minority			Stock No.		Stock at		of Cash
Acquisition Transaction	Equipment		Assets(1)			Investments			Interest			of Shares		$15/Share		Acquired
PetroSource additional interests	$	73,744	$	(37,381	)	$	(3,052	)	$	3,253			958	$	14,372	$	15,686
Piceance Basin additional interests		17,565		—			—			—			1,164		17,456		109
West Texas additional lease interests		10,000		—			—			—			667		10,000		—
Larco remaining interest		5,054		—			—			(2,446	)		500		7,500		—
Gungoll lease interests		8,074		—			—			—			176		2,622		5,452
Various additional lease interests		268		—			—			—			17		268		—
Sagebrush additional interests		689		—			—			(2,378	)		204		3,067		—
Totals	$	115,394	$	(37,381	)	$	(3,052	)	$	(1,571	)		3,686	$	55,285	$	21,247

(1) The purchase price for additional interests in PetroSource was approximately $30.1 million, comprised of $15.7 million in cash (net of $0.1 million in cash acquired), and approximately 958,000 shares of SandRidge common stock (valued at $14.4 million). The purchase price has been allocated to accounts receivable of $4.5 million, other current assets of $0.1 million, other assets of $0.4 million, accounts payable and accrued expenses of $2.6 million, long-term debt of $37.4 million, and asset retirement obligations of $2.4 million in the accompanying consolidated balance sheet as of December 31, 2005.

The Company completed its purchase accounting allocations for the 2005 acquisitions in 2006 and recorded an additional $3.8 million deferred tax liability related to the Larco stock acquisition.

2006 Acquisitions and Dispositions

The Company closed the following acquisitions and dispositions in 2006:

•  On March 15, 2006, the Company acquired from an executive officer and director, an additional 12.5% interest in PetroSource Energy Company, a consolidated subsidiary. The acquisition consisted of the retirement of subordinated debt of approximately $1.0 million and a $4.5 million cash payment for the ownership interest acquired for a total acquisition price of approximately $5.5 million.

•  On May 1, 2006, the Company purchased certain leases in developed and undeveloped properties from an oil and gas company. The purchase price was approximately $40.9 million in cash. The cash consideration was paid in July 2006.

•  On May 26, 2006, the Company purchased several oil and natural gas properties from an oil and gas company. The purchase price was approximately $12.9 million, comprised of $8.2 million in cash, and 251,351 shares of SandRidge Energy, Inc. common stock (valued at $4.7 million). The cash and equity consideration was paid in July 2006.

F-16

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

•  On June 1, 2006, the Company purchased certain producing well interest from an executive officer and director. The purchase price was approximately $9.0 million in cash. The cash consideration was paid in July 2006.

•  On June 7, 2006, the Company acquired subordinated debt plus accrued interest of approximately $0.1 million and the remaining 1% interest in PetroSource Energy Company, a consolidated subsidiary, from an oil and gas company. The purchase price was 27,749 shares of SandRidge Energy, Inc. common stock (valued at $0.5 million). The Company now owns 100% of PetroSource Energy Company.

The preceding 2006 acquisitions were financed with approximately $63.7 million in cash and the issuance of 279,100 shares of common stock with an aggregate value of approximately $5.1 million. Details are set forth below for each of the acquisition transactions (in thousands):

	Addition to					Consideration Paid
	Property,		Change in			Retirement of			Common
	Plant &		Minority			Subordinated			Stock No. of		Common
Acquisition Transaction	Equipment		Interest			Debt(1)			Shares		Stock		Cash
PetroSource additional interests — March 15, 2006	$	2,116	$	(2,370	)	$	(1,003	)		—	$	—	$	5,489
Purchased leases — May 1, 2006		40,960		—			—			—		—		40,960
Oil and natural properties — May 26, 2006		12,850		—			—			251		4,650		8,200
Producing well interest from an executive officer and director — June 1, 2006		9,000		—			—			—		—		9,000
PetroSource additional interest (remaining 1% interest) — June 7, 2006		85		(393	)		—			28		478		—
Totals	$	65,011	$	(2,763	)	$	(1,003	)		279	$	5,128	$	63,649

(1) Includes retirement of subordinated debt of $972,000 and accrued interest of $31,000.

•  In July 2006, the Company sold leaseholds and lease and well equipment for $16.0 million. The book basis of the assets at the time of the sale transaction was $3.7 million. The sale was accounted for as an adjustment to the full cost pool, with no gain recognized.

•  In August 2006, the Company sold certain assets (Stockton Plaza, Authentix Investment and certain other assets) to the Company’s former President and Chief Operating Officer, N. Malone Mitchell, 3rd, for approximately $6.1 million in cash. These investments had been accounted for under the cost method and reflected as investments in the consolidated balance sheet as of December 31, 2005. The sale transaction resulted in a $0.8 million gain recognized in earnings by the Company in August 2006. The gain is included in loss (gain) on sale of assets in the consolidated statements of operations.

•  On November 21, 2006, the Company acquired all of the outstanding membership interests of NEG for approximately $990.4 million in cash, the assumption of $300 million in debt, the receipt of cash of $21.1 million, and the issuance of 12,842,000 shares of SandRidge Energy, Inc. common stock (valued at approximately $231.2 million). NEG owned core assets in the Val Verde and Permian Basins of West Texas, including overlapping or contiguous interests in the properties that the Company owns in the West Texas Overthrust. To finance the NEG acquisition, the Company entered into a new $750 million senior secured credit facility and an $850 million senior unsecured bridge loan facility. The Company also issued $550 million of redeemable convertible preferred stock and common units (consisting of

F-17

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

shares of common stock and a warrant to purchase convertible preferred stock upon the surrender of the common stock) in a private placement to certain eligible purchasers.

The accompanying balance sheet at December 31, 2006 includes the allocations of the purchase price for the NEG acquisition. The allocation of the purchase price to specific assets and liabilities were based, in part, upon an appraisal of the fair value of NEG assets. The Company continues to obtain information to refine the fair value of the assets acquired and the liabilities assumed. The Company expects that a final allocation of the purchase price will be completed in fiscal 2007.

The following table presents the NEG acquisition purchase price allocation, including professional fees and other related acquisition costs, to the net assets acquired and liabilities assumed, based on the fair values with the balance of the purchase price, $26.2 million, included in goodwill at the acquisition date (in thousands):

Cash and cash equivalents	$	21,100
Accounts receivable		30,840
Other current assets		6,025
Property, plant and equipment		1,497,874
Goodwill		26,198
Restricted deposits		31,987
Other assets		270
Total assets acquired		1,614,294
Accounts payable and other current liabilities		46,082
Deferred income taxes		2,189
Long-term debt		281,641
Other long-term obligations		1,357
Asset retirement obligation		40,343
Net assets acquired		1,242,682
Less: Cash and cash equivalents acquired		(21,100	)
Net amount paid for acquisition	$	1,221,582

The Company has assigned all of the NEG goodwill to the Exploration and Production segment. Goodwill in the amount of $24.0 million is deductible for tax purposes.

F-18

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

Pro Forma Information

The unaudited financial information in the table below summarizes the combined results of operations of SandRidge and NEG, on a pro forma basis, as though the companies had been combined as of January 1, 2005. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2005 or of results that may occur in the future. The pro forma adjustments include estimates and assumptions based on currently available information. The Company believes the estimates and assumptions are reasonable, and the significant effects of the transactions are properly reflected. However, actual results may differ materially from this pro forma financial information. The following table presents the actual results for the years ended December 31, 2005 and 2006 and the respective unaudited pro forma information to reflect the NEG acquisition (in thousands, except per share amounts):

	Year Ended December 31,
	2005					2006
	Actual		Pro Forma			Actual		Pro Forma
Revenues	$	287,693	$	560,235		$	388,242	$	565,256
Income (loss) from continuing operations		17,893		(49,594	)		19,477		40,133
Net income (loss)		18,122		(49,594	)		19,477		40,133
Basic and diluted earnings per share available (applicable) to common stockholders:
Income (loss) from continuing operations	$	0.31	$	(0.96	)	$	0.21	$	0.04
Net income (loss)	$	0.32	$	(0.96	)	$	0.21	$	0.04

4.   Discontinued Operations

On September 30, 2005, the Company exchanged substantially all of its land and agriculture operations with its majority shareholder. The majority shareholder exchanged 1,414,849 shares of the Company’s common stock for these operations. The shares were exchanged at their historical basis and the exchange was reflected as a treasury share transaction. The net book value of assets exchanged was $23.6 million. There was no gain (loss) recognized in this transaction. The land and agriculture operations are presented as discontinued operations, net of income taxes in the consolidated statements of operations.

The following table summarizes net revenue and net income (loss) from discontinued operations for the years ended December 31, 2004, 2005 and 2006 (in thousands):

	2004			2005			2006
Revenues	$	1,968		$	1,683		$	—
Operating expenses		(1,285	)		(1,336	)		—
Income from discontinued operations		683			347			—
Income tax expense		(232	)		(118	)		—
Net income from discontinued operations	$	451		$	229		$	—

No assets were classified as held for sale at December 31, 2005 or 2006.

F-19

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

5.   Accounts Receivable

A summary of accounts receivable is as follows (in thousands):

	December 31,
	2005			2006
Oil and gas service	$	12,809		$	8,489
Oil and gas sales		29,113			57,458
Joint interest billing		18,109			26,553
Other		—			299
		60,031			92,799
Less allowance for doubtful accounts		(851	)		(3,025	)
Total accounts receivable, net	$	59,180		$	89,774

The following tables show the balance in the allowance for doubtful accounts and activity for the years ended December 31, 2004, 2005 and 2006 (in thousands).

			Additions
	Balance at		Charged to					Balance at
	Beginning		Costs and					End of
Allowance for Doubtful Accounts	of Period		Expenses		Deductions(1)			Period
Year ended December 31, 2004	$	602	$	761	$	(289	)	$	1,074
Year ended December 31, 2005	$	1,074	$	33	$	(256	)	$	851
Year ended December 31, 2006	$	851	$	2,528	$	(354	)	$	3,025

(1) Deductions represent the write-off/recovery of receivables.

6.   Other Current Assets

Other current assets consist of the following (in thousands):

	December 31,
	2005		2006
Prepaid insurance	$	2,369	$	7,604
Prepaid drilling		407		2,207
Materials and supplies		83		6,244
Post closing receivable — NEG acquisition		—		15,232
Other		385		207
Total other current assets	$	3,244	$	31,494

F-20

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

7.   Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

	December 31,
	2005			2006
	(Restated)
Oil and natural gas properties:
Proved	$	160,789		$	1,636,832
Unproved		33,974			282,374
Total oil and natural gas properties		194,763			1,919,206
Less accumulated depreciation and depletion		(35,029	)		(60,752	)
Net oil and natural gas properties capitalized costs		159,734			1,858,454
Land		852			738
Non oil and gas equipment		210,380			337,294
Buildings and structures		4,708			6,564
Construction in progress		267			—
Total		216,207			344,596
Less accumulated depreciation, depletion and Amortization		(38,060	)		(68,332	)
Net capitalized costs		178,147			276,264
Total property, plant and equipment	$	337,881		$	2,134,718

The amount of capitalized interest in 2006 was approximately $1.4 million and is included in the above non oil and gas equipment balance. The Company did not capitalize any interest in 2004 or 2005.

Costs Excluded

Costs associated with unproved properties related to continuing operations of $282.4 million as of December 31, 2006 are excluded from amounts subject to amortization. The majority of the evaluation activities are expected to be completed within a four-year period. In addition, the Company’s internal engineers evaluate all properties on an annual basis. The average composite rates used for depreciation, depletion and amortization were $0.69 per Mcfe in 2004, $1.23 per Mcfe in 2005 and $1.68 per Mcfe in 2006.

Costs Excluded by Year Incurred (in thousands)

									Excluded
	Year Cost Incurred								Costs at
	Prior								December 31,
	Years		2004		2005		2006		2006
Property acquisition	$	—	$	—	$	—	$	251,839	$	251,839
Exploration		—		—		—		30,535		30,535
Development		—		—		—		—		—
Capitalized interest		—		—		—		—		—
Total costs incurred	$	—	$	—	$	—	$	282,374	$	282,374

F-21

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

8.   Investment in Affiliated Companies

The Company has certain investments that it accounts for under the equity method of accounting because its owns more than 20% and has significant influence but does not control. Additionally, the Company had various investments in other companies in which it did not have the ability to exercise significant influence and accounted for these investments under the cost method. The carrying values of these other investments were approximately $790,000 as of December 31, 2005 and were sold in 2006 (Note 3).

The equity method investments include the following:

Grey Ranch, L.P. Grey Ranch is primarily engaged in process and transportation of gas and natural gas liquids. The Company purchased its investment during 2003. At December 31, 2005 and 2006, the Company owned 50% of Grey Ranch, L.P. and had approximately $824,000 and $2,201,000, respectively, recorded in the consolidated balance sheets relating to this investment. The Company contributed a disproportionate amount of capital into the Partnership, amounting to approximately $217,000 and $750,000, respectively, as of December 31, 2005 and 2006. The excess amount contributed is being amortized over the average life of the partnership’s long-lived assets.

Larclay, L.P. Larclay is a joint venture between the Company and Clayton Williams Energy, Inc. (“CWEI”) and was formed to acquire drilling rigs and provide land drilling services. The Company purchased its investment in 2006 and accounts for it under the equity method of accounting. The Company and CWEI each own 50% interest in the joint venture. The Company serves as the operations manager of the joint venture. CWEI is responsible for financing and purchasing of the rigs. At December 31, 2006, the Company had approximately $1,383,000 recorded in the consolidated balance sheet relating to this investment.

9.   Restricted Deposits

Restricted deposits represent bank trust and escrow accounts required (by the U.S. Department of Interior’s Minerals Management Service) to be set up to provide satisfaction of the Company’s eventual responsibility to plug and abandon wells and remove structures when certain offshore fields are no longer in use. These restricted deposits were acquired as part of the NEG acquisition in November 2006 (See Note 3).

The restricted deposits include the following:

•  A $4.4 million escrow account for the East Breaks 109 and 110 fields set up in favor of the surety bond underwriter who provides a surety bond to the MMS. The escrow account is fully funded as of December 31, 2006.

•  A $7.2 million escrow account for the East Breaks 165 and 209 fields set up in favor of the surety bond underwriter who provides a surety bond to the former owners of the fields and the MMS. The escrow account is fully funded as of December 31, 2006.

•  A $6.6 million escrow account set up in favor of a major oil company. The Company is required to make additional deposits to the escrow account in an amount equal to 10% of the net cash flow (as defined in the escrow agreement) from the properties that were acquired from the major oil company.

•  A $6.2 million escrow account that was required to be set up by the bankruptcy settlement proceedings of NEG. The Company is required to make monthly deposits based on cash flows from certain wells, as defined in the agreement.

•  A $8.8 million escrow account required to be set up by the MMS relating to East Breaks properties. The Company is required to make quarterly deposits to the escrow account of $0.8 million. Additionally, for some of the East Break properties, the Company will be required to deposit additional funds in the East Break escrow accounts, representing the difference between the required escrow deposit under

F-22

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

the surety bond and actual escrow deposit balance at various points in time in the future. Aggregate payments to the East Breaks escrow accounts are as follows (in thousands):

Years Ended December 31:
2007	$	3,200
2008		3,200
2009		3,200
2010 and none thereafter		1,657

10.   Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in thousands):

	December 31,		December 31,
	2005		2006
Accounts payable-trade	$	69,937	$	103,683
Payroll and benefits		1,091		10,718
Drilling advances		6,286		5,318
Legal (current)		15,643		5,000
Accrued interest		287		3,850
Other		2,191		1,230
Total accounts payable and accrued expenses	$	95,435	$	129,799

11.   Long-Term Debt

Long-term obligations consist of the following (in thousands):

	December 31,		December 31,
	2005		2006
Senior credit facility	$	—	$	140,000
Senior bridge facility		—		850,000
Other notes payable:
Drilling rig fleet and related oil field services equipment		34,710		61,105
Sagebrush		4,000		4,000
Insurance financing		1,450		7,240
Other equipment and vehicles		2,973		4,486
Total debt		43,133		1,066,831
Less: Current maturities of long-term debt		12,997		26,201
Long-term debt	$	30,136	$	1,040,630

Senior Credit Facility.  On November 21, 2006, the Company entered into a $750 million senior secured revolving credit facility (the “senior credit facility”). The senior credit facility matures on November 21, 2011.

The proceeds of the senior credit facility were used to (i) partially finance the NEG acquisition, (ii) refinance the existing senior secured revolving credit facility and NEG’s existing credit facility, and (iii) pay fees and expenses related to the NEG acquisition and the existing credit facility. Future borrowings under the senior credit facility will be available for capital expenditures, working capital and general corporate purposes and to finance permitted acquisitions of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties. The senior credit facility will be available to be drawn

F-23

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

on and repaid without restriction so long as the Company is in compliance with its terms, including certain financial covenants.

The senior credit facility contains various covenants that limit the Company and certain of its subsidiaries’ ability to grant certain liens; make certain loans and investments; make distributions; redeem stock; redeem or prepay debt; merge or consolidate with or into a third party; or engage in certain asset dispositions, including a sale of all or substantially all of the Company’s assets. Additionally, the senior credit facility limits the Company and certain of its subsidiaries’ ability to incur additional indebtedness with certain exceptions, including under the senior unsecured bridge facility (as discussed below).

The senior credit facility also contains financial covenants, including maintenance of agreed upon levels for the ratio of (i) total funded debt to EBITDAX (as defined in the senior credit facility), (ii) EBITDAX to interest expense plus current maturities of long-term debt, and (iii) current ratio.

The obligations under the senior credit facility are secured by first priority liens on all shares of capital stock of each of the Company’s present and future subsidiaries; all intercompany debt of the Company and its subsidiaries; and substantially all of the Company assets and the assets of its subsidiaries, including proven oil and gas reserves representing at least 80% of the present discounted value (as defined in the senior credit facility) of proven oil and gas reserves reviewed in determining the borrowing base for the senior credit facility. Additionally, the obligations under the senior credit facility will be guaranteed by certain Company subsidiaries.

The borrowing base of proved reserves was initially set at $300.0 million. As of December 31, 2006, the Company had $140.0 million of outstanding indebtedness on the senior credit facility.

At the Company’s election, interest under the senior credit facility is determined by reference to (i) the British Bankers Association LIBOR rate, or LIBOR, plus an applicable margin between 1.25% and 2.00% per annum or (ii) the higher of the federal funds rate plus 0.5% or the prime rate plus, in either case, an applicable margin between 0.25% and 1.00% per annum. Interest will be payable quarterly for prime rate loans and at the applicable maturity date for LIBOR loans, except that if the interest period for a LIBOR loan is six months, interest will be paid at the end of each three-month period.

If an event of default exists under the senior credit facility, the lenders may accelerate the maturity of the obligations outstanding under the senior credit facility and exercise other rights and remedies. Each of the following will be an event of default:

•  failure to pay any principal when due or any interest, fees or other amount within certain grace periods;

•  failure to perform or otherwise comply with the covenants in the credit agreement or other loan

•  documents, subject, in certain instances, to certain grace periods;

•  bankruptcy or insolvency events involving the Company or its subsidiaries;

•  a change of control (as defined in the senior credit facility).

Senior Bridge Facility.  On November 21, 2006, the Company also entered into a $850.0 million senior unsecured bridge facility (the “senior bridge facility”).

Together with borrowings under the senior credit facility, the proceeds from the senior bridge facility were used to (i) partially finance the NEG acquisition, (ii) refinance existing senior secured revolving credit facility and NEG’s existing credit facility, and (iii) pay fees and expenses related to the NEG acquisition and the existing credit facility. The obligations under the senior bridge facility are general unsecured obligations of the company and certain of its subsidiaries.

F-24

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

The senior bridge facility will nominally mature 12 months from the closing date for the facility (the “Bridge Maturity Date”), or November 21, 2007, subject to the automatic conversion described below. Any outstanding term loans on the Bridge Maturity Date will automatically be converted into new term loans with a five year term from the date of conversion (the “Rollover Loans”). On and after the Bridge Maturity Date, each bridge lender may elect to exchange its Rollover Loans for senior unsecured exchange notes (the “Exchange Notes”). Concurrent with the senior bridge facility, the Company entered into an Exchange Notes registration rights agreement whereby the Company is required to file a shelf registration with respect to resales of the Exchange Notes and have it declared effective no later than the Bridge Maturity Date and to keep such registration statement effective for as long as required by the holders to resell the Exchange Notes. If the Company fails to comply with the terms of the registration rights agreement the Company is required to pay liquidated damages of 0.5% per annum on the principal amount of Exchange Notes held for the first 90-day period, increasing 0.5% per annum for each 90-day period that the Company is in noncompliance, up to a maximum of 1.5% per annum.

The senior bridge facility contains customary restrictive covenants pertaining to management and operations of the Company and its subsidiaries similar to those contained in the senior credit facility. Generally, amounts outstanding under the senior bridge facility will bear interest at a base rate equal to the greater of (i) three-month LIBOR plus an applicable margin initially equal to 4.50% per annum or (ii) 9.0% per annum plus an applicable margin initially equal to 0% per annum; provided that the applicable margin for the senior bridge facility will increase by 0.5% at the end of the period that is six months after the closing date for the senior bridge facility and an additional 0.25% per quarter thereafter for as long as the senior bridge facility, Rollover Loans or Exchange Notes remain outstanding subject to a cap of 11% (subject to certain additional interest rate increases in certain circumstances). In addition, the senior bridge facility includes a covenant that obligates the Company to use commercially reasonable efforts to refinance the senior bridge facility as promptly as practicable. If the senior bridge facility is not refinanced or repaid within 12 months, the senior bridge facility will convert to a Rollover Loan described above on the same terms and interest rate as the senior bridge facility. The senior bridge facility also requires net proceeds from any new debt or equity offering to be applied to reduce indebtedness outstanding on the senior bridge facility. Generally, these covenants can be waived by lenders under the senior bridge facility that hold a majority of the indebtedness outstanding.

The senior bridge facility also includes events of default similar to those contained in the senior credit facility. If an event of default under the senior bridge facility shall occur and be continuing, the principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.

The Company repaid the senior bridge facility in March 2007 (See Note 20).

Other Indebtedness.  The Company has financed a portion of its drilling rig fleet and related oil field services equipment through notes. At December 31, 2006, the aggregate outstanding balance of these credit agreements was $61.1 million, with a fixed interest rate ranging from 7.64% to 8.87%. The notes have a final maturity date of November 1, 2010, aggregate monthly installments for principal and interest in the amount of $1.2 million and are secured by the equipment. The notes have a prepayment penalty (currently 1-3%) in the event the Company repays the notes prior to maturity.

The Company has financed the purchase of various vehicles, oil field services equipment and other equipment. The aggregate outstanding balance of these notes as of December 31, 2006 was $4.5 million. Additionally, the Company has financed its insurance payment made in 2006. The aggregate outstanding balance of these notes as of December 31, 2006 was $7.2 million.

On October 14, 2005, Sagebrush Pipeline, LLC borrowed $4.0 million from Bank of America, N.A. for the purpose of completing the gas processing plant and pipeline in Colorado. This loan matures in July 2007,

F-25

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

and the interest rate is LIBOR plus 215 basis points. The Company guaranteed this loan, and could be required to repay this debt in full. The Company owns approximately 70% of Sagebrush Pipeline, LLC. The Company anticipates that the Sagebrush members will make additional equity investments to Sagebrush to retire the debt when the loan matures.

Prior Senior Credit Facility.  As of December 31, 2005, we had a $90 million revolving credit facility (the “prior senior credit facility”). The prior senior credit facility included a $20 million sub-limit for letters of credit. The prior senior credit facility was replaced by the senior credit facility as of November 21, 2006. Advances under the prior senior credit facility were subject to a borrowing base based on the Company’s proved developed producing reserves, proved developed nonproducing reserves and proved undeveloped reserves. It was subject to re-determination semi-annually at the sole discretion of the lender based on the reports of independent petroleum engineers in accordance with normal and customary oil and gas lending practices.

The prior senior credit facility bore interest at the Company’s option at either LIBOR plus 2.15% or the Bank of America, N.A. prime rate. The Company paid a commitment fee on the unused portion of the borrowing base amount equal to 1/8% per annum. The prior senior credit facility was collateralized by natural gas and oil properties representing at least 80% of the present discounted value of the Company’s proved reserves and by a negative pledge on any of the Company’s nonmortgaged properties.

As of December 31, 2005, the borrowing base under the Company’s prior senior credit facility was $90 million and no amounts were outstanding.

Aggregate maturities of long-term debt during the next five years are as follows (in thousands):

Years Ended:
2007	$	26,201
2008		15,818
2009		16,863
2010		11,819
2011		146,130
Thereafter		850,000
Total debt	$	1,066,831

12.   Derivatives

The Company has entered into various derivative contracts including collars and fixed price swaps with a financial institution. The contracts expire on various dates through December 31, 2008.

F-26

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

At December 31, 2006, the Company’s open commodity derivative contracts consisted of the following:

			Weighted Avg.
Period	Commodity	Notional	Fix Price
Fixed price swap
May 2007 - September 2007	Natural gas	3,060,000 MmBtu	$	7.75
January 2008 - June 2008	Natural gas	3,640,000 MmBtu	$	7.987
January 2008 - June 2008	Natural gas	3,640,000 MmBtu	$	7.99
Collars
January 2007 - December 2007	Crude oil	60,000 Bbls	$	50.00 - $84.50
January 2008 - June 2008	Crude oil	42,000 Bbls	$	50.00 - $83.35
July 2008 - December 2008	Crude oil	54,000 Bbls	$	50.00 - $82.60
Waha basis swap
January 2007 - December 2007	Natural gas	14,600,000 MmBtu	$	(0.70	)
January 2007 - December 2007	Natural gas	7,300,000 MmBtu	$	(0.5925	)
May 2007 - September 2007	Natural gas	3,060,000 MmBtu	$	(0.65	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu	$	(0.6525	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu	$	(0.635	)
January 2008 - December 2008	Natural gas	7,320,000 MmBtu	$	(0.59	)

These derivatives have not been designated as hedges.

The Company records all derivatives on the balance sheet at fair value. Changes in derivative fair values are recognized in earnings. Cash settlements and valuation gains and losses are included in loss (gain) on derivative contracts in the consolidated statements of operations. The following summarizes the cash settlements and valuation gains and losses for the years ended December 31, 2004, 2005 and 2006 (in thousands):

	2004			2005		2006
						(Restated)
Realized loss (gain)	$	2,681		$	2,836	$	(14,169	)
Unrealized loss (gain)		(1,803	)		1,296		1,878
Loss (gain) on derivative contracts	$	878		$	4,132	$	(12,291	)

13.   Retirement Plan

The Company maintains a 401(k) retirement plan for its employees. Under the plan, eligible employees may elect to defer a portion of their earnings up to the maximum allowed by regulations promulgated by the Internal Revenue Service. Prior to August 2006, the Company made matching contributions equal to 50% on the first 6% of employee deferred wages (maximum 3% matching). The Company modified the 401(k) retirement plan in August 2006 to change the matching contributions to equal a match of 100% on the first 15% of employee deferred wages (maximum 15% matching). The plan was also modified to make the matching contributions payable in Company common stock. As of December 31, 2006, the Company has issued no shares related to the matching contribution. An accrued payable in the amount of $1.3 million is reflected in the consolidated balance sheet related to the matching contributions. For 2004, 2005 and 2006, retirement plan expense was approximately $0.2 million, $0.3 million and $1.5 million, respectively.

F-27

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

14.   Income Taxes

Significant components of the Company’s deferred tax assets (liabilities) as of December 31 are as follows (in thousands):

	2005			2006
	(Restated)			(Restated)
Deferred tax assets (liabilities):
Current:
Accrued liabilities	$	953		$	4,451
Other		370			1,864
Total current deferred tax assets	$	1,323		$	6,315
Noncurrent:
Property, plant and equipment	$	(33,262	)	$	(25,692	)
Net operating loss carryforwards		19,130			—
Other		385			770
Total noncurrent deferred tax liabilities	$	(13,747	)	$	(24,922	)

The provisions for income taxes for continuing operations consisted of the following components (in thousands):

	2004		2005		2006
	(Restated)		(Restated)		(Restated)
Current:
Federal	$	—	$	508	$	3,235
State		—		—		2,653
		—		508		5,888
Deferred:
Federal		6,433		9,460		345
State		—		—		3
Total provision for income taxes	$	6,433	$	9,460	$	348

A reconciliation of the provision for income taxes from continuing operations at the statutory federal tax rates to the Company’s actual provision for income taxes is as follows for the year ended December 31 (in thousands):

	2004		2005		2006
	(Restated)		(Restated)		(Restated)
Computed at federal statutory rates	$	6,412	$	9,543	$	7,650
State taxes, net of federal benefit		—		390		1,724
Nondeductible expenses		21		35		84
Percentage depletion deduction		—		—		(3,488	)
Change in rate		—		—		326
Other		—		—		(60	)
Total provision for income taxes	$	6,433	$	9,968	$	6,236

F-28

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

As of December 31, 2006, the Company has fully utilized its net operating loss carryforwards during 2006. The Company, as of December 31, 2006, has approximately $770,000 of alternative minimum tax credits that do not expire.

15.   Earnings Per Share

Basic earnings per share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed using the weighted average shares outstanding during the year, but also include the dilutive effect of awards of restricted stock. The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share, for the years ended December 31, 2004, 2005 and 2006 (in thousands).

	2004		2005		2006
Weighted average basic common shares outstanding		56,312		56,559		73,727
Effect of dilutive securities:
Restricted stock		—		178		937
Weighted average diluted common and potential common shares outstanding		56,312		56,737		74,664

In computing diluted earnings per share, the Company evaluated the if-converted method. Under this method, the Company assumes the conversion of the outstanding redeemable convertible preferred stock to common stock and determines if this is more dilutive than including the preferred stock dividends (paid and unpaid) in the computation of income available to common stockholders. The Company determined the if-converted method is not more dilutive and has included preferred stock dividends in the determination of income available to common stockholders.

16.   Commitments and Contingencies

The Company has obligations under noncancelable operating leases, primarily for the use of office space and equipment. Total rental expense under operating leases for the years ended December 31, 2004, 2005, and 2006, was approximately $0.8 million, $1.1 million and $1.1 million, respectively.

Future minimum lease payments under noncancelable operating leases (with initial lease terms in excess of one year) as of December 31, 2006, are as follows (in thousands):

Years Ended:
2007	$	2,180
2008		2,109
2009		1,337
2010		235
2011		235
Thereafter		384
	$	6,480

Liquidated Damages Under Registration Rights Agreements

December 2005 Private Placement.  In connection with the Company’s private placement of common stock in December 2005, the Company entered into a registration rights agreement that requires the Company to use commercially reasonable efforts to maintain effectiveness of this registration statement or other shelf registration statements covering the shares sold in such private placement until December 21, 2007.

F-29

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

Generally, if the Company fails to maintain an effective registration statement, the Company will be subject to liquidated damages payments equal to a percentage of the gross proceeds of the offering for each day that the Company is not in compliance. The payments increase every 90 days, up to a maximum as specified in the registration rights agreement as follows:

Non-Compliance Period
1-90 Days	91-180 Days	181-270 Days	270+ Days
$1.2 million plus	1.0% per annum	1.5% per annum	2.0% per annum
0.5% per annum ($3,300 per day)	$(6,600 per day)	$(9,900 per day)	$(13,200 per day)

November 2006 Private Placement.  In connection with the Company’s private placement of convertible preferred stock and common stock units, the Company entered into a registration rights agreement that requires the Company to use commercially reasonable efforts to maintain effectiveness of this registration statement or other shelf registration statements covering the shares sold in such private placement. In general, if the Company fails to meet these deadlines or maintain effectiveness, the Company will be subject to liquidated damage payments equal to a percentage of the purchase price of the securities sold in the November 2006 private placement.

During the first nine months following any failure to meet the deadlines described above, the payments will be equal to a percentage of the purchase price of $550 million on a per month basis until the default is cured. During the first month following a default, the payment shall be equal to 0.25% of the purchase price and shall increase by 0.25% per month to a maximum of 0.75%. If the default has not been cured within eight months, the payments will become equal to 2.0% per annum paid on a monthly basis until such default is cured.

March 2007 Private Placement.  In connection with the Company’s private placement of common stock in March 2007, the Company entered into a registration rights agreement that requires the Company to use commercially reasonable efforts to maintain effectiveness of this registration statement or other shelf registration statements covering the shares sold in such private placement. Generally, if the Company fails to maintain an effective registration statement, the Company will be subject to liquidated damages payments equal to a percentage of the gross proceeds of the offering for each day that we are not in compliance. The payments increase every 90 days, up to a maximum as specified in the registration rights agreement as follows:

Non-Compliance Period
1-90 Days	91-180 Days	181-270 Days	270+ Days
$1.6 million plus	1.0% per annum	1.5% per annum	2.0% per annum
0.5% per annum ($4,400 per day)	$(8,800 per day)	$(13,200 per day)	$(17,600 per day)

The Company has not recorded any amount related to liquidated damages and does not believe any amounts will be paid.

The Company is a defendant in certain lawsuits from time to time in the normal course of business. In management’s opinion, the Company is not currently involved in any legal proceedings other than those specifically identified below, which individually or in the aggregate, could have a material effect on the financial condition, operations and/or cash flows of the Company.

Litigation with Conoco, Inc.  In January 2007, the Company settled outstanding litigation with Conoco, Inc. for alleged unpaid overriding royalties on production by the Company on certain leases in Pecos County, Texas. Conoco, Inc. alleged that it was entitled to 12.5% of the proceeds from production and the Company alleged that Conoco, Inc., at most, was only entitled to a 5.0% overriding royalty on production. At December 31, 2006, as a result of the settlement whereby the Company will pay approximately $25.0 million plus interest to settle the outstanding litigation, the Company had approximately $25.0 million recorded as an

F-30

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

accrual to reflect the settlement amount. Interest accrues from the settlement date in January 2007. The settlement payments are to be made in $5.0 million increments on April 1, 2007, July 1, 2008, July 1, 2009, July 1, 2010, and July 1, 2011. The settlement amount is included in accrued expenses ($5.0 million) and other long-term obligations ($20.0 million) in the Company’s consolidated balance sheet as of December 31, 2006.

Roosevelt Litigation.  On May 18, 2004, the Company commenced a civil action seeking declaratory judgment against Elliot Roosevelt, Jr., E.R. Family Limited Partnership and Ceres Resource Partners, L.P. in the District Court of Dallas County, Texas, 101st Judicial District, SandRidge Energy, Inc. and Riata Energy Piceance, LLC v. Elliot Roosevelt, Jr. et al, Cause No. 92.717-C. This suit sought a declaratory judgment relating to the rights of the parties in and to certain leases in a defined area of mutual interest in the Piceance Basin pursuant to an acquisition agreement entered into in 1989, including the Company’s 41,454 gross (16,193 net) acreage position. The Company tried the case to a jury in July 2006. Before the case was submitted to the jury, the trial court granted Roosevelt a directed verdict stating that he owned a 25% deferred interest in the Company’s acreage after project payout. The directed verdict is not likely to affect the Company’s proved reserves of 11.7 Bcfe, because of the requirement that project payout be achieved before the deferred interest shares in revenue. Other issues of fact were submitted to the jury. The trial court recently entered a judgment favorable to Roosevelt. The Company has filed a motion to modify the judgment and for a new trial. Depending on the outcome of this motion, the Company expects to appeal, at a minimum, from the entry of the directed verdict. If the Company does not ultimately prevail, the deferred interest will reduce the Company’s economic returns from the project, if project payout is achieved.

Yates Litigation.  On April 29, 2005, Harvey E. Yates Company (“Heyco”), filed a trespass to try title suit against us in the District Court for Pecos County, Texas, 112th Judicial District, Harvey E. Yates Company v. Riata Energy, Inc., Cause No. 10376. In February 2006, additional parties joined the case as plaintiffs. The plaintiffs seeks title to a 44.57% working interest in a lease covering three sections of land and a 18.66% working interest in a lease covering 1.5 sections of land, each located in West Texas, as well as unspecified damages based on production attributable to these working interests. The plaintiffs’ claims stem from the alleged failure of the Company’s predecessors in title to assign the disputed working interest in 1994. The Company believes that it has record title to the interest claimed by plaintiffs. Further, the Company believes the claims are barred by the four year statute of limitations, which the Company believes ran in 1998. If the plaintiffs prevail, any recovery would not be expected to have a material impact on proved reserves. The Company is currently in the preliminary stages of discovery.

The Company is subject to other claims in the ordinary course of business. However, the Company believes that the ultimate resolution of the above mentioned claims and other current legal proceedings will not have a material adverse effect on its results of operations or its financial condition.

17.   Redeemable Convertible Preferred Stock

In November 2006, the Company sold 2,136,667 shares of redeemable convertible preferred stock as part of the NEG acquisition and received net proceeds from this sale of approximately $439.5 million after deducting offering expenses of approximately $9.3 million (See Note 3). Each holder of the redeemable convertible preferred stock is entitled to quarterly cash dividends at the annual rate of 7.75% of the accreted value of its redeemable convertible preferred stock. The accreted value is $210 per share as of December 31, 2006. The redeemable convertible preferred stock is mandatorily redeemable at a future determinable date and thus classified as mezzanine equity. Each share of convertible preferred stock is initially convertible into ten shares of common stock at the option of the holder, subject to certain anti-dilution adjustments.

On January 31, 2007, the Company’s Board of Directors declared a dividend on the outstanding shares of redeemable convertible preferred stock. The dividend of $3.21 per share was paid in cash on February 15, 2007. The dividend covered the time period from November 21, 2006, when the shares were issued, through

F-31

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

February 1, 2007. Approximately $3.8 million of dividends (pro rata amount from November 21, 2006 through December 31, 2006) has been included in the Company’s earnings per share calculation in the accompanying consolidated statement of operations.

18.   Stockholders’ Equity

On June 8, 2006, Tom L. Ward purchased approximately 29 million shares of common stock from the Company’s founder, N. Malone Mitchell, 3rd, and other existing shareholders for $500 million at $17.25 per share. The purchase made Mr. Ward the Company’s largest shareholder. He joined the Company as Chairman of the Board of Directors and Chief Executive Officer. Mr. Mitchell retained approximately 22 million shares and continues to serve as a member of the Board of Directors.

The following table presents information regarding SandRidge’s common stock (in thousands):

	December 31,
	2005		2006
Shares authorized		400,000		400,000
Shares outstanding at end of period		72,917		91,604
Shares held in treasury		1,415		1,444

The Company is authorized to issue 50,000,000 shares of preferred stock, no par value, of which no shares were outstanding as of December 31, 2005 and 2006. On September 23, 2005, 1,000 shares of preferred stock were converted into common stock.

Stock Split.  On December 19, 2005, the Company entered into a 281.562 for 1 stock split. All references in the accompanying financial statements have been restated to reflect this stock split. The Company also authorized 400,000,000 shares of common stock with a par value of $0.001 per share.

Common Stock Issuance.  In December 2005, the Company sold 12.5 million shares of common stock in a private placement and received net proceeds from this sale of approximately $173.1 million after deducting the initial purchasers’ discount of $16.8 million and offering expenses of approximately $1.2 million. Approximately $105.5 million of the proceeds of the offering were used to repay outstanding bank debt and finance the Company’s December 2005 acquisitions (See Note 3).

In January 2006, the Company issued an additional 239,630 shares of common stock upon exercise by the underwriters of an over-allotment option. The Company issued these shares at a price of $15.00 per share after deducting the purchasers’ fee of $0.3 million. The Company received net proceeds from sale of approximately $3.3 million.

In November 2006, the Company sold 5.3 million common units (consisting of shares of common stock ($18.00 per share) and a warrant ($1.00 per share) to purchase convertible preferred stock upon the surrender of the common stock) as part of the NEG acquisition and received net proceeds from this sale of approximately $97.4 million after deducting the offering expenses of approximately $3.9 million (See Note 3).

Treasury Stock.  Employees may elect to satisfy their tax obligations on the vesting of their restricted stock by having the Company make the required tax payments and withhold a number of vested shares having a value on the date of vesting equal to the tax obligation. As a result of such employee elections, during the year ended December 31, 2006 the Company withheld approximately 29,000 shares at a total value of $0.5 million, and those shares were accounted for as treasury stock. No shares were withheld in 2004 or 2005.

Restricted Stock.  The Company issues restricted stock awards under incentive compensation plans which vest over specified periods of time (one, four and seven years). These shares of restricted common stock are subject to restriction on transfer and certain conditions to vesting.

F-32

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

The Company granted restricted stock awards for approximately 1.6 million shares in December 2005. The stock awards were granted with one, four, and seven year vesting periods as follows: (i) 153,667 shares vest on the earlier of (x) December 31, 2006 or (y) the expiration of the lock-up agreement entered into by officers in connection with the Company’s December 2005 private placement, (ii) 904,833 shares vest on the earlier of (x) June 30, 2010 or (y) the fourth anniversary of the completion of a registered initial public offering, and (iii) 493,667 shares vest on the earlier of (x) June 30, 2013 or (y) the seventh anniversary of the completion of a registered initial public offering.

In June 2006, the Company modified the vesting periods of the one year period and four year period restricted stock awards. One year restricted stock awards granted under the Riata 2005 Stock Plan were modified to vest on October 1, 2006, rather than December 31, 2006. Four year restricted stock awards granted under the Riata 2005 Stock Plan were modified to vest 25% each January 1, for four years, beginning January 1, 2007 rather than cliff vesting on June 30, 2010. The modification of the four year awards was completed pursuant to a plan that all restricted stock awards, in the future, will be four year terms vesting 25% each year. The Company recognized compensation cost related to this modification of $17,250 in June 2006.

Additionally, the Company modified the vesting period related to restricted shares awarded to certain executive officers, due to the executive officers’ resignations in June 2006 and August 2006. As part of the executive officers’ separation from the Company, the Board of Directors agreed to immediately vest all of the executive officers’ restricted stock. At the time of the modification and resignation in June 2006, one of the executive officers had 83,333 restricted stock awards (6,667 one year vesting, 66,666 four year vesting, 10,000 seven year vesting). The Company recognized compensation cost related to these shares of $1.3 million in the year ended December 31, 2006. At the time of the other modifications and resignations in August 2006, these executive officers had 138,667 restricted stock awards (13,667 one year vesting, 83,334 four year vesting, 41,666 seven year vesting). The Company recognized compensation cost related to these shares of $2.3 million in the year ended December 31, 2006.

In December 2006, the Company modified the vesting period related to restricted shares for employees due to these employees’ resignations from the Company in late December 2006. As part of these employees’ separation from the Company, the Board of Directors agreed to immediately vest the restricted stock for these employees that were previously due to vest on January 1, 2007. At the time of the modification and resignations of the employees in December 2006, the number of shares that were immediately vested was 39,960. The employees forfeited the remaining amounts of their unvested restricted shares. The Company recognized additional compensation cost in December 2006 for these shares of approximately $0.1 million due to the modification.

Restricted stock activity for the year ended December 31, 2006 was as follows (shares in thousands):

				Weighted-Average
				Grant Date
	Number of Shares			Fair Value
Unvested restricted shares outstanding at December 31, 2005		1,552		$	15.00
Granted		240			18.49
Vested		(389	)		17.22
Canceled		(466	)		15.00
Unvested restricted shares outstanding at December 31, 2006		937		$	15.88

For the year ended December 31, the Company recognized stock-based compensation expense related to restricted stock of approximately $8.8 million in 2006 and $0.5 million in 2005. Stock-based compensation expense is reflected in general and administrative expense in the consolidated statements of operations.

F-33

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

As of December 31, 2006, there was approximately $11.7 million of unrecognized compensation cost related to unvested restricted stock awards which is expected to be recognized over a weighted average period of 2.6 years.

19.   Related Party Transactions

During the ordinary course of business, the Company has transactions with certain shareholders and other related parties. These transactions primarily consist of purchases of drilling equipment and sales of oil field service supplies and gas sales. Following is a summary of significant transactions with such related parties as of and for the year ended December 31 (in thousands):

	2004		2005		2006
Sales to related parties	$	306	$	12,673	$	14,102
Receivables from related parties for services rendered	$	1,116	$	5,376	$	5,731
Payables to related parties for services rendered	$	3,757	$	78	$	1,834
Purchases of services from related parties	$	9,556	$	37	$	4,811

In September 2006, the Company entered into a new facilities lease with a member of its Board of Directors. The lease extends to August 2009 with annual future rental payments of $1.1 million in 2007 and 2008 and $0.7 million in 2009. The Company believes that the rent expense it must pay under this lease is at fair market rates. Rent expense in 2006 related to this facilities lease was $0.3 million.

20.   Subsequent Events

On March 22, 2007 the Company entered into $1.0 billion in senior unsecured term loans (the “Term Loans”). The closing of the Term Loans was generally contingent upon closing the private placement of common equity described below. The Term Loans included both fixed rate term loans and floating rate term loans. Approximately $650.0 million was issued at a fixed rate of 8.625% with principal due on April 1, 2015 (the “Fixed Rate Term Loans”). Under the terms of the Fixed Rate Term Loans, interest is payable quarterly and during the first four years interest may be paid, at the Company’s option, either entirely in cash or entirely with additional Fixed Rate Term Loans. If the Company elects to pay the interest due during any period in additional Fixed Rate Term Loans, the interest rate increases to 9.375% during such period. After April 1, 2011 the Fixed Rate Term Loans may be prepaid in whole or in part with prepayment penalties as follows (the prepayment penalty is multiplied by the principal amount prepaid):

Period	Prepayment Penalty
April 1, 2011 to March 31, 2012		4.313	%
April 1, 2012 to March 31, 2013		2.156	%
April 1, 2013 and thereafter		—

Approximately $350.0 million of the Term Loans was issued at a variable rate with interest payable quarterly and principal due on April 1, 2014 (the “Variable Rate Term loans”). The Variable Rate Term Loans bear interest, at the Company’s option, at the British Bankers Association LIBOR rate plus 3.625% or the higher of (i) the federal funds rate, a defined, plus 3.125% or (ii) a Bank’s prime rate plus 2.625%. After

F-34

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

April 1, 2009 the Variable Rate Term Loans may be prepaid in whole or in part with a prepayment penalty as follows (the prepayment penalty is multiplied by the principal amount prepaid):

Period	Prepayment Penalty
April 1, 2009 to March 31, 2010		3.00	%
April 1, 2010 to March 31, 2011		2.00	%
April 1, 2011 to March 31, 2012		1.00	%
April 1, 2012 and thereafter		—

After one year from the closing date, the Company is required to offer to exchange the Term Loans for senior unsecured notes with registration rights. The senior unsecured notes will have identical terms and conditions as the Term Loans. If the Company is unable to or does not offer to exchange the Term Loans for senior unsecured notes with registration rights by the specified date, the interest rate on the Term Loans will increase by 0.25% every 90 days up to a maximum of 0.50%.

Debt covenants under the Term Loans are ordinary and customary and include limitations on the incurrence of indebtedness, payment of dividends, asset sales, certain asset purchases, transactions with related parties, and consolidation or merger agreements.

On March 20, 2007, the Company sold approximately 17.8 million shares of common stock for net proceeds of $320.0 million. The stock was sold in private sales to various investors including Tom Ward, the Company’s Chairman of the Board of Directors and Chief Executive Officer, who invested $61.4 million in exchange for approximately 3.4 million shares of common stock.

A portion of the proceeds from the Term Loans was used to repay the Company’s $850.0 million senior bridge facility.

21.   Industry Segment Information

SandRidge has four business segments: Exploration and Production, Drilling and Oil Field Services, Midstream Services, and Other representing its four main business units offering different products and services. The Exploration and Production segment is engaged in the development, acquisition and production of oil and natural gas properties. The Drilling and Oil Field Services segment is engaged in the land contract drilling of oil and natural gas wells, and the Midstream Services segment is engaged in the purchasing, gathering, processing and treating of natural gas. The Other segment transports CO₂ to market for use by the Company and others in tertiary oil recovery operations and other miscellaneous operations.

F-35

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (Note 1). Management evaluates the performance of SandRidge’s operating segments based on operating income, which is defined as operating revenues less operating expenses and depreciation, depletion and amortization. Summarized financial information concerning the Company’s segments is shown in the following table (in thousands):

	2004			2005			2006
	(Restated)			(Restated)			(Restated)
Revenues:
Exploration and production	$	39,226		$	54,425		$	106,990
Elimination of inter-segment revenue		1,662			374			577
Exploration and production, net of inter-segment revenue		37,564			54,051			106,413
Drilling and oil field services		59,179			109,766			211,055
Elimination of inter-segment revenue		19,968			29,615			72,398
Drilling and oil field services, net of inter-segment revenue		39,211			80,151			138,657
Midstream services		132,158			192,503			192,960
Elimination of inter-segment revenue		33,114			45,004			70,068
Midstream services, net of inter-segment revenues		99,044			147,499			122,892
Other		176			6,164			21,411
Elimination of inter-segment revenue		—			172			1,131
Other, net of inter-segment revenue		176			5,992			20,280
Total revenues	$	175,995		$	287,693		$	388,242
Exploration and production	$	14,000		$	14,886		$	17,069
Drilling and oil field services		4,206			18,295			32,946
Midstream services		2,636			4,096			3,528
Other		(92	)		(3,224	)		(16,562	)
Total operating income		20,750			34,053			36,981
Interest expense, net		(1,622	)		(5,071	)		(15,795	)
Other income (expense), net		(298	)		(1,121	)		671
Income before income taxes	$	18,830		$	27,861		$	21,857
Identifiable Assets(1):
Exploration and production	$	125,745		$	243,612		$	2,091,459
Drilling and oil field services		35,807			100,995			175,169
Midstream services		25,208			33,845			75,606
Other		10,258			80,231			46,150
Total assets	$	197,018		$	458,683		$	2,388,384

F-36

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

	2004		2005		2006
	(Restated)		(Restated)		(Restated)
Capital Expenditures:
Exploration and production	$	29,105	$	61,227	$	170,872
Drilling and oil field services		22,679		43,730		89,810
Midstream services		2,026		25,904		16,975
Other		4,116		3,735		28,884
Total capital expenditures	$	57,926	$	134,596	$	306,541
Depreciation, Depletion and Amortization
Exploration and production	$	4,911	$	8,796	$	28,104
Drilling and oil field services		5,932		11,851		20,268
Midstream services		1,270		1,652		3,180
Other		561		1,907		4,074
Total depreciation, depletion and amortization	$	12,674	$	24,206	$	55,626

(1) Identifiable assets are those used in SandRidge’s operations in each industry segment. Corporate assets are principally cash and cash equivalents, corporate leasehold improvements, furniture and equipment.

22.   Supplemental Information on Oil and Gas Producing Activities (Unaudited)

The Supplementary Information on Oil and Gas Producing Activities is presented as required by SFAS No. 69, “Disclosures about Oil and Gas Producing Activities.” The supplemental information includes capitalized costs related to oil and gas producing activities; costs incurred for the acquisition of oil and gas producing activities, exploration and development activities; and the results of operations from oil and gas producing activities. Supplemental information is also provided for per unit production costs; oil and gas production and average sales prices; the estimated quantities of proved oil and gas reserves; the standardized measure of discounted future net cash flows associated with proved oil and gas reserves; and a summary of the changes in the standardized measure of discounted future net cash flows associated with proved oil and gas reserves.

The Company’s capitalized costs consisted of the following (in thousands):

Capitalized Costs Related to Oil and Gas Producing Activities

	December 31,
Consolidated Companies(a)	2004			2005			2006
Oil and natural gas properties:
Proved	$	94,758		$	160,789		$	1,636,832
Unproved		744			33,974			282,374
Total oil and natural gas properties		95,502			194,763			1,919,206
Less accumulated depreciation and depletion		(26,034	)		(35,029	)		(60,752	)
Net oil and natural gas properties capitalized costs	$	69,468		$	159,734		$	1,858,454

(a) Amounts relate to SandRidge and Consolidated Subsidiaries. Includes capitalized asset retirement costs and associated accumulated depreciation.

F-37

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

Costs Incurred in Property Acquisition, Exploration and Development Activities

	2004		2005		2006
Acquisitions of properties
Proved	$	—	$	14,554	$	1,311,029
Unproved		1,631		21,085		268,839
Exploration		1,375		2,527		18,612
Development		27,357		60,364		115,153
Total cost incurred	$	30,363	$	98,530	$	1,713,633

The Company’s results of operations from oil and gas producing activities for each of the years 2004, 2005 and 2006 are shown in the following table (in thousands):

Results of Operations for Oil and Gas Producing Activities

	Consolidated
	Companies(a)
For the Year Ended December 31, 2004
Revenues	$	30,976
Expenses:
Production costs		12,727
Depreciation, depletion and amortization expenses		4,770
Total expenses		17,497
Income before income taxes		13,479
Provision for income taxes		4,718
Results of operations for oil and gas producing activities	$	8,761
For the Year Ended December 31, 2005
Revenues	$	48,405
Expenses:
Production costs		19,352
Depreciation, depletion and amortization expenses		8,995
Total expenses		28,347
Income before income taxes		20,058
Provision for income taxes		7,020
Results of operations for oil and gas producing activities	$	13,038

F-38

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

	Consolidated
	Companies(a)
For the Year Ended December 31, 2006
Revenues	$	101,252
Expenses:
Production costs		39,363
Depreciation, depletion and amortization expenses		25,723
Total expenses		65,086
Income before income taxes		36,166
Provision for income taxes		10,850
Results of operations for oil and gas producing activities	$	25,316

The table below represents the Company’s estimate of proved crude oil and natural gas reserves based upon the Company’s evaluation of pertinent geological and engineering data in accordance with United States Securities and Exchange Commission regulations. Estimates of proved reserves have been prepared by the Company’s team of reservoir engineers and geoscience professionals and are reviewed by members of the Company’s senior management with professional training in petroleum engineering to ensure that the Company consistently applies rigorous professional standards and the reserve definitions prescribed by the United States Securities and Exchange Commission.

Netherland, Sewell and Associates, Inc., DeGolyer and MacNaughton and Harper and Associates, Inc., independent oil and gas consultants, have prepared the estimates of proved reserves of natural gas and crude oil that the Company has attributed to the Company’s net interest in oil and gas properties as of December 31, 2004, 2005 and 2006. Netherland, Sewell and Associates, Inc., DeGolyer and MacNaughton and Harper and Associates, Inc. are independent petroleum engineers, geologists, geophysicists and petrophysicists and do not own an interest in us or our properties and are not employed on a contingent basis. Netherland, Sewell and Associates, Inc. prepared the estimates of proved reserves for all of our properties other than those held by PetroSource, which constitute approximately 97% of our total proved reserves. DeGolyer and MacNaughton prepared the estimates of proved reserves for PetroSource, which constitute approximately 2% of our total proved reserves. Based upon their review of more than 99% of the Company’s reserve estimates, it is their judgment that the estimates are reasonable in the aggregate.

The Company believes the geologic and engineering data examined provides reasonable assurance that the proved reserves are recoverable in future years from known reservoirs under existing economic and operating conditions. Estimates of proved reserves are subject to change, either positively or negatively, as additional information is available and contractual and economic conditions change.

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, that is, prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Proved developed reserves are the quantities of crude oil, natural gas liquids and natural gas expected to be recovered through existing investments in wells and field infrastructure under current operating conditions. Proved undeveloped reserves require additional investments in wells and related infrastructure in order to recover the production.

During 2006, the Company recognized additional reserves attributable to extensions and discoveries as a result of successful drilling in the Piñon Field. Drilling expenditures of $18.6 million resulted in the addition of 10.9 Bcfe of net proved developed reserves by extending the field boundaries as well as proving the

F-39

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

producing capabilities of formations not previously captured as proved reserves. The remaining 83.1 Bcfe of net proved reserves for 2006 are proved undeveloped reserves associated with direct offsets to the 2006 drilling program extending the boundaries of the Piñon Field and zone identification. Changes in reserves associated with the development drilling have been accounted for in revisions of previous reserve estimates.

Reserve Quantity Information

	Consolidated Companies(a)
	Crude Oil			Nat. Gas
	(MBbls)			(MMcf)(b)
Proved developed and undeveloped reserves:
As of December 31, 2003		649			121,256
Revisions of previous estimates		70			(18,955	)
Extensions and discoveries		—			48,859
Production		(37	)		(6,708	)
As of December 31, 2004		682			144,452
Revisions of previous estimates		108			11,679
Acquisitions of new reserves		9,518			32,022
Extensions and discoveries		200			56,133
Production		(72	)		(6,873	)
As of December 31, 2005		10,436			237,413
Revisions of previous estimates		1,250			19,139
Acquisitions of new reserves		13,753			514,170
Extensions and discoveries		58			93,396
Production		(322	)		(13,410	)
As of December 31, 2006		25,175			850,708
Proved developed reserves:
As of December 31, 2003		327			48,513
As of December 31, 2004		231			50,981
As of December 31, 2005		899			69,377
As of December 31, 2006		10,259			255,654

(a)	Amounts relate to SandRidge and Consolidated Subsidiaries.
(b)	Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees Fahrenheit.

The standardized measure of discounted cash flows and summary of the changes in the standardized measure computation from year to year are prepared in accordance with SFAS No. 69. The assumptions that underlie the computation of the standardized measure of discounted cash flows may be summarized as follows:

•  the standardized measure includes the Company’s estimate of proved crude oil, natural gas liquids and natural gas reserves and projected future production volumes based upon year-end economic conditions;

•  pricing is applied based upon year-end market prices adjusted for fixed or determinable contracts that are in existence at year-end;

F-40

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

•  future development and production costs are determined based upon actual cost at year-end;

•  the standardized measure includes projections of future abandonment costs based upon actual costs at year-end; and

•  a discount factor of 10% per year is applied annually to the future net cash flows.

Standardized Measure of Discounted Future Net Cash Flows Related to
Proved Oil and Gas Reserves

	Consolidated Companies(a)
	(In thousands)
As of December 31, 2004
Future cash inflows from production	$	843,647
Future production costs		(227,257	)
Future development costs(b)		(77,588	)
Future income tax expenses		(183,193	)
Undiscounted future net cash flows		355,609
10% annual discount		(156,647	)
Standardized measure of discounted future net cash flows	$	198,962
As of December 31, 2005
Future cash inflows from production	$	2,558,668
Future production costs		(653,748	)
Future development costs(b)		(296,489	)
Future income tax expenses		(546,867	)
Undiscounted future net cash flows		1,061,564
10% annual discount		(562,410	)
Standardized measure of discounted future net cash flows	$	499,154
As of December 31, 2006
Future cash inflows from production	$	5,901,660
Future production costs		(1,623,216	)
Future development costs(b)		(931,947	)
Future income tax expenses		(638,599	)
Undiscounted future net cash flows		2,707,898
10% annual discount		(1,267,752	)
Standardized measure of discounted future net cash flows	$	1,440,146

(a)	Amounts relate to SandRidge and Consolidated Subsidiaries.
(b)	Includes abandonment costs.

F-41

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

The following table represents the Company’s estimate of changes in the standardized measure of discounted future net cash flows from proved reserves (in thousands):

Changes in the Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil and Gas Reserves

	Consolidated
	Companies (a)
Present value as of December 31, 2003	$	157,299
Changes during the year:
Revenues less production and other costs		(18,249	)
Net changes in prices, production and other costs		5,911
Development costs incurred		21,912
Net changes in future development costs		(16,360	)
Extensions and discoveries		105,603
Revisions of previous quantity estimates		(38,234	)
Accretion of discount		25,244
Net change in income taxes		(20,720	)
Timing differences and other(b)		(23,444	)
Net change for the year		41,663
Present value as of December 31, 2004	$	198,962
Changes during the year:
Revenues less production and other costs		(29,053	)
Net changes in prices, production and other costs		225,227
Development costs incurred		56,368
Net changes in future development costs		(86,828	)
Extensions and discoveries		96,514
Revisions of previous quantity estimates		47,501
Accretion of discount		28,981
Net change in income taxes		(155,250	)
Purchases of reserves in-place		196,206
Timing differences and other(b)		(79,474	)
Net change for the year		300,192

F-42

SandRidge Energy, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Restated) — (Continued)

	Consolidated
	Companies (a)
Present value as of December 31, 2005	$	499,154
Revenues less production and other costs		(61,889	)
Net changes in prices, production and other costs		(294,437	)
Development costs incurred		75,323
Net changes in future development costs		(75,466	)
Extensions and discoveries		126,061
Revisions of previous quantity estimates		54,313
Accretion of discount		73,643
Net change in income taxes		(36,962	)
Purchases of reserves in-place		1,135,062
Timing differences and other(b)		(54,656	)
Net change for the year		940,992
Present value as of December 31, 2006	$	1,440,146

(a)	Amounts relate to SandRidge and Consolidated Subsidiaries.
(b)	The change in timing differences and other are related to revisions in the Company’s estimated time of production and development.

F-43

SandRidge Energy, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	December 31,			March 31,
	2006			2007
	(Unaudited)
	(In thousands except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	38,948		$	193,459
Accounts receivable, net:
Trade		89,774			87,264
Related parties		5,731			11,098
Inventories		2,544			3,128
Deferred income taxes		6,315			6,315
Other current assets		31,494			16,400
Total current assets		174,806			317,664
Oil and natural gas properties, using full cost method of accounting
Proved		1,636,832			1,784,708
Unproved		282,374			266,757
Less: accumulated depreciation and depletion		(60,752	)		(93,336	)
		1,858,454			1,958,129
Other property, plant and equipment, net		276,264			316,118
Goodwill		26,198			29,199
Investments		3,584			4,609
Restricted deposits		33,189			34,932
Other assets		15,889			28,353
Total assets	$	2,388,384		$	2,689,004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	26,201		$	25,696
Accounts payable and accrued expenses:
Trade		129,799			114,413
Related parties		1,834			4,140
Derivative contracts		958			16,002
Total current liabilities		158,792			160,251
Long-term debt		1,040,630			1,048,558
Other long-term obligations		21,219			21,219
Asset retirement obligation		45,216			46,441
Derivative contracts		3,052			9,670
Deferred income taxes		24,922			14,421
Total liabilities		1,293,831			1,300,560
Commitments and contingencies (Note 11)
Minority interest		5,092			6,000
Redeemable convertible preferred stock, $0.001 par value, 2,650 shares authorized; 2,137 and 2,184 shares issued and outstanding at December 31, 2006 and March 31, 2007, respectively		439,643			449,643
Stockholders’ equity:
Preferred stock, no par; 50,000 shares authorized; no shares issued and outstanding in 2006 and 2007		—			—
Common stock, $0.001 par value, 400,000 shares authorized; 93,048 issued and 91,604 outstanding at December 31, 2006 and 110,338 issued and 108,857 outstanding at March 31, 2007		92			109
Additional paid-in capital		574,868			885,197
Treasury stock, at cost		(17,835	)		(18,496	)
Retained earnings		92,693			65,991
Total stockholders’ equity		649,818			932,801
Total liabilities and stockholders’ equity	$	2,388,384		$	2,689,004

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-44

SandRidge Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

	Three Months Ended
	March 31,
	2006			2007
	(Unaudited)
	(In thousands except
	per share amounts)
Revenues:
Natural gas and crude oil	$	14,394		$	90,176
Drilling and services		34,386			27,895
Midstream and marketing		30,672			26,187
Other		6,463			4,806
Total revenues		85,915			149,064
Expenses:
Production		5,291			21,974
Production taxes		822			2,933
Drilling and services		21,536			18,777
Midstream and marketing		29,277			23,420
Depreciation, depletion and amortization — natural gas and crude oil		3,057			31,755
Depreciation, depletion and amortization — other		7,368			11,089
General and administrative		6,412			12,468
Loss (gain) on derivative contracts		(2,246	)		23,181
Gain on sale of assets		(10	)		(1	)
Total expenses		71,507			145,596
Income from operations		14,408			3,468
Other income (expense):
Interest income		234			1,088
Interest expense		(819	)		(35,429	)
Minority interest		45			(146	)
Gain (loss) from equity investments		(561	)		1,025
Total other income (expense)		(1,101	)		(33,462	)
Income (loss) before income tax expense (benefit)		13,307			(29,994	)
Income tax expense (benefit)		4,924			(10,501	)
Net income (loss)		8,383			(19,493	)
Preferred stock dividends and accretion		—			8,966
Income (loss) available (applicable) to common stockholders	$	8,383		$	(28,459	)
Basic and diluted income (loss) per share available (applicable) to common stockholders	$	0.12		$	(0.31	)
Weighted average number of shares outstanding:
Basic		71,581			92,442
Diluted		72,522			92,442

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-45

SandRidge Energy, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders’ Equity

			Additional
	Common		Paid-In			Treasury			Retained
	Stock		Capital			Stock			Earnings			Total
	(Unaudited)
	(In thousands)
Balance, December 31, 2006	$	92	$	574,868		$	(17,835	)	$	92,693		$	649,818
Stock offering, net of $1.1 million in offering costs		17		318,908			—			—			318,925
Conversion of common stock to redeemable convertible preferred stock		—		(9,650	)		—			—			(9,650	)
Accretion on redeemable convertible preferred stock		—		—			—			(350	)		(350	)
Purchase of treasury stock		—		—			(661	)		—			(661	)
Stock-based compensation		—		1,071			—			—			1,071
Net loss		—		—			—			(19,493	)		(19,493	)
Redeemable convertible preferred stock dividend		—		—			—			(6,859	)		(6,859	)
Balance, March 31, 2007	$	109	$	885,197		$	(18,496	)	$	65,991		$	932,801

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-46

SandRidge Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

	Three Months Ended
	March 31,
	2006			2007
	(Unaudited)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	8,383		$	(19,493	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for doubtful accounts		33			—
Depreciation, depletion and amortization		10,425			42,844
Debt issuance cost amortization		—			12,752
Deferred income taxes		4,644			(10,501	)
Unrealized loss (gain) on derivatives		(2,246	)		21,662
Gain on sale of assets		(10	)		(1	)
Interest income — restricted deposits		—			(266	)
Loss (gain) from equity investments, net of distributions		564			(1,025	)
Stock based compensation		633			1,071
Minority interest		(45	)		146
Changes in operating assets and liabilities		(19,200	)		(3,226	)
Net cash provided by operating activities		3,181			43,963
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant and equipment		(54,264	)		(181,095	)
Acquisition of assets		(4,486	)		—
Proceeds from sale of assets		37			26
Contributions on equity investments		(543	)		—
Restricted deposits		—			(1,477	)
Restricted cash		39			—
Net cash used in investing activities		(59,217	)		(182,546	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings		20,921			1,142,772
Repayments of borrowings		(10,963	)		(1,136,845	)
Dividends paid — preferred		—			(6,859	)
Minority interest contributions (distributions)		(365	)		762
Proceeds from issuance of common stock		3,343			318,925
Purchase of treasury shares		—			(661	)
Debt issuance costs		—			(25,000	)
Net cash provided by financing activities		12,936			293,094
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(43,100	)		154,511
CASH AND CASH EQUIVALENTS, beginning of year		45,731			38,948
CASH AND CASH EQUIVALENTS, end of period	$	2,631		$	193,459
Supplemental Disclosure of Noncash Investing and Financing Activities:
Insurance premiums financed	$	—		$	1,496
Accretion on redeemable convertible preferred stock	$	—		$	350

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-47

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.   Basis of Presentation

The condensed consolidated balance sheet of SandRidge Energy, Inc. and its subsidiaries (formerly known as Riata Energy, Inc.) (collectively, the “Company”) at December 31, 2006 was derived from the Company’s audited consolidated financial statements as of that date. The condensed consolidated balance sheet at March 31, 2007, the condensed consolidated statements of operations for the three months ended March 31, 2006 and 2007, the condensed consolidated statement of changes in stockholders’ equity for the three month period ended March 31, 2007, and the condensed consolidated statements of cash flows for the three month periods ended March 31, 2006 and 2007, were prepared by the Company.

In the opinion of Company management, all adjustments, consisting of normal recurring adjustments, necessary to state fairly the consolidated financial position, results of operations and cash flows were recorded. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the operating results for a full year or of future operations. The Company uses the equity method of accounting for all investments in which it has less than a majority interest and over which it does not exercise control. Minority interest has been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned.

Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s consolidated financial statements for the year ended December 31, 2006.

The condensed consolidated financial statements include the accounts of SandRidge Energy, Inc. and its wholly owned or majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts in the unaudited condensed consolidated financial statements have been reclassified in the prior period to conform with current period presentation.

2.   Significant Accounting Policies

For a description of the Company’s accounting policies, refer to Note 1 of the 2006 consolidated financial statements, as well as Note 9 herein.

Change in Method of Accounting for Oil and Gas Operations.  In the fourth quarter of 2006, the Company changed from the successful efforts method to the full cost method of accounting for its oil and gas operations. Prior period financial statements presented herein have been restated to reflect the change.

SandRidge’s financial results have been retroactively restated to reflect the conversion to the full cost method. As prescribed by full cost accounting rules, all costs associated with property acquisition, exploration, and development activities are capitalized. Exploration and development costs include dry hole costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding oil and gas reserves.

F-48

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

A comparison of the Company’s previously presented income tax expense, net income, and earnings per share under the successful efforts method of accounting to its results of operations disclosed herein are as follows (in thousands, except per share amounts):

	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2006		2006
	(As originally		(As restated)
	presented)
Income tax expense	$	4,377	$	4,924
Net income	$	7,453	$	8,383
Basic and diluted earnings per share	$	0.10	$	0.12

3.   Acquisition

On March 15, 2006, the Company acquired from an executive officer and director, an additional 12.5% interest in PetroSource Energy Company, a consolidated subsidiary. The acquisition consisted of the extinguishment of subordinated debt of approximately $1.0 million and a $4.5 million cash payment for the ownership interest acquired for a total acquisition price of approximately $5.5 million.

4.   Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

	December 31,			March 31,
	2006			2007
Oil and natural gas properties:
Proved	$	1,636,832		$	1,784,708
Unproved		282,374			266,757
Total oil and natural gas properties		1,919,206			2,051,465
Less accumulated depreciation and depletion		(60,752	)		(93,336	)
Net oil and natural gas properties capitalized costs		1,858,454			1,958,129
Land		738			751
Non oil and gas equipment		337,294			385,564
Buildings and structures		6,564			7,394
Total		344,596			393,709
Less accumulated depreciation, depletion and amortization		(68,332	)		(77,591	)
Net capitalized costs		276,264			316,118
Total property, plant and equipment	$	2,134,718		$	2,274,247

The amount of capitalized interest in the three months ended March 31, 2006 and 2007 was approximately $0.2 million and $0.4 million, respectively, and is included in the above non oil and gas equipment balance.

F-49

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

5.   Goodwill

The change in the carrying amount of goodwill from December 31, 2006 to March 31, 2007 was as follows (in thousands):

Balance at December 31, 2006	$	26,198
Adjustments		3,001
Balance at March 31, 2007	$	29,199

The adjustments made in the three months ended March 31, 2007 related to the preliminary purchase allocation in connection with NEG acquisition in November 2006. The Company has assigned all of the NEG goodwill to the Exploration and Production segment. The Company expects to complete the purchase allocation in the second quarter of 2007.

6.   Asset Retirement Obligation

A reconciliation of the beginning and ending aggregate carrying amounts of the asset retirement obligations for the period of December 31, 2006 to March 31, 2007 is as follows (in thousands):

Asset retirement obligation, December 31, 2006	$	45,216
Liability incurred upon acquiring and drilling wells		296
Accretion of discount expense		929
Asset retirement obligation, March 31, 2007	$	46,441

7.   Long-Term Debt

Long-term obligations consist of the following (in thousands):

	December 31,		March 31,
	2006		2007
Senior credit facility	$	140,000	$	—
Senior bridge facility		850,000		—
Senior term loan		—		1,000,000
Other notes payable:
Drilling rig fleet and related oil field services equipment		61,105		57,879
Sagebrush		4,000		4,000
Insurance financing		7,240		5,553
Other equipment and vehicles		4,486		6,822
Total debt		1,066,831		1,074,254
Less: Current maturities of long-term debt		26,201		25,696
Long-term debt	$	1,040,630	$	1,048,558

Senior Credit Facility.  On November 21, 2006, the Company entered into a $750 million senior secured revolving credit facility (the “senior credit facility”). The senior credit facility matures on November 21, 2011.

The proceeds of the senior credit facility were used to (i) partially finance the NEG acquisition, (ii) refinance the existing senior secured revolving credit facility and NEG’s existing credit facility, and (iii) pay fees and expenses related to the NEG acquisition and the existing credit facility. Future borrowings under the senior credit facility will be available for capital expenditures, working capital and general corporate purposes and to finance permitted acquisitions of oil and gas properties and other assets related to the exploration,

F-50

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

production and development of oil and gas properties. The senior credit facility will be available to be drawn on and repaid without restriction so long as the Company is in compliance with its terms, including certain financial covenants.

The senior credit facility contains various covenants that limit the Company and certain of its subsidiaries’ ability to grant certain liens; make certain loans and investments; make distributions; redeem stock; redeem or prepay debt; merge or consolidate with or into a third party; or engage in certain asset dispositions, including a sale of all or substantially all of the Company’s assets. Additionally, the senior credit facility limits the Company and certain of its subsidiaries’ ability to incur additional indebtedness with certain exceptions, including under the senior unsecured bridge facility (as discussed below).

The senior credit facility also contains financial covenants, including maintenance of agreed upon levels for the ratio of (i) total funded debt to EBITDAX (as defined in the senior credit facility), (ii) EBITDAX to interest expense plus current maturities of long-term debt, and (iii) current ratio.

The obligations under the senior credit facility are secured by first priority liens on all shares of capital stock of each of the Company’s present and future subsidiaries; all intercompany debt of the Company and its subsidiaries; and substantially all of the Company assets and the assets of its subsidiaries, including proven oil and gas reserves representing at least 80% of the present discounted value (as defined in the senior credit facility) of proven oil and gas reserves reviewed in determining the borrowing base for the senior credit facility. Additionally, the obligations under the senior credit facility will be guaranteed by certain Company subsidiaries.

At the Company’s election, interest under the senior credit facility is determined by reference to (i) the British Bankers Association LIBOR rate, or LIBOR, plus an applicable margin between 1.25% and 2.00% per annum or (ii) the higher of the federal funds rate plus 0.5% or the prime rate plus, in either case, an applicable margin between 0.25% and 1.00% per annum. Interest will be payable quarterly for prime rate loans and at the applicable maturity date for LIBOR loans, except that if the interest period for a LIBOR loan is six months, interest will be paid at the end of each three-month period.

The borrowing base of proved reserves was initially set at $300.0 million. As of December 31, 2006, the Company had $140.0 million of outstanding indebtedness on the senior credit facility. Proceeds from the Company’s sale of common stock on March 20, 2007, as described in Note 13, were used to repay all outstanding borrowings under the Company’s senior credit facility. At March 31, 2007 there were no amounts outstanding under the facility.

Senior Bridge Facility.  On November 21, 2006, the Company also entered into a $850.0 million senior unsecured bridge facility (the “senior bridge facility”).

Together with borrowings under the senior credit facility, the proceeds from the senior bridge facility were used to (i) partially finance the NEG acquisition, (ii) refinance existing senior secured revolving credit facility and NEG’s existing credit facility, and (iii) pay fees and expenses related to the NEG acquisition and the existing credit facility.

The Company repaid the senior bridge facility in March 2007. The Company expensed the remaining unamortized debt issuance costs related to the senior bridge facility of approximately $12.5 million to interest expense in March 2007.

Senior Term Loans.  On March 22, 2007 the Company entered into $1.0 billion in senior unsecured term loans (the “senior term loans”). The closing of the senior term loans was generally contingent upon closing the private placement of common equity as described in Note 13. The senior term loans include both fixed rate term loans and floating rate term loans. Approximately $650.0 million was issued at a fixed rate of 8.625% with the principal due on April 1, 2015 (the “fixed rate term loans”). Under the terms of the fixed rate term loans, interest is payable quarterly and during the first four years interest may be paid, at the Company’s

F-51

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

option, either entirely in cash or entirely with additional fixed rate term loans. If the Company elects to pay the interest due during any period in additional fixed rate term loans, the interest rate increases to 9.375% during such period. After April 1, 2011 the fixed rate term loans may be prepaid in whole or in part with certain prepayment penalties.

Approximately $350.0 million of the senior term loans was issued at a variable rate with interest payable quarterly and principal due on April 1, 2014 (the “variable rate term loans”). The variable rate term loans bear interest, at the Company’s option, at the British Bankers Association LIBOR rate plus 3.625% or the higher of (i) the federal funds rate, as defined, plus 3.125% or (ii) a Bank’s prime rate plus 2.625%. After April 1, 2009 the variable rate term loans may be prepaid in whole or in part with certain prepayment penalties.

One year after the closing date, the Company is required to offer to exchange the senior term loans for senior unsecured notes with registration rights and with identical terms and conditions as the term loans. If the Company is unable or does not offer to exchange the senior term loans for senior unsecured notes with registration rights by the specified date, the interest rate on the senior term loans will increase by 0.25% every 90 days up to a maximum of 0.50%.

Debt covenants under the senior term loans include financial covenants similar to those of the senior credit facility and include limitations on the incurrence of indebtedness, payment of dividends, asset sales, certain asset purchases, transactions with related parties, and consolidation or merger agreements. The Company incurred $25.0 million of debt issuance costs in connection with the senior term loans. These costs are included in other assets and amortized over the term of the senior term loans. A portion of the proceeds from the senior term loans was used to repay the Company’s $850.0 million senior bridge facility.

For the three months ended March 31, interest payments, net of amounts capitalized were approximately $0.8 million in 2006 and $28.1 million in 2007.

8.   Derivatives

The Company has entered into various derivative contracts including collars and fixed price swaps with counterparties. The contracts expire on various dates through December 31, 2008.

F-52

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

At March 31, 2007, the Company’s open commodity derivative contracts consisted of the following:

					Weighted Avg.
Period	Commodity		Notional		Fix Price
Fixed price swap
April 2007 - September 2007		Natural gas		10,980,000 MmBtu	$	7.87
April 2007 - September 2007		Natural gas		3,660,000 MmBtu	$	8.05
April 2007 - October 2007		Natural gas		4,280,000 MmBtu	$	7.02
April 2007 - October 2007		Natural gas		4,280,000 MmBtu	$	7.50
May 2007 - September 2007		Natural gas		3,060,000 MmBtu	$	7.75
November 2007 - June 2008		Natural gas		4,860,000 MmBtu	$	8.05
November 2007 - June 2008		Natural gas		9,720,000 MmBtu	$	8.20
January 2008 - June 2008		Natural gas		3,640,000 MmBtu	$	7.987
January 2008 - June 2008		Natural gas		3,640,000 MmBtu	$	7.99
Collars
January 2007 - December 2007		Crude oil		60,000 Bbls	$	50.00 - $84.50
January 2008 - June 2008		Crude oil		42,000 Bbls	$	50.00 - $83.35
July 2008 - December 2008		Crude oil		54,000 Bbls	$	50.00 - $82.60
Waha basis swap
January 2007 - December 2007		Natural gas		14,600,000 MmBtu	$	(0.70	)
January 2007 - December 2007		Natural gas		7,300,000 MmBtu	$	(0.5925	)
April 2007 - September 2007		Natural gas		3,660,000 MmBtu	$	(0.470	)
April 2007 - October 2007		Natural gas		4,280,000 MmBtu	$	(0.530	)
May 2007 - September 2007		Natural gas		3,060,000 MmBtu	$	(0.65	)
January 2008 - December 2008		Natural gas		7,320,000 MmBtu	$	(0.585	)
January 2008 - December 2008		Natural gas		7,320,000 MmBtu	$	(0.65	)
January 2008 - December 2008		Natural gas		7,320,000 MmBtu	$	(0.635	)
January 2008 - December 2008		Natural gas		7,320,000 MmBtu	$	(0.59	)

These derivatives have not been designated as hedges and the Company records all derivatives on the balance sheet at fair value. Changes in derivative fair values are recognized in earnings. Cash settlements and valuation gains and losses are included in loss (gain) on derivative contracts in the condensed consolidated statements of operations. The following summarizes the cash settlements and valuation gains and losses for the three months ended March 31, 2006 and 2007 (in thousands):

	Three Months Ended
	March 31,
	2006			2007
Realized loss	$	—		$	1,519
Unrealized loss (gain)		(2,246	)		21,662
Loss (gain) on derivative
Contracts	$	(2,246	)	$	23,181

F-53

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

9.   Income Taxes

In accordance with applicable generally accepted accounting principles, the Company estimates for each interim reporting period the effective tax rate expected for the full fiscal year and uses that estimated rate in providing income taxes on a current year-to-date basis.

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” The Company has determined that no uncertain tax positions exist where the Company would be required to make additional tax payments. As a result, the Company has not recorded any additional liabilities for any unrecognized tax benefits as of March 31, 2007. The Company and its subsidiaries file income tax returns in the U.S. federal and various state jurisdictions. Tax years 1994 to present remain open for the majority of taxing authorities. The Company’s accounting policy is to recognize penalties and interest related to unrecognized tax benefits as income tax expense. The Company does not have an accrued liability for the payment of penalties and interest at March 31, 2007.

For the three months ended March 31, income tax payments were approximately $0.2 million in 2006 and $0.4 million in 2007.

10.   Earnings Per Share

Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average shares outstanding during the year, but also include the dilutive effect of awards of restricted stock. The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share, for the three months ended March 31, 2006 and 2007.

	Three Months Ended
	March 31,
	2006		2007
	(In thousands)
Weighted average basic common shares outstanding		71,581		92,442
Effect of dilutive securities:
Restricted stock		941		—
Weighted average diluted common and potential common shares outstanding		72,522		92,442

For the three months ended March 31, 2007, restricted stock awards covering 1.3 million shares were excluded from the computation of net loss per share because their effect would have been antidilutive.

In computing diluted earnings per share, the Company evaluated the if-converted method. Under this method, the Company assumes the conversion of the outstanding redeemable convertible preferred stock to common stock and determines if this is more dilutive than including the preferred stock dividends (paid and unpaid) in the computation of income (loss) available (applicable) to common stockholders. The Company determined the if-converted method is not more dilutive and has included preferred stock dividends in the determination of income (loss) available (applicable) to common stockholders.

11.   Commitments and Contingencies

The Company is a defendant in certain lawsuits from time to time in the normal course of business. In management’s opinion, the Company is not currently involved in any legal proceedings other than those specifically identified below, which individually or in the aggregate, could have a material effect on the financial condition, operations and/or cash flows of the Company.

F-54

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

Litigation with Conoco, Inc.  In January 2007, the Company settled outstanding litigation with Conoco, Inc. for alleged unpaid overriding royalties on production by the Company on certain leases in Pecos County, Texas. Conoco, Inc. alleged that it was entitled to 12.5% of the proceeds from production and the Company alleged that Conoco, Inc., at most, was only entitled to a 5.0% overriding royalty on production. At March 31, 2007 and December 31, 2006, as a result of the settlement whereby the Company will pay approximately $25.0 million plus interest to settle the outstanding litigation, the Company had approximately $20.0 million and $25.0 million, respectively, recorded as an accrual to reflect the settlement amount. Interest accrues from the settlement date in January 2007. The settlement payments are to be made in $5.0 million increments on April 1, 2007, July 1, 2008, July 1, 2009, July 1, 2010, and July 1, 2011. On March 30, 2007 the Company made the first $5.0 million settlement payment plus accrued interest. The remaining unpaid settlement amount is included in other long-term obligations ($20.0 million) in the Company’s condensed consolidated balance sheet as of March 31, 2007.

Roosevelt Litigation.  On May 18, 2004, the Company commenced a civil action seeking declaratory judgment against Elliot Roosevelt, Jr., E.R. Family Limited Partnership and Ceres Resource Partners, L.P. in the District Court of Dallas County, Texas, 101st Judicial District, SandRidge Energy, Inc. and Riata Energy Piceance, LLC v. Elliot Roosevelt, Jr. et al, Cause No. 92.717-C. This suit sought a declaratory judgment relating to the rights of the parties in and to certain leases in a defined area of mutual interest in the Piceance Basin pursuant to an acquisition agreement entered into in 1989, including the Company’s 41,454 gross (16,193 net) acreage position. The Company tried the case to a jury in July 2006. Before the case was submitted to the jury, the trial court granted Roosevelt a directed verdict stating that he owned a 25% deferred interest in the Company’s acreage after project payout. The directed verdict is not likely to affect the Company’s proved reserves of 11.7 Bcfe, because of the requirement that project payout be achieved before the deferred interest shares in revenue. Other issues of fact were submitted to the jury. The trial court recently entered a judgment favorable to Roosevelt. The Company has filed a motion to modify the judgment and for a new trial. Depending on the outcome of this motion, the Company expects to appeal, at a minimum, from the entry of the directed verdict. If the Company does not ultimately prevail, the deferred interest will reduce the Company’s economic returns from the project, if project payout is achieved.

Yates Litigation.  On April 29, 2005, Harvey E. Yates Company (“Heyco”), filed a trespass to try title suit against us in the District Court for Pecos County, Texas, 112th Judicial District, Harvey E. Yates Company v. Riata Energy, Inc., Cause No. 10376. In February 2006, additional parties joined the case as plaintiffs. The plaintiffs seeks title to a 44.57% working interest in a lease covering three sections of land and a 18.66% working interest in a lease covering 1.5 sections of land, each located in West Texas, as well as unspecified damages based on production attributable to these working interests. The plaintiffs’ claims stem from the alleged failure of the Company’s predecessors in title to assign the disputed working interest in 1994. The Company believes that it has record title to the interest claimed by plaintiffs. Further, the Company believes the claims are barred by the four year statute of limitations, which the Company believes ran in 1998. If the plaintiffs prevail, any recovery would not be expected to have a material impact on proved reserves. The Company is currently in the preliminary stages of discovery.

The Company is subject to other claims in the ordinary course of business. However, the Company believes that the ultimate resolution of the above mentioned claims and other current legal proceedings will not have a material adverse effect on its results of operations or its financial condition.

12.   Redeemable Convertible Preferred Stock

In November 2006, the Company sold 2,136,667 shares of redeemable convertible preferred stock as part of the NEG acquisition and received net proceeds from this sale of approximately $439.5 million after deducting offering expenses of approximately $9.3 million. Each holder of the redeemable convertible preferred stock is entitled to quarterly cash dividends at the annual rate of 7.75% of the accreted value of its

F-55

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

redeemable convertible preferred stock. The accreted value is $210 per share as of March 31, 2007. Each share of convertible preferred stock is initially convertible into ten shares of common stock at the option of the holder, subject to certain anti-dilution adjustments.

On January 31, 2007, the Company’s Board of Directors declared a dividend on the outstanding shares of redeemable convertible preferred stock. The dividend of $3.21 per share was paid in cash on February 15, 2007. The dividend covered the time period from November 21, 2006, when the shares were issued, through February 1, 2007.

On March 30, 2007, certain holders of the Company’s common units (consisting of shares of common stock and a warrant to purchase redeemable convertible preferred stock upon the surrender of common stock) exercised warrants to purchase redeemable convertible preferred stock. The holders converted 526,316 shares of common stock into 47,619 shares of redeemable convertible preferred stock.

On May 8, 2007, the Company’s Board of Directors declared a dividend on the outstanding shares of redeemable convertible preferred stock. The dividend of $3.97 per share will be paid in cash on May 15, 2007. The dividend covers the time period from February 2, 2007 through May 1, 2007. Approximately $8.6 million of paid and unpaid dividends (amount from January 1, 2007 through March 31, 2007) has been included in the Company’s earnings per share calculation in the accompanying condensed consolidated statement of operations.

13.   Stockholders’ Equity

The following table presents information regarding SandRidge’s common stock (in thousands):

	December 31,		March 31,
	2006		2007
Shares authorized		400,000		400,000
Shares outstanding at end of period		91,604		108,857
Shares held in treasury		1,444		1,481

The Company is authorized to issue 50,000,000 shares of preferred stock, no par value, of which no shares were outstanding as of December 31, 2006 and March 31, 2007.

Common Stock Issuance.  In March 2007, the Company sold approximately 17.8 million shares of common stock for net proceeds of $318.9 million after deducting offering expenses of approximately $1.1 million. The stock was sold in private sales to various investors including Tom Ward, the Company’s Chairman of the Board of Directors and Chief Executive Officer, who invested $61.4 million in exchange for approximately 3.4 million shares of common stock.

Treasury Stock.  Employees may elect to satisfy their tax obligations on the vesting of their restricted stock by having the Company make the required tax payments and withhold a number of vested shares having a value on the date of vesting equal to the tax obligation. As a result of such employee elections, the Company withheld approximately 37,000 shares during the three months ended March 31, 2007, at a total value of $0.7 million, and those shares were accounted for as treasury stock.

Restricted Stock.  The Company issues restricted stock awards under incentive compensation plans which vest over specified periods of time (one, four and seven years). These shares of restricted common stock are subject to restriction on transfer and certain conditions to vesting.

For the three months ended March 31, the Company recognized stock-based compensation expense related to restricted stock of approximately $0.6 million in 2006 and $1.1 million in 2007. Stock-based compensation expense is reflected in general and administrative expense in the consolidated statements of operations.

F-56

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

14.   Related Party Transactions

During the ordinary course of business, the Company has transactions with certain shareholders and other related parties. These transactions primarily consist of purchases of drilling equipment and sales of oilfield service supplies. Following is a summary of significant transactions with such related parties for the three months ended March 31, 2006 and 2007:

	Three Months Ended
	March 31,
	2006		2007
	(In thousands)
Sales to related parties	$	3,595	$	2,319
Purchases of services from related parties	$	1,067	$	6,785

15.   Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S generally accepted accounting principles (“GAAP”) to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (“CON”) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this Statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on the financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option For Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits an entity to choose to measure certain financial assets and liabilities at fair value. SFAS No. 159 also revises provisions of SFAS No. 115 that apply to available-for-sale and trading securities. This statement is effective for fiscal years beginning after November 15, 2007. The Company has not yet evaluated the potential impact of this standard.

16.   Industry Segment Information

SandRidge has four business segments: Exploration and Production, Drilling and Oil Field Services, Midstream Gas Services, and Other representing its four main business units offering different products and services. The Exploration and Production segment is engaged in the development, acquisition and production of oil and natural gas properties. The Drilling and Oil field Services segment is engaged in the land contract drilling of oil and natural gas wells, and the Midstream Gas Services segment is engaged in the purchasing, gathering, processing and treating of natural gas. The Other segment transports CO₂ to market for use by the Company and others in tertiary oil recovery operations and other miscellaneous operations.

F-57

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

Management evaluates the performance of SandRidge’s operating segments based on operating income, which is defined as operating revenues less operating expenses and depreciation, depletion and amortization. Summarized financial information concerning our segments is shown in the following table (in thousands):

	Three Months Ended
	March 31,
	2006			2007
Revenues:
Exploration and production	$	15,281		$	92,634
Elimination of inter-segment revenue		(108	)		(1,808	)
Exploration and production, net of inter-segment revenue		15,173			90,826
Drilling and oilfield services		48,330			56,915
Elimination of inter-segment revenue		(13,808	)		(29,020	)
Drilling and oilfield services, net of inter-segment revenue		34,522			27,895
Midstream gas services		46,448			61,422
Elimination of inter-segment revenue		(15,707	)		(35,235	)
Midstream gas services, net of inter- segment revenue		30,741			26,187
Other		5,556			5,753
Elimination of inter-segment revenue		(77	)		(1,597	)
Other, net of inter-segment revenue		5,479			4,156
Total revenues	$	85,915		$	149,064
Exploration and production	$	4,936		$	371
Drilling and oilfield services		11,162			5,202
Midstream gas services		691			1,350
Other		(2,381	)		(3,455	)
Total operating income		14,408			3,468
Interest income		234			1,088
Interest expense		(819	)		(35,429	)
Other income (expense)		(516	)		879
Income (loss) before income tax expense (benefit)	$	13,307		$	(29,994	)
Capital Expenditures:
Exploration and production	$	28,840		$	127,582
Drilling and oilfield services		19,440			41,242
Midstream gas services		3,486			9,543
Other		2,498			2,728
Total capital expenditures	$	54,264		$	181,095

F-58

SandRidge Energy, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

	Three Months Ended
	March 31,
	2006		2007
Depreciation, Depletion, Amortization and Impairment:
Exploration and production	$	3,776	$	33,211
Drilling and oilfield services		4,269		7,163
Midstream gas services		652		1,113
Other		1,728		1,357
Total depreciation, depletion, amortization and impairment	$	10,425	$	42,844

	December 31,		March 31,
	2006		2007
Identifiable Asset(1):
Exploration and production	$	2,091,459	$	2,351,609
Drilling and oilfield services		175,169		220,778
Midstream gas services		75,606		70,826
Other		46,150		45,791
Total		2,388,384		2,689,004

(1) Identifiable assets are those used in SandRidge’s operations in each industry segment. Corporate assets are principally cash and cash equivalents, corporate leasehold improvements, furniture and equipment.

F-59

Report of Independent Registered Public Accounting Firm

To the Member

NEG Oil & Gas LLC

We have audited the accompanying combined balance sheets of NEG Oil & Gas LLC and subsidiaries excluding National Energy Group, Inc., and the 103/4% Senior Notes due from National Energy Group, Inc., but including National Energy Group Inc.’s 50% membership interest in NEG Holding LLC (collectively, the “Company”) as of December 31, 2004 and 2005 and the related statements of operations, changes in total member’s equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above, present fairly, in all material respects, the financial position of NEG Oil & Gas LLC and subsidiaries excluding National Energy Group, Inc. and the 103/4% Senior Notes due from National Energy Group Inc., but including National Energy Group Inc.’s 50% membership interest in NEG Holding LLC as of December 31, 2004 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 12 to the financial statements, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations on January 1, 2003, which is considered as a change in accounting policy.

/s/  Grant Thornton LLP

Houston, Texas

October 27, 2006

F-60

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC. AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

COMBINED BALANCE SHEETS

	December 31,
	2004			2005
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	30,846		$	102,322
Accounts receivable, net		36,613			53,378
Accounts receivable — affiliates		907			—
Notes receivable		489			10
Drilling prepayments		3,460			3,281
Deferred tax assets, net		1,943			—
Other		4,993			9,798
Total current assets		79,251			168,789
Oil and gas properties, at cost (full cost method)		929,088			1,229,923
Accumulated depreciation, depletion and amortization		(397,870	)		(488,560	)
Net oil and gas properties		531,218			741,363
Other property and equipment		5,595			6,029
Accumulated depreciation		(4,593	)		(4,934	)
Net other property and equipment		1,002			1,095
Note receivable		3,090			—
Equity investment		2,379			—
Restricted deposits		23,519			24,267
Deferred tax asset, net		592			—
Other assets		1,245			4,842
Total assets	$	642,296		$	940,356
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	28,914		$	18,105
Accounts payable revenue		6,265			11,454
Accounts payable — affiliates		2,574			1,660
Current portion of notes payable		1,761			2,503
Current portion of note payable to affiliate		10,429			—
Advance from affiliate		—			39,800
Prepayments from partners		749			121
Accrued interest		23			162
Accrued interest — affiliates		1,204			2,194
Income tax payable — affiliate		3,151			2,749
Derivative financial instruments		8,911			68,039
Total current liabilities		63,981			146,787
Commitments and contingencies
Credit facility		51,834			300,000
Notes payable, net of current maturities		2,642			—
Note payable to affiliate — net of current maturities		55,071			—
Gas balancing		898			1,108
Derivative financial instruments		7,766			17,893
Other liabilities		250			250
Deferred income tax liability		12,799			—
Asset retirement obligation		56,524			41,228
Total liabilities		251,765			507,266
Member’s equity		390,531			433,090
Total liabilities and member’s equity	$	642,296		$	940,356

The accompanying notes are an integral part of these combined financial statements.

F-61

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC.,
BUT INCLUDING NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP
INTEREST IN NEG HOLDING LLC

COMBINED STATEMENTS OF OPERATIONS

	For the Years Ended December 31,
	2003			2004			2005
	(In thousands)
Revenues:
Oil and gas sales — gross	$	100,777		$	144,430		$	261,398
Unrealized derivative losses		(2,987	)		(9,179	)		(69,254	)
Oil and gas revenues — net		97,790			135,251			192,144
Plant revenues		2,119			2,737			6,711
Total revenues		99,909			137,988			198,855
Costs and expenses:
Lease operating		11,517			14,912			27,437
Transportation and gathering		1,418			3,144			4,978
Plant and field operations		2,069			3,918			3,769
Production and ad valorem taxes		8,144			10,883			16,560
Depreciation, depletion and amortization		39,409			60,394			91,100
Accretion of asset retirement obligation		339			593			3,019
General and administrative		7,703			11,650			14,152
Total costs and expenses		70,599			105,494			161,015
Operating income		29,310			32,494			37,840
Interest expense		(2,034	)		(3,428	)		(8,198	)
Interest expense — affiliate		(971	)		(3,054	)		(3,047	)
Interest income and other		524			930			810
Interest income from related parties		115			150			—
Equity in loss on investment		(102	)		(519	)		(1,118	)
Severance tax refund		—			4,468			—
Commitment fee income		125			—			—
(Loss) gain on sale of assets		(8	)		1,686			9
Gain on sale of equity investment		—			—			5,512
Loss on marketable securities		(954	)		—			—
Income before income taxes		26,005			32,727			31,808
Income tax benefit (expense)		12,615			(260	)		2,932
Income before minority interest and cumulative effect of accounting change		38,620			32,467			34,740
Minority interest		(1,741	)		(812	)		—
Income before cumulative effect of accounting change		36,879			31,655			34,740
Cumulative effect of accounting change		1,912			—			—
Net income	$	38,791		$	31,655		$	34,740

The accompanying notes are an integral part of these combined financial statements.

F-62

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC. AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

COMBINED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2003			2004			2005
	(In thousands)
Operating activities:
Net income	$	38,791		$	31,655		$	34,740
Noncash adjustments:
Deferred income tax benefit		(14,953	)		(144	)		(2,935	)
Depreciation depletion and amortization		39,409			60,394			91,100
Minority interest		1,741			812			—
Unrealized derivative losses		2,987			9,179			69,254
(Gain) loss on sale of assets		8			(1,686	)		(9	)
Accretion of asset retirement obligation		339			593			3,019
Equity in loss on investment		102			519			1,118
Gain on sale of equity investment		—			—			(5,512	)
Provision for doubtful accounts		—			790			470
Cumulative effect of accounting change		(1,912	)		—			—
Interest income-restricted deposits		—			—			(494	)
Amortization of note discount		—			281			81
Amortization of note costs		793			494			1,148
Changes in operating assets and liabilities:
Accounts receivable		2,677			(6,340	)		(13,496	)
Drilling prepayments		(1,138	)		249			179
Derivative deposit		100			1,700			—
Other assets		820			(1,030	)		(4,883	)
Note receivable		(1,832	)		(1,258	)		3,098
Accounts payable and accrued liabilities		237			12,014			(8,545	)
Net cash provided by operating activities		68,169			108,222			168,333
Investing activities:
Acquisition, exploration, and development costs		(40,962	)		(114,974	)		(315,880	)
Proceeds from sales of oil and gas properties		1,436			4,981			1,329
Purchases of furniture, fixtures and equipment		(227	)		(289	)		(511	)
Proceeds from sale of furniture, fixtures and equipment		—			—			12
Equity investment		(1,800	)		(1,200	)		(454	)
Investment in restricted deposits		—			—			(4,973	)
Proceeds from sale of equity investment		—			—			7,227
Net cash used in investing activities		(41,553	)		(111,482	)		(313,250	)
Financing activities:
Debt issuance costs		(952	)		(440	)		(4,666	)
Net cash contributed by member		15,312			23,753			—
Repurchase of membership interest		—			(4,136	)		—
Proceeds from affiliate borrowings		—			—			161,800
Repayment of affiliate borrowings		—			—			(98,357	)
Guaranteed payment to member		(18,229	)		(15,978	)		(15,978	)
Priority distribution		(40,506	)		—			—
Equity Contribution		—			—			5,326
Dividend payment to member		—			—			(78,000	)
Proceeds from credit facility		91,625			8,000			379,100
Principal payments on debt		(55,514	)		(9,365	)		(1,898	)
Repayment of credit facility		(1,090	)		—			(130,934	)
Net cash provided (used) by financing activities		(9,354	)		1,834			216,393
Increase in cash and cash equivalents		17,262			(1,426	)		71,476
Cash and cash equivalents at beginning of period		15,010			32,272			30,846
Cash and cash equivalents at end of period	$	32,272		$	30,846		$	102,322
Supplemental cash flow information:
Cash paid for interest	$	1,681		$	5,471		$	8,483
Cash paid for income taxes	$	800		$	50		$	—
Distribution of member note payable	$	10,940		$	—		$	—

The accompanying notes are an integral part of these combined financial statements.

F-63

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

COMBINED STATEMENT OF CHANGES IN TOTAL MEMBER’S EQUITY

	(In thousands)
Total equity — December 31, 2002	$	199,842
Contribution from member — National Onshore		116,253
Guaranteed payment to member		(18,229	)
Payment of priority amount to member		(51,446	)
Net income		38,791
Total member’s equity — December 31, 2003		285,211
Contribution from member — National Offshore		91,561
Contribution from member — National Onshore minority interest		2,218
Purchase of minority membership interest		(4,136	)
Guaranteed payment to member		(15,978	)
Net income		31,655
Total member’s equity — December 31, 2004		390,531
Contribution of Notes Payable to AREP		89,143
Equity Contribution		5,326
Contribution of deferred tax assets		(5,471	)
Contribution of deferred tax liabilities		12,799
Guaranteed payment to member		(15,978	)
Dividend distribution		(78,000	)
Net income		34,740
Total member’s equity — December 31, 2005	$	433,090

The accompanying notes are an integral part of these combined financial statements.

F-64

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2003, 2004, 2005

1.   Organization and Background

The accompanying combined financial statements present NEG Oil & Gas LLC and subsidiaries, excluding National Energy Group, Inc. and the 103/4% Senior Notes due from National Energy Group, but including National Energy Group’s 50% membership interest in NEG Holding LLC (collectively, “the Company”). The Company is an oil and natural gas exploration and production company engaged in the exploration, development, production and operations of natural gas and oil properties, primarily located in Texas, Oklahoma, Arkansas and Louisiana (both onshore and in the Gulf of Mexico).

NEG Oil & Gas LLC is wholly-owned by American Real Estate Holdings Limited Partnership (“AREH”). AREH is 99% owned by American Real Estate Partners, L.P. (“AREP”). AREP is a publicly traded limited partnership that is majority owned by Mr. Carl C. Icahn.

NEG Oil & Gas LLC was formed on December 2, 2004 to hold the oil and gas investments of the Company’s ultimate parent company, AREP and, as of December 31, 2005 had the following assets and operations:

•  A 50.01% ownership interest in National Energy Group, Inc (National Energy Group), a publicly traded oil and gas management company. National Energy Group’s principal asset consists of its 50% membership interest in NEG Holding LLC (Holding, LLC).

•  $148.6 million principal amount of 103/4% Senior Notes due from National Energy Group (the “103/4% Senior Notes”).

•  A 50% managing membership interest in Holding, LLC.

•  The oil and gas operations of National Onshore LP (formerly TransTexas Gas Corporation); and

•  The oil and gas operations of National Offshore LP (formerly Panaco, Inc.)

All of the above assets initially were acquired by entities owned or controlled by Mr. Icahn and subsequently acquired by AREP (through subsidiaries) in various purchase transactions. In accordance with generally accepted accounting principles, assets transferred between entities under common control are accounted for at historical cost similar to a pooling of interest and the financial statements are combined from the date of acquisition by an entity under common control. The financial statements include the combined results of operations, financial position and cash flows of each of the above entities since its initial acquisition by entities owned or controlled by Mr. Icahn (the “Period of Common Control”).

On September 7, 2006, AREP signed a letter of intent to sell NEG Oil & Gas LLC and subsidiaries, excluding National Energy Group, Inc. and the 103/4% Senior Notes due from National Energy Group, but including National Energy Group’s 50% membership interest in Holding LLC to Riata Energy, Inc., DBA Riata Energy, Inc. (“Riata Energy”) The combined financial statements include the entities to be sold to Riata Energy.

Background

National Energy Group, Inc. — In February, 1999 National Energy Group was placed under involuntary, court ordered bankruptcy protection. Effective August 4, 2000 National Energy Group emerged from involuntary bankruptcy protection with affiliates of Mr. Icahn owning 49.9% of the common stock and $165 million principal amount of debt securities (“Senior Notes”). As mandated by National Energy Group’s Plan of Reorganization, Holding LLC was formed and on September 1, 2001, National Energy Group contributed to Holding LLC all of its oil and natural gas properties in exchange for an initial membership

F-65

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

interest in Holding LLC. National Energy Group retained $4.3 million in cash. On September 1, 2001, an affiliate of Mr. Icahn contributed to Holding LLC oil and natural gas assets, cash and a $10.9 million note receivable from National Energy Group in exchange for the remaining membership interest, which was designated the managing membership interest. Concurrently, in September, 2001, but effective as of May 2001, Holding LLC formed a 100% owned subsidiary, NEG Operating Company, LLC (“Operating LLC”) and contributed all of its oil and natural gas assets to Operating LLC.

In October 2003, AREP acquired all outstanding Senior Notes ($148.6 million principal amount at October 2003) and 5,584,044 shares of common stock of National Energy Group from entities affiliated with Mr. Icahn for aggregate consideration of approximately $148.1 million plus approximately $6.7 million of accrued interest on the Senior Notes. As a result of this transaction and the acquisition by AREP of additional shares of National Energy Group, AREP beneficially owned 50.01% of the outstanding stock of National Energy Group and had effective control. In June 2005, all of the stock of National Energy Group and the $148.6 million principal amount of Senior Notes owned by AREP was contributed to the Company and National Energy Group became a 50.01% owned subsidiary. The accrued, but unpaid interest on the $148.6 million principal amount of Senior Notes was retained by AREP. National Energy Group and the Senior Notes will be retained by AREP and not purchased by Riata Energy.

NEG Holding LLC — On June 30, 2005, AREP acquired the managing membership interest in Holding LLC from an affiliate of Mr. Icahn for an aggregate consideration of approximately $320 million. The membership interest acquired constituted all of the membership interests other than the membership interest already owned by National Energy Group. The combined financial statements include the consolidation of the acquired 50% membership interest in Holding LLC, together with the 50% membership interest owned by National Energy Group. The Period of Common Control for Holding LLC began on September 1, 2001, the initial funding of Holding LLC.

The Holding LLC Operating Agreement — Holding LLC is governed by an operating agreement effective May 12, 2001, which provides for management and control of Holding LLC by the Company and distributions to National Energy Group and the Company based on a prescribed order of distributions (the “Holding LLC Operating Agreement”).

Order of Distributions

Pursuant to the Holding LLC Operating Agreement, distributions from Holding LLC to National Energy Group and the Company shall be made in the following order:

1. Guaranteed payments (“Guaranteed Payments”) are to be paid to National Energy Group, calculated on an annual interest rate of 103/4% on the outstanding priority amount (“Priority Amount”). The Priority Amount includes all outstanding debt owed to the Company, including the amount of National Energy Group’s 103/4% Senior Notes. As of December 31, 2005, the Priority Amount was $148.6 million. The Guaranteed Payments will be made on a semi-annual basis.

2. The Priority Amount is to be paid to National Energy Group. Such payment is to occur by November 6, 2006.

3. An amount equal to the Priority Amount and all Guaranteed Payments paid to National Energy Group, plus any additional capital contributions made by the Company, less any distributions previously made by Holding LLC to the Company, is to be paid to the Company.

4. An amount equal to the aggregate annual interest (calculated at prime plus 1/2% on the sum of the Guaranteed Payments), plus any unpaid interest for prior years (calculated at prime plus 1/2% on the sum

F-66

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

of the Guaranteed Payments), less any distributions previously made by Holding LLC to the Company, is to be paid to NEG Oil & Gas.

5. After the above distributions have been made, any additional distributions will be made in accordance with the ratio of NEG Oil & Gas and National Energy Group’s respective capital accounts. (Capital accounts as defined in the Holding LLC Operating Agreement.)

Redemption Provision in the Holding LLC Operating Agreement

The Holding LLC Operating Agreement contains a provision that allows the managing member (NEG Oil & Gas), at any time, in its sole discretion, to redeem National Energy Group’s membership interest in Holding LLC at a price equal to the fair market value of such interest determined as if Holding LLC had sold all of its assets for fair market value and liquidated.

Prior to closing the Riata Energy purchase transaction, AREP will cause NEG Oil & Gas to exercise the redemption provision and dividend the 103/4% Senior Notes to AREP or enter into transactions with a similar effect such that NEG Oil & Gas will own 100% of Holding LLC and no longer own the 103/4% Senior Notes receivable from National Energy Group. AREP will indemnify NEG Oil & Gas for any costs associated with the exercise of the redemption provision. The Holding LLC Operating Agreement will be cancelled.

National Onshore LP — On November 14, 2002, National Onshore filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. National Onshore’s First Amended Joint Plan of Reorganization submitted by an entity affiliated with Mr. Icahn, as modified on July 8, 2003 (the “National Onshore Plan”), was confirmed by the Bankruptcy Court on August 14, 2003 effective August 28, 2003.

As of the effective date of the National Onshore Plan, an entity affiliated with Mr. Icahn owned 89% of the outstanding shares of National Onshore. During June 2004, the entity affiliated with Mr. Icahn acquired an additional 5.7% of the outstanding shares of National Onshore from certain other shareholders. During December 2004, National Onshore acquired the remaining 5.3% of the outstanding shares that were not owned by an affiliate of Mr. Icahn. The difference between the purchase price for both acquisitions and the minority interest liability was treated as a purchase price adjustment which reduced the full cost pool.

On December 6, 2004, AREP purchased from an affiliates of Mr. Icahn $27.5 million aggregate principal amount, or 100%, of the outstanding term notes issued by National Onshore (the “National Onshore Notes”). The purchase price was $28.2 million, which equals the principal amount of the National Onshore Notes plus accrued unpaid interest. The notes are payable annually in equal consecutive annual payments of $5.0 million, with the final installment due August 28, 2008. Interest is payable semi-annually in February and August at the rate of 10% per annum.

On April 6, 2005, AREP acquired 100% of the outstanding stock of National Onshore from entities owned by Mr. Icahn for an aggregate consideration of $180 million. The operations of National Onshore are considered to have been contributed to the Company on August 28, 2003 at a historical cost of approximately $116.3 million, representing the historical basis in the assets and liabilities of National Onshore of the entities owned by Mr. Icahn. AREP contributed the National Onshore Notes, but not the accrued and unpaid interest through the date of contribution, to the Company on June 30, 2005. The Period of Common Control of National Onshore began on August 28, 2003.

National Offshore LP — On July 16, 2002, National Offshore filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court of the Southern District of Texas. On November 3, 2004, the Bankruptcy Court entered a confirmation order for the National

F-67

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Offshore’s Plan of Reorganization (the “National Offshore Plan”). The National Offshore Plan became effective November 16, 2004 and National Offshore began operating as a reorganized entity. Upon emergence from bankruptcy, an entity controlled by Mr. Icahn owned 100% of the outstanding common stock of National Offshore.

On December 6, 2004, AREP purchased $38.0 million aggregate principal amount of term loans issued by National Offshore, which constituted 100% of the outstanding term loans of National Offshore from an affiliate of Mr. Icahn. On June 30, 2005, AREP contributed the National Offshore term loan, but not the accrued and unpaid interest through the date of contribution, to the Company.

On June 30, 2005, AREP acquired 100% of the equity of National Offshore from affiliates of Mr. Icahn for consideration valued at approximately $125.0 million. The Period of Common Control for National Offshore began on November 16, 2004 when National Offshore emerged from bankruptcy. The acquisition of National Offshore has been recorded effective December 31, 2004. The historical cost of approximately $91.6 million, representing the historical basis in the assets and liabilities of National Offshore of the affiliates of Mr. Icahn, was considered to have been contributed to the Company on December 31, 2004.

2.   Significant Accounting Policies

Basis of Presentation

The combined financial statements include the accounts of NEG Oil & Gas LLC and subsidiaries excluding National Energy Group and the 103/4% Senior Notes due from National Energy Group, but including National Energy Group’s 50% membership interest in NEG Holding LLC (the Company). All material intercompany accounts and transactions have been eliminated in the combined financial statements. Investments in subsidiaries over which the Company has significant influence, but not control, are reported using the equity method.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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 revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents may include demand deposits, short-term commercial paper, and/or money-market investments with maturities of three months or less when purchased. Cash in bank deposit accounts are generally maintained at high credit quality financial institutions and may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk of loss.

Oil and Natural Gas Properties

The Company utilizes the full cost method of accounting for its crude oil and natural gas properties. Under the full cost method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of crude oil and natural gas reserves are capitalized and amortized on the units-of-production method based upon total proved reserves. The Company elects to include its current unevaluated properties in the full cost pool. Conveyances of properties, including gains or losses on

F-68

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

abandonments of properties, are treated as adjustments to the cost of crude oil and natural gas properties, with no gain or loss recognized unless the sale or disposition represents a significant portion of the Company’s oil and natural gas reserves.

Under the full cost method, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% per year (the ceiling limitation) plus the lower of cost or fair value of unevaluated properties, if any. In arriving at estimated future net revenues, estimated lease operating expenses, development costs, abandonment costs, certain production related ad-valorem taxes, and estimated corporate income taxes relating to oil and gas properties, if any, are deducted. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes which are fixed and determinable by existing contracts. Such contracts may include derivative contracts that meet the accounting requirements and are documented, designated and accounted for as cash flow hedges. None of the Company’s derivatives contracts were accounted for as cash flow hedges. Consequently, prices were held constant indefinitely. The net book value is compared to the ceiling limitation on a quarterly basis. The excess, if any, of the net book value above the ceiling limitation is required to be written off as a non-cash expense. The Company did not incur a ceiling writedown in 2003, 2004 and 2005. There can be no assurance that there will not be writedowns in future periods under the full cost method of accounting as a result of sustained decreases in oil and natural gas prices or other factors.

The Company has capitalized internal costs of $0.6 million; $1.0 million and $1.1 million for the years ended December 31, 2003, 2004 and 2005, respectively, as cost of oil and natural gas properties. Oil and natural gas properties include cumulative capitalized internal costs of $2.4 million and $3.5 million as of December 31, 2004 and 2005. Such capitalized costs include salaries and related benefits of individuals directly involved in the Company’s acquisition, exploration, and development activities based on a percentage of their salaries. These costs do not include any costs related to production, general corporate overhead, or similar activities.

Costs associated with production and general corporate activities are expensed in the period incurred. Production costs are costs incurred to operate and maintain the Company’s wells and related equipment and include cost of labor, well service and repair, location maintenance, power and fuel, transportation, cost of product, property taxes, production and severance taxes and production related general and administrative costs.

The Company receives reimbursement for administrative and overhead expenses incurred on behalf of other working interest owners on properties the Company operates. Such reimbursements are recorded as reductions to general and administrative expenses to the extent of actual costs incurred. Reimbursements in excess of actual costs incurred, if any, are credited to the full cost pool to be recognized through lower cost amortization as production occurs. Historically, the Company has not received any administrative and overhead reimbursements in excess of costs incurred.

The Company is subject to extensive federal, state, and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.

F-69

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The Company’s operations are subject to all of the risks inherent in oil and natural gas exploration, drilling and production. These hazards can result in substantial losses to the Company due to personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage, or suspension of operations. The Company maintains insurance of various types customary in the industry to cover its operations and believes it is insured prudently against certain of these risks. In addition, the Company maintains operator’s extra expense coverage that provides coverage for the care, custody and control of wells drilled by the Company. The Company’s insurance does not cover every potential risk associated with the drilling and production of oil and natural gas. As a prudent operator, the Company does maintain levels of insurance customary in the industry to limit its financial exposure in the event of a substantial environmental claim resulting from sudden and accidental discharges. However, 100% coverage is not maintained. The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on the Company’s financial condition and results of operations. Moreover, no assurance can be given that the Company will be able to maintain adequate insurance in the future at rates it considers reasonable. The Company believes that it operates in compliance with government regulations and in accordance with safety standards which meet or exceed industry standards.

Other Property and Equipment

Other property and equipment includes furniture, fixtures, and other equipment. Such assets are recorded at cost and are depreciated over their estimated useful lives using the straight-line method.

The Company’s investment in Longfellow Ranch Field includes an interest in a gas separation facility. This investment is included in the oil and natural gas properties and depleted over the life of the reserves.

Maintenance and repairs are charged against income when incurred; renewals and betterments, which extend the useful lives of property and equipment, are capitalized.

Income Taxes

NEG Oil & Gas and Holding LLC are taxed as partnerships under applicable federal and state laws. No income taxes have been provided on the income of NEG Oil & Gas since these taxes are the responsibility of the member. Income tax liabilities and assets reflect the obligations and assets of its consolidated entities.

National Onshore and National Offshore were organized as corporations and were subject to corporate income tax until their acquisition by NEG Oil & Gas. For income tax purposes, through the date of acquisition by NEG Oil & Gas, the taxable income or loss of National Onshore and its subsidiaries and National Offshore are included in the consolidated income tax return of the Starfire Holding Corp. (“Starfire”) controlled group. National Onshore and its subsidiaries and National Offshore entered into tax allocation agreements with Starfire, an entity owned by Mr. Icahn. The tax allocation agreements provide for payments of tax liabilities to Starfire, calculated as if National Onshore and its subsidiaries and National Offshore each filed a consolidated income tax return separate from the Starfire controlled group. Additionally, the agreements provide for payments from Starfire to National Onshore and its subsidiaries or National Offshore for any previously paid tax liabilities that are reduced as a result of subsequent determinations by any government authority, or as a result of any tax losses or credits that are allowed to be carried back to prior years.

The Company accounts for income tax assets and liabilities of its consolidated corporate entities in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax

F-70

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company maintains valuation allowances where it is determined more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. In determining whether a valuation allowance is warranted, the Company takes into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods, and tax planning strategies.

Accounts Receivable

The Company sells crude oil and natural gas to various customers. In addition, the Company participates with other parties in the operation of crude oil and natural gas wells. Substantially all of the Company’s accounts receivable are due from either purchasers of crude oil and natural gas or participants in crude oil and natural gas wells for which the Company serves as the operator. Generally, operators of crude oil and natural gas properties have the right to offset future revenues against unpaid charges related to operated wells. Crude oil and natural gas sales are generally unsecured.

The allowance for doubtful accounts is an estimate of the losses in the Company’s accounts receivable. The Company periodically reviews the accounts receivable from customers for any collectability issues. An allowance for doubtful accounts is established based on reviews of individual customer accounts, recent loss experience, current economic conditions, and other pertinent factors. Accounts deemed uncollectible are charged to the allowance. Provisions for bad debts and recoveries on accounts previously charged-off are added to the allowance.

Accounts receivable allowance for bad debt totaled approximately $0.3 million at December 31, 2004 and $0.2 million at December 31, 2005. At December 31, 2004 and 2005, the carrying value of the Company’s accounts receivable approximates fair value.

Revenue Recognition

Revenues from the sale of natural gas and oil produced are recognized upon the passage of title, net of royalties.

Natural Gas Production Imbalances

The Company accounts for natural gas production imbalances using the sales method, whereby the Company recognizes revenue on all natural gas sold to its customers notwithstanding the fact that its ownership may be less than 100% of the natural gas sold. Liabilities are recorded by the Company for imbalances greater than the Company’s proportionate share of remaining estimated natural gas reserves. The Company has recorded a liability for gas balancing of $0.9 million at December 31, 2004 and $1.1 million at December 31, 2005.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. There were no differences between net earnings and total comprehensive income in 2003, 2004 and 2005.

F-71

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Derivatives

From time to time, the Company enters into various derivative instruments consisting principally of no cost collar options (the “Derivative Contracts”) to reduce its exposure to price risk in the spot market for natural gas and oil. The Company follows Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which was amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. These pronouncements established accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. The Company elected not to designate these instruments as hedges for accounting purposes, accordingly the cash settlements and valuation gains and losses are included in oil and natural gas sales. The following summarizes the cash settlements and valuation gains and losses for the years ended December 31, 2003, 2004 and 2005 (amounts in thousands):

	2003		2004		2005
Realized loss — (net cash payments)	$	8,309	$	16,625	$	51,263
Unrealized loss		2,987		9,179		69,254
Loss on Derivative Contracts	$	11,296	$	25,804	$	120,517

The following is a summary of the Company’s Derivative Contracts as of December 31, 2005:

Type of Contract	Production Month		Volume per Month		Floor		Ceiling
No cost collars		Jan-Dec 2006		31,000 Bbls	$	41.65	$	45.25
No cost collars		Jan-Dec 2006		16,000 Bbls		41.75		45.40
No cost collars		Jan-Dec 2006		570,000 MmBtu		6.00		7.25
No cost collars		Jan-Dec 2006		120,000 MmBtu		6.00		7.28
No cost collars		Jan-Dec 2006		500,000 MmBtu		4.50		5.00
No cost collars		Jan-Dec 2006		46,000 Bbls		60.00		68.50
(The Company participates in a second ceiling at $84.50 on the 46,000 Bbls)
No cost collars		Jan-Dec 2007		30,000 Bbls		57.00		70.50
No cost collars		Jan-Dec 2007		30,000 Bbls		57.50		72.00
No cost collars		Jan-Dec 2007		930,000 MmBtu		8.00		10.23
No cost collars		Jan-Dec 2008		46,000 Bbls		55.00		69.00
No cost collars		Jan-Dec 2008		750,000 MmBtu		7.00		10.35

While the use of derivative contracts can limit the downside risk of adverse price movements, it may also limit future gains from favorable movements. The Company addresses market risk by selecting instruments whose value fluctuations correlate strongly with the underlying commodity. Credit risk related to derivative activities is managed by requiring minimum credit standards for counter parties, periodic settlements, and mark to market valuations.

A liability of $16.7 million (including a current liability of $8.9 million) and $85.9 million (including a current liability of $68.0 million) was recorded by the Company as of December 31, 2004 and 2005 respectively, in connection with these contracts. As of December 31, 2004, the Company had issued $11.0 million in letters of credit securing the Company’s derivative position. During 2005, the Company was required to provide security to counter parties for its Derivative Contracts in loss positions.

F-72

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

On December 22, 2005, concurrent with the execution of the Company’s new credit facility (see note 9) the Company novated all of Derivative Contracts with Shell Trading (US) outstanding as of that date with identical Derivative Contracts with Citicorp (USA), Inc. as the counter party. Under this transaction, no contracts were settled, Citicorp (USA) replaced Shell Trading (US) as the counter party and no gain or loss was recorded. Under the new credit facility, Derivatives Contracts with certain lenders under the credit facility do not require cash collateral or letters of credit and rank pari passu with the credit facility. All cash collateral and letters of credit have been released as of December 31, 2005.

Accounting for Asset Retirement Obligations

The Company accounts for its asset retirement obligations under Statement of Financial Accounting Standards No. 143 (SFAS 143), Accounting for Asset Retirement Obligations. SFAS 143 provides accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets. Under SFAS 143, an asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset.

The Company’s asset retirement obligation represents expected future costs to plug and abandon its wells, dismantle facilities, and reclamate sites at the end of the related assets’ useful lives.

Recent Accounting Pronouncements

On December 16, 2004, the FASB issued Statement 123 (revised 2004), “Share-Based Payment” that will require compensation costs related to share-based payment transactions (e.g., issuance of stock options and restricted stock) to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. Statement 123(R) replaces SFAS 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” For us, SFAS 123(R) is effective for the first reporting period beginning after June 15, 2005. Entities that use the fair-value-based method for either recognition or disclosure under SFAS 123 are required to apply SFAS 123(R)using a modified version of prospective application. Under this method, an entity records compensation expense for all awards it grants after the date of adoption. In addition, the entity is required to record compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption. In addition, entities may elect to adopt SFAS 123(R)using a modified retrospective method whereby previously issued financial statements are restated based on the expense previously calculated and reported in their pro forma footnote disclosures. The Company had no share based payments subject to this standard.

In December 2004, the FASB issued Statement 153, “Exchanges of Nonmonetary Assets”, an amendment of APB Opinion No. 29, to clarify the accounting for nonmonetary exchanges of similar productive assets. SFAS 153 provides a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Statement will be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not have any nonmonetary transactions for any period presented that this Statement would apply.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143 (“Interpretation”). This Interpretation clarifies

F-73

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective for the Company’s year ended December 31, 2005. The adoption of this Interpretation did not impact the Company’s combined financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior period financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 will become effective for the Company’s fiscal year beginning January 1, 2006. The impact of SFAS No. 154 will depend on the nature and extent of any voluntary accounting changes and correction of errors after the effective date, but management does not currently expect SFAS No. 154 to have a material impact on the Company’s combined financial position, results of operations or cash flows.

On February 16, 2006, the FASB issued Statement 155, “Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140.” The statement amends Statement 133 to permit fair value measurement for certain hybrid financial instruments that contain an embedded derivative, provides additional guidance on the applicability of Statement 133 and 140 to certain financial instruments and subordinated concentrations of credit risk. The new standard is effective for the first fiscal year that begins after September 15, 2006 (January 1, 2007 for the Company). We have no hybrid instruments subject to this standard.

3.   Management Agreements

The management and operation of Operating LLC is being undertaken by National Energy Group pursuant to the Management Agreement (the “Operating LLC Management Agreement”) which Operating LLC entered into with National Energy Group. However, neither National Energy Group’s officers nor directors control the strategic direction of Operating LLC’s oil and natural gas business, including oil and natural gas drilling and capital investments, which are controlled by the managing member of Holding LLC (NEG Oil & Gas). The Operating LLC management agreement provides that National Energy Group will manage Operating LLC’s oil and natural gas assets and business until the earlier of November 1, 2006, or such time as Operating LLC no longer owns any of the managed oil and natural gas properties. National Energy Group’s employees conduct the day-to-day operations of Operating LLC’s oil and natural gas business, and all costs and expenses incurred in the operation of the oil and natural gas properties are borne by Operating LLC, although the Operating LLC Management Agreement provides that the salary of National Energy Group’s Chief Executive Officer shall be 70% attributable to the managed oil and natural gas properties, and the salaries of each of the General Counsel and Chief Financial Officer shall be 20% attributable to the managed oil and natural gas properties. In exchange for National Energy Group’s management services, Operating LLC pays National Energy Group a management fee equal to 115% of the actual direct and indirect administrative and reasonable overhead costs that National Energy Group incurs in operating the oil and natural gas

F-74

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

properties. National Energy Group or Operating LLC may seek to change the management fee to within the range of 110%-115% as such change is deemed warranted. However, both have agreed to consult with each other to ensure that such administrative and reasonable overhead costs attributable to the managed properties are properly reflected in the management fee that is paid. In addition, Operating LLC has agreed to indemnify National Energy Group to the extent National Energy Group incurs any liabilities in connection with National Energy Group’s operation of the assets and properties of Operating LLC, except to the extent of National Energy Group’s gross negligence or misconduct. Operating LLC incurred $6.6 million, $6.2 million and $5.6 million in general and administrative expenses for the years ended December 31, 2003, 2004 and 2005, respectively under this agreement.

On August 28, 2003, National Energy Group entered into a management agreement to manage the oil and natural gas business of National Onshore. The National Onshore management agreement was entered in connection with a plan of reorganization for National Onshore proposed by Thornwood Associates LP, an entity affiliated with Carl C. Icahn (the “National Onshore Plan”). On August 28, 2003, the United States Bankruptcy Court, Southern District of Texas, issued an order confirming the National Onshore Plan. NEG Oil & Gas owns all of the reorganized National Onshore, which is engaged in the exploration, production and transmission of oil and natural gas, primarily in South Texas, including the Eagle Bay field in Galveston Bay, Texas and the Southwest Bonus field located in Wharton County, Texas. Bob G. Alexander and Philip D. Devlin, National Energy Group’s President and CEO, and National Energy Group’s Vice President, Secretary and General Counsel, respectively, have been appointed to the reorganized National Onshore Board of Directors and act as the two principal officers of National Onshore and its subsidiaries, Galveston Bay Pipeline Corporation and Galveston Bay Processing Corporation. Randall D. Cooley, National Energy Group’s Vice President and CFO, has been appointed Treasurer of reorganized National Onshore and its subsidiaries.

The National Onshore Management Agreement provides that National Energy Group shall be responsible for and have authority with respect to all of the day-to-day management of National Onshore business, but will not function as a Disbursing Agent as such term is defined in the National Onshore Plan. As consideration for National Energy Group services in managing the National Onshore business, National Energy Group receives a monthly fee of $0.3 million. The National Onshore Management Agreement is terminable (i) upon 30 days prior written notice by National Onshore, (ii) upon 90 days prior written notice by National Energy Group, (iii) upon 30 days following any day where High River designees no longer constitute the National Onshore Board of Directors, unless otherwise waived by the newly-constituted Board of Directors of National Onshore, or (iv) as otherwise determined by the Bankruptcy Court. The Company recorded $1.4 million, $4.7 million and $4.8 million in general and administrative expenses for the years ended December 31, 2003, and 2004 and 2005, respectively, under this agreement.

On November 3, 2004, the United States Bankruptcy Court for the Southern District of Texas issued an order effective November 16, 2004 confirming a plan of reorganization for National Offshore (“National Offshore Plan”). In connection with the National Offshore Plan, National Energy Group entered into a Management Agreement with National Offshore (the “National Offshore Management Agreement) pursuant to the Bankruptcy Court’s order confirming the effective date of the National Offshore Plan. NEG Oil & Gas owns all of the reorganized National Offshore. Mr. Bob G. Alexander, National Energy Group’s President and CEO, has been appointed to the reorganized National Offshore Board of Directors and acts as the reorganized National Offshore’s President. Mr. Philip D. Devlin, National Energy Group’s Vice President, General Counsel and Secretary, has been appointed to serve in the same capacities for National Offshore. Mr. Randall D. Cooley, National Energy Group’s Vice President and CFO, has been appointed as Treasurer of the reorganized National Offshore. In exchange for management services, National Energy Group receives a monthly fee equal to 115% of the actual direct and indirect administrative overhead costs that are incurred in operating and administering the National Offshore oil and natural gas properties. The Company recorded $0.7 million and $4.2 million in

F-75

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

general and administrative expenses for the years ended December 31, 2004 and 2005, respectively, under this agreement.

Substantially concurrent with the Riata Energy purchase transaction the management agreements will be terminated.

4.   Contributions of National Onshore and National Offshore

National Onshore — On August 28, 2003, the effective date of the confirmation of National Onshore’s bankruptcy plan, an entity affiliated with Mr. Icahn owned 89% of the outstanding shares of National Onshore. The assets and liabilities of National Onshore were considered to have been contributed to the Company on that date at the historical cost of the entity affiliated with Mr. Icahn as follows (amounts in thousands).

Assets contributed
Cash and cash equivalents	$	15,312
Accounts receivable		11,236
Drilling prepayments		505
Other current assets		1,318
Oil and natural gas properties		186,288
Other assets		226
Total assets		214,885
Liabilities assumed
Accounts payable		3,761
Current maturities of long-term debt		6,038
Accrued liabilities		10,158
Accounts payable — other		27
Long-term debt, net of current maturities		4,266
Note payable to affiliate — net of current maturities		27,500
Production payments — net of current maturities		5,617
Other liabilities		2,096
Income tax liability		27,926
Asset retirement obligation		3,381
Minority interest liability		7,862
Total liabilities assumed		98,632
Net assets contributed	$	116,253

During June 2004, the entity affiliated with Mr. Icahn acquired an additional 5.7% of the outstanding shares of National Onshore from certain other shareholders at a cost of approximately $2.2 million. The $2.2 million purchase is recorded as a capital contribution from member in 2004. In December 2004, the remaining 5.3% of National Onshore shares not owned by the entity affiliated with Mr. Icahn was purchased by National Onshore at a cost of $4.1 million. The share repurchase is reflected as a purchase of membership interest in 2004. The difference between the purchase price for both acquisitions and the minority interest liability was treated as an adjustment to the historical cost basis which reduced the full cost pool.

F-76

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

National Offshore — Effective December 31, 2004, the Period of Common Control of National Offshore, the following assets and liabilities were considered to have been contributed to the Company (amounts in thousands):

Assets contributed
Cash and cash equivalents	$	23,753
Accounts receivable		10,482
Drilling prepayments		2,601
Deferred tax assets, net		1,943
Other		2,051
Oil and natural gas properties		128,673
Restricted deposits		23,519
Deferred taxes		592
Total assets		193,614
Liabilities assumed
Accounts payable		11,235
Accounts payable — affiliate		555
Current portion of note payable to affiliate		5,429
Prepayments from partners		652
Accrued interest — affiliates		288
Income tax payable — affiliate		156
Accounts payable — revenue		716
Accounts payable — other		10
Derivative financial instruments		903
Note payable to affiliate — net of current maturities		32,571
Asset retirement obligation		49,538
Total liabilities assumed		102,053
Net assets contributed	$	91,561

5.   Acquisitions

In March 2005, the Company purchased an additional interest in Longfellow Ranch for $31.9 million.

In October 2005, the Company executed a purchase and sale agreement to acquire Minden Field assets near its existing production properties in East Texas. This acquisition consists of 3,500 acres with 17 producing wells and numerous drilling opportunities. The purchase price was approximately $85.0 million, which was subsequently reduced to $82.3 million after purchase price adjustments, and the transaction closed on November 8, 2005.

6.   Sale of West Delta Properties

In March 2005, the Company sold its rights and interest in West Delta 52, 54, and 58 to a third party in exchange for the assumption of existing future asset retirement obligations on the properties and a cash payment of $0.5 million. The estimated fair value of the asset retirement obligations assumed by the purchaser

F-77

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

was approximately $16.8 million. In addition, the Company transferred to the purchaser approximately $4.7 million in an escrow account that the Company had funded relating to the asset retirement obligations on the properties. The full cost pool was reduced by approximately $11.6 million and no gain or loss was recognized on the transaction.

7.   Investments/Note Receivable

In January 2002, the Company acquired stock valued at $49.95 million, which was sold at a gain of $8.7 million in February 2002. In an unrelated transaction, the Company completed a short sale of stock in November 2002 for $10.4 million. At December 31, 2002, this short sale position remained open and the mark-to-market value of such stock resulted in an unrealized loss of $0.3 million. In January 2003, the Company settled this position and recorded a loss of $1.0 million on the transaction.

In October 2003, the Company committed to an investment of $6.0 million in PetroSource Energy Company, LLC (“PetroSource”). The Company’s commitment was to acquire 24.8% of the outstanding stock for a price of $3.0 million and to advance $3.0 million as a subordinated loan bearing 6% interest due in six years. The Company initially purchased $1.8 million in stock and funded $1.8 million of the loan in October 2003. In February 2004, the Company purchased an additional $1.2 million of stock and funded the remaining $1.2 million loan commitment. PetroSource is in the business of selling CO(2) and also owns pipelines and compressor stations for delivery purposes. During 2004, PetroSource sold additional equity shares which reduced the Company’s ownership to 20.63%. The Company recorded losses of $0.1 million, $0.5 million, and $1.1 million in 2003, 2004 and 2005, respectively, as a result of accounting for the PetroSource investment under the equity method. During 2005, the Company invested an additional $0.5 million in PetroSource stock. In December 2005, the Company sold its entire investment in PetroSource, including the subordinate loan, for total proceeds of $10.5 million and recorded a gain of $5.5 million.

In April 2002, the Company entered into a revolving credit commitment to extend advances to an unrelated third party. Under the terms of the revolving credit arrangement, the Company agreed to make advances from time to time, as requested by the unrelated third party and subject to certain limitations, in an amount up to $5.0 million. Advances made under the revolving credit commitment bear interest at prime rate plus 2% and are collateralized by inventory and receivables. As of December 31, 2004, the Company determined that a portion of the total outstanding advances of $1.3 million had been impaired and recorded a loss of $0.8 million. As of December 31, 2005, the Company determined that the majority of the total outstanding advance of $1.27 million had been impaired and recorded an additional loss of $0.5 million bringing the total allowance to $1.26 million. The loss is recorded as an impairment of note receivable and is included in general and administrative expenses.

8.   Restricted Deposits

In connection with the National Offshore transaction, the Company acquired restricted deposits aggregating $23.5 million. The restricted deposits represent bank trust and escrow accounts required to be set up by surety bond underwriters and certain former owners of National Offshore’s offshore properties. In accordance with requirements of the U.S. Department of Interior’s Minerals Management Service (“MMS”), National Offshore was required to put in place surety bonds and/or escrow agreements to provide satisfaction of its eventual responsibility to plug and abandon wells and remove structures when certain offshore fields are no longer in use. As part of National Offshore’s agreement with the surety bond underwriter or the former owners of the particular fields, bank trust and escrow accounts were set up and funded based on the terms of the escrow agreements. Certain amounts are required to be paid upon receipt of proceeds from production.

F-78

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The restricted deposits include the following:

1. A $4.2 million escrow account for the East Breaks 109 and 110 fields set up in favor of the surety bond underwriter who provides a surety bond to the MMS. The escrow account is fully funded as of December 31, 2005.

2. A $6.9 million escrow account for the East Breaks 165 and 209 fields set up in favor of the surety bond underwriter who provides a surety bond to the former owners of the fields and the MMS. The escrow account is fully funded as of December 31, 2005.

3. A $4.1 million escrow account set up in favor of a major oil company. The Company is required to make additional deposits to the escrow account in an amount equal to 10% of the net cash flow (as defined in the escrow agreement) from the properties that were acquired from the major oil company.

4. A $3.8 million escrow account that was required to be set up by the bankruptcy settlement proceedings of National Offshore. The Company is required to make monthly deposits based on cash flows from certain wells, as defined in the agreement.

5. A $5.3 million escrow account required to be set up by the MMS relating to East Breaks properties. The Company is required to make quarterly deposits to the escrow account of $0.8 million. Additionally, for some of the East Break properties, the Company will be required to deposit additional funds in the East Break escrow accounts, representing the difference between the required escrow deposit under the surety bond and actual escrow deposit balance at various points in time in the future. Aggregate payments to the East Breaks escrow accounts are as follows (in thousands):

Year Ended December 31,
2006	$	3,200
2007		6,100
2008		3,200
2009		3,200
2010		5,000
Thereafter		4,000
	$	24,700

9.   Debt

The Company’s debt consists of credit facilities, notes payable, note payable to affiliates and senior notes payable to affiliates.

Credit Facilities

The Operating LLC Credit Facility

On December 29, 2003, Holding LLC entered into a Credit Agreement (the “Mizuho Facility”) with certain commercial lending institutions, including Mizuho Corporate Bank, Ltd. as the Administrative Agent and the Bank of Texas, N.A. and the Bank of Nova Scotia as Co-Agents.

The Credit Agreement provided for a loan commitment amount of up to $145.0 million and a letter of credit commitment of up to $15 million (provided, the outstanding aggregate amount of the unpaid borrowings, plus the aggregate undrawn face amount of all outstanding letters of credit shall not exceed the borrowing base under the Credit Agreement). The Credit Agreement provided further that the amount available to the

F-79

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Operating LLC at any time was subject to certain restrictions, covenants, conditions and changes in the borrowing base calculation. In partial consideration of the loan commitment amount, Operating LLC has pledged a continuing security interest in all of its oil and natural gas properties and its equipment, inventory, contracts, fixtures and proceeds related to its oil and natural gas business.

At Operating LLC’s option, interest on borrowings under the Credit Agreement bear interest at a rate based upon either the prime rate or the LIBOR rate plus, in each case, an applicable margin that, in the case of prime rate loans, can fluctuate from 0.75% to 2.50% per annum. Fluctuations in the applicable interest rate margins are based upon Operating LLC’s total usage of the amount of credit available under the Credit Agreement, with the applicable margins increasing as Operating LLC’s total usage of the amount of the credit available under the Credit Agreement increases.

At the closing of the Credit Agreement, Operating LLC borrowed $43.8 million to repay $42.9 million owed by Operating LLC to an affiliate of Mr. Icahn under the secured loan arrangement which was then terminated and to pay administrative fees in connection with this borrowing. Approximately $1.4 million of loan issuance costs was capitalized in connection with the closing of this transaction.

The Credit Agreement required, among other things, semiannual engineering reports covering oil and natural gas properties, and maintenance of certain financial ratios, including the maintenance of a minimum interest coverage, a current ratio, and a minimum tangible net worth.

NEG Oil & Gas LLC Senior Secured Revolving Credit Facility

On December 22, 2005, the Company entered into a credit agreement, dated as of December 20, 2005, with Citicorp USA, Inc., as administrative agent, Bear Stearns Corporate Lending Inc., as syndication agent, and other lender parties thereto (the “NEG Credit Facility”). The NEG Credit Facility is secured by substantially all the assets of the Company and its subsidiaries, has a five-year term and permits payments and re-borrowings, subject to a borrowing base calculation based on the proved oil and gas reserves of the Company and its subsidiaries. Under the NEG Credit Facility, the Company will be permitted to borrow up to $500 million, and the initial borrowing base is set at $335 million. The Company used a portion of the initial $300 million funding under the NEG Credit Facility to purchase the Mizuho Facility. On a combined basis, the Mizuho Facility is no longer outstanding.

In consideration of each lender’s commitment to make loans under the NEG Credit Facility, the Company is required to pay a quarterly commitment fee ranging from 0.375% to 0.50% of the available borrowing base. Commitment fees are based upon the facility utilization levels.

At the Company’s option, borrowings under the NEG Credit Facility bear interest at Base Rate or Euro Dollar Rate, as defined in the borrowing agreement, plus, in each case, an applicable margin that, in the case of Base Rate loans, can fluctuate from 0.00% to 0.75% per annum, and, in the case of Euro Dollar loans, can fluctuate from 1.00% to 1.75% per annum. Fluctuations in the applicable interest rate margins are based upon the Company’s total usage of the amount of credit available under the NEG Credit Facility, with the applicable margins increasing as the Company’s total usage of the amount of the credit available under the NEG Credit Facility increases. Base Rate and Euro Dollar Rate fluctuate based upon Prime rate or LIBOR, respectively. At December 31, 2005, the interest rate on the outstanding amount under the credit facility was 6.44% and $14.6 million was available for future borrowings.

NEG Credit Facility agreement requires, among other things, semiannual engineering reports covering oil and natural gas properties, limitation on distributions, and maintenance of certain financial ratios, including maintenance of leverage ratio, current ratio and a minimum tangible net worth. The Company was in compliance with all covenants at December 31, 2005.

F-80

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

In addition to purchasing the Mizuho Facility, the Company used the proceeds from the NEG Credit Facility to (1) repay a loan of approximately $85 million by AREP used to purchase properties in the Minden Field; (2) pay a distribution of $78.0 million, and (3) pay transaction costs.

Notes Payable

Notes payable consist of the following (amounts in thousands):

	2004			2005
Notes payable to various prior creditors of National Onshore in settlement of bankruptcy claims. The notes are generally payable over a 30 month period with a stated interest rate of 6%; however, the notes have been discounted to an effective rate of 10%	$	4,320		$	2,503
Note payable — asset acquisition		83			—
Total		4,403			2,503
Less Current maturities		(1,761	)		(2,503	)
	$	2,642		$	—

Notes Payable to Affiliates

Notes payable to affiliates consist of the following (amounts in thousands):

	2004			2005
In connection with the National Onshore plan of reorganization, on August 28, 2003, National Onshore entered into a note agreement with an affiliate of Mr. Icahn. The note is a term loan in the amount of $32.5 million and bears interest at a rate of 10% per annum. Interest is payable semi-annually. Annual principal payments in the amount of $5 million are due on the first through fourth anniversary dates of the note with the final principal payment of $12.5 million due on the fifth anniversary date. The note is secured by substantially all of the assets of National Onshore. On December 6, 2004, AREP purchased the note from the affiliate of Mr. Icahn and on June 30, 2005, contributed the note, excluding accrued and unpaid interest, to the Company	$	27,500		$	—
Note payable to an affiliate of Mr. Icahn arising from the bankruptcy plan of National Offshore. The note bears interest at Wall Street Journal LIBOR plus 4% (6.35% at December 31, 2004) and is payable in quarterly principal installments of $1.4 million plus interest commencing March 31, 2005. The loan was secured by substantially all of the assets of National Offshore. On December 6, 2004, the note was purchased by AREP from an affiliate of Mr. Icahn and on June 30, 2005, the note, excluding accrued and unpaid interest was contributed to the Company		38,000			—
Total		65,500			—
Less Current maturities		(10,429	)		—
	$	55,071		$	—

During 2005, the Company borrowed additional $25.0 million from AREP and repaid $1.4 million. The remaining outstanding balance of $23.6 million, excluding accrued and unpaid interest, along with notes payable detailed above, were contributed to the Company.

F-81

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Advance from Affiliate

During 2005, AREP made unsecured non-interest bearing advance of $49.8 million, payable on demand, to fund their drilling programs as well as to fund derivative contract deposits, of which $39.8 million were outstanding at December 31, 2005. The outstanding balance was repaid in January 2006.

Deferred Loan Costs

The Company capitalized approximately $1.5 million in external direct costs associated with the Credit Agreement which was being amortized (approximately $0.05 million per month) as deferred loan costs. Upon execution of the NEG Credit Facility, the Company expensed the unamortized deferred loan cost of $0.4 million relating to the Mizuho Facility in December 2005.

Additionally, the Company capitalized $4.7 million in external direct costs associated with the NEG Credit Facility executed on December 22, 2005. The deferred costs will be amortized over the term of the facility as additional interest expense.

Five Year Maturities

Aggregate annual maturities of debt for fiscal years 2006 to 2010 are as follows: 2006 — $42.3 million; 2007 — $0 million; 2008 — $0; 2009 — $0; 2010 — $300.0 million.

10.   Income Taxes

National Onshore and National Offshore were organized as corporations until their respective acquisitions by NEG Oil & Gas LLC, and were subject to corporate taxes up until the date of acquisition as part of a tax sharing agreement with the Starfire, Inc. consolidated group. The Company accounts for income taxes of National Onshore and National Offshore according to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

The (provision) benefit for U.S. federal income taxes attributable to continuing operations is as follows (amounts in thousands):

	Year Ended December 31,
	2003			2004			2005
Current	$	(2,338	)	$	(404	)	$	(3	)
Deferred		14,953			144			2,935
	$	12,615		$	(260	)	$	2,932

F-82

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The tax effect of significant differences representing net deferred tax assets (the difference between financial statement carrying values and the tax basis of assets and liabilities) for the Company is as follows (in thousands):

	December 31, 2004
	National			National
	Onshore			Offshore
Deferred tax assets related to:
Net operating loss carryforwards		21,434			14,917
AMT and other credit carryforwards		1,288			610
Property, plant & equipment undeveloped properties		64,945			—
Other, net		2,217			8,289
		89,884			23,816
Less valuation allowance		(49,793	)		—
Subtotal		40,091			23,816
Less current portion		—			(1,943	)
Deferred tax assets	$	40,091		$	21,873
Deferred tax liabilities related to:
Property, plant & equipment developed properties	$	(52,890	)	$	(21,281	)
Deferred tax liabilities		(52,890	)		(21,281	)
Net deferred tax asset/(liabilities)	$	(12,799	)	$	592

At December 31, 2004, after the filing of prior years amended returns, TransTexas Gas Corporation (“TransTexas”) had net operating loss carryforwards of approximately $150.0 million, which begin expiring in 2020. On April 6, 2005, TransTexas merged into National Onshore, a limited partnership, resulting in the treatment of an asset sale for tax purposes and subsequent liquidation into its parent company. Pursuant to the asset sale, TransTexas utilized approximately $75.0 million of its net operating loss carryforwards on its final corporate tax return and the remainder transferred to its parent company in the liquidation. Additionally, upon the TransTexas merger into National Onshore, the net deferred tax liabilities of approximately $9.9 million were credited to equity, in accordance with SFAS 109.

At December 31, 2004, Panaco, Inc. (“Panaco”) had net operating loss carryforwards available for federal income tax purposes of approximately $39.2 million, which begin expiring in 2019. On June 30, 2005, pursuant to the Panaco purchase agreement, Panaco merged into National Offshore LP. The purchase was a non-taxable transaction resulting in the net operating loss carryforwards remaining with the former Panaco shareholders. Additionally, in accordance with SFAS 109, for financial reporting purposes, the net deferred tax assets of approximately $2.6 million were debited to equity.

F-83

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The reconciliation of income taxes computed at the U.S. federal statutory tax rates to the provision (benefit) for income taxes on income from continuing operations is as follows:

	Year Ended December 31,
	2003			2004			2005
Federal statutory rate		35.0	%		35.0	%		35.0	%
Income not subject to taxation		(39.0	)%		(31.2	)%		(44.0	)%
Valuation allowance on deferred tax assets		(45.3	)%		(3.0	)%		—
Other		0.8	%		—			(0.2	)%
		(48.5	)%		0.8	%		(9.2	)%

11.   Commitments and Contingencies

During 2000 and 2001 National Energy Group entered into several hedge contracts with Enron North America Corp (“Enron NAC”). In 2001 Enron Corporation and many Enron Corporation affiliates and subsidiaries, including Enron NAC filed for protection under Chapter 11 of the US bankruptcy code. The derivative contracts were subsequently contributed to Holding LLC and then to Operating LLC. Operating LLC has filed a claim for damages in the Enron NAC bankruptcy proceeding and our designee has been appointed as a representative to the official committee of unsecured creditors. The Company’s claim is unsecured. During 2005, we received $0.2 million in partial settlement of our claims which was recorded in interest income and other. In April 2006, we received an additional payment of $1.0 million and we should receive additional distributions from the Enron bankruptcy proceeding in accordance with its plan of reorganization. We will record such additional payments, if any, when the amounts are known.

Other than routine litigation incidental to its business operations which are not deemed by the Company to be material, there are no additional legal proceedings in which the Company, is a defendant.

Environmental Matters

The Company’s operations and properties are subject to extensive federal, state, and local laws and regulations relating to the generation, storage, handling, emission, transportation, and discharge of materials into the environment. Permits are required for various of the Company’s operations, and these permits are subject to revocation, modification, and renewal by issuing authorities. The Company’s operations are also subject to federal, state, and local laws and regulations that impose liability for the cleanup or remediation of property which has been contaminated by the discharge or release of hazardous materials or wastes into the environment. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines or injunctions, or both. The Company believes that it is in material compliance with applicable environmental laws and regulations. Noncompliance with such laws and regulations could give rise to compliance costs and administrative penalties. Management does not anticipate that the Company will be required in the near future to expend amounts that are material to the financial condition or operations of the Company by reason of environmental laws and regulations, but because such laws and regulations are frequently changed and, as a result, may impose increasingly strict requirements, the Company is unable to predict the ultimate cost of complying with such laws and regulations.

12.   Asset Retirement Obligation

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). The Company adopted SFAS 143 on January 1, 2003 and recorded an abandonment obligation of $3.0 million,

F-84

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

increased oil and natural gas properties $4.9 million and recorded a cumulative transition gain of $1.9 million. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. It also requires the Company to record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The ARO assets are recorded on the balance sheet as part of the Company’s full cost pool and are included in the amortization base for the purposes of calculating depreciation, depletion and amortization expense. For the purpose of calculating the ceiling test, the future cash outflows associated with settling the ARO liability are excluded from the computation of the discounted present value of estimated future net revenues.

The following is a rollforward of the abandonment obligation as of December 31, 2004 and 2005 (amounts in thousands).

Balance as of January 1, 2004	$	6,745
Add: Accretion		593
Drilling additions		216
Panaco		49,538
Less: Revisions		(251	)
Settlements		(24	)
Dispositions		(293	)
Balance as of December 31, 2004	$	56,524
Add: Accretion	$	3,019
Drilling additions		2,067
Less: Revisions		(2,813	)
Settlements		(431	)
Dispositions		(17,138	)
Balance as of December 31, 2005	$	41,228

13.   Severance tax refund

During 2002, the Company applied for “high-cost/tight-gas formation” designation from the Railroad Commission of Texas for a portion of the Company’s South Texas production. For qualifying wells, “high-cost/tight-gas formation” production is either exempt from tax or taxed at a reduced rate until certain capital costs are recovered. The designation was approved in 2004 and was retroactive to the date of initial production. During 2004, the Company recognized a gain of approximately $4.5 million for the refund of prior period severance taxes, for which the Company’s severance tax payments were reduced by approximately $3.2 million. At December 31, 2004, accounts receivable includes $1.3 million in prior period severance tax refunds all of which was realized as reductions in severance tax payments in 2005.

F-85

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

14.   Crude Oil and Natural Gas Producing Activities

Costs incurred in connection with the exploration, development, and exploitation of the Company’s crude oil and natural gas properties for the years ended December 31, 2003, 2004 and 2005 are as follows (amounts in thousands except depletion rate per Mcfe):

	Year Ended December 31,
	2003		2004		2005
Acquisition of properties	$	—	$	—	$	114,244
Properties contributed by member		186,289		128,673		—
Exploration costs		6,950		62,209		75,357
Development costs		34,012		52,765		124,305
Depletion rate per Mcfe	$	1.85	$	2.11	$	2.33

As of December 31, 2004 and 2005, all capitalized costs are included in the full cost pool and are subject to amortization.

Revenues from individual purchasers that exceed 10% of crude oil and natural gas sales are as follows:

	Year Ended December 31,
	2003		2004		2005
Plains All American	$	15,667	$	19,857	$	41,345
Duke Energy		10,572		33,958		44,850
Kinder Morgan		5,787		18,005		14,402
Crosstex Energy Services, Inc.		9,228		5,081		22,790
Riata Energy, Inc.		30,672		29,846		52,300
Seminole Energy Services		7,216		19,568		27,315
Louis Dreyfus		—		—		26,790

15.   Supplementary Crude Oil and Natural Gas Reserve Information (Unaudited)

The revenues generated by the Company’s operations are highly dependent upon the prices of, and demand for, oil and natural gas. The price received by the Company for its oil and natural gas production depends on numerous factors beyond the Company’s control, including seasonality, the condition of the U.S. economy, foreign imports, political conditions in other oil and natural gas producing countries, the actions of the Organization of Petroleum Exporting Countries and domestic governmental regulations, legislation and policies.

The Company has made ordinary course capital expenditures for the development and exploitation of oil and natural gas reserves, subject to economic conditions. The Company has interests in crude oil and natural gas properties that are principally located onshore in Texas, Louisiana, Oklahoma, Arkansas, Gulf Coast and offshore in the Gulf of Mexico. The Company does not own or lease any crude oil and natural gas properties outside the United States.

In 2003 and 2004, estimates of the Company’s reserves and future net revenues were prepared by Netherland, Sewell & Associates, Inc., Prator Bett, LLC and DeGolyer and MacNaughton. In 2005, estimates of the Company’s reserves and future net revenues were prepared by Netherland, Sewell & Associates, Inc. and DeGolyer and MacNaughton. Estimated proved net recoverable reserves as shown below include only those quantities that can be expected to be recoverable at prices and costs in effect at the balance sheet dates under existing regulatory practices and with conventional equipment and operating methods.

F-86

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

In 2003, extension and discovery reserve additions were largely impacted by the successful drilling on the Longfellow Ranch. Drilling on the Longfellow Ranch in 2003 extended field producing boundaries as well as identifying deeper Caballos and Devonian reservoirs not previously captured as proved reserves. The drilling program in 2004 had continued success in the Longfellow Ranch Area extending field boundaries along with the discovery of two new fields. The East Texas Region in 2004 extended producing boundaries adding proved reserves for the Cotton Valley Reservoir. A new field discovery in the Gulf Coast area resulted in new reserves along with three extension wells. In 2005, continued drilling in the West Texas Region, Longfellow Ranch, and the East Texas Region, Cotton Valley development resulted in 86% of the added extension and discovery gas reserves. Changes in reserves associated with development drilling have been accounted for in revisions of previous estimates.

Proved developed reserves represent only those reserves expected to be recovered through existing wells. Proved undeveloped reserves include those reserves expected to be recovered from new wells on undrilled acreage or from existing wells on which a relatively major expenditure is required for recompletion.

Net quantities of proved developed and undeveloped reserves of natural gas and crude oil, including condensate and natural gas liquids, are summarized as follows:

	Crude Oil			Natural Gas
	(MBbl)			( MMcf)
December 31, 2002		5,209			122,567
Reserves of TransTexas contributed by member		1,120			41,441
Sales of reserves in place		(25	)		(744	)
Extensions and discoveries		494			61,638
Revisions of previous estimates		2,344			(2,729	)
Production		(976	)		(15,913	)
December 31, 2003		8,166			206,260
Reserves of Panaco contributed by member		5,204			25,982
Sales of reserves in place		(16	)		(344	)
Extensions and discoveries		524			50,226
Revisions of previous estimates		204			9,810
Production		(1,484	)		(18,895	)
December 31, 2004		12,598			273,039
Purchase of reserves in place		483			94,937
Sales of reserves in place		(625	)		(7,426	)
Extensions and discoveries		743			79,592
Revisions of previous estimates		495			17,015
Production		(1,790	)		(28,107	)
December 31, 2005		11,904			429,050
Proved developed reserves:
December 31, 2003		6,852			125,765
December 31, 2004		8,955			151,452
December 31, 2005		8,340			200,520

F-87

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Reservoir engineering is a subjective process of estimating the volumes of underground accumulations of oil and natural gas which cannot be measured precisely. The accuracy of any reserve estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Reserve estimates prepared by other engineers might differ from the estimates contained herein. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimate. Future prices received for the sale of oil and natural gas may be different from those used in preparing these reports. The amounts and timing of future operating and development costs may also differ from those used. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered.

The following is a summary of a standardized measure of discounted net cash flows related to the Company’s proved crude oil and natural gas reserves. For these calculations, estimated future cash flows from estimated future production of proved reserves were computed using crude oil and natural gas prices as of the end of each period presented. Future development, production and net asset retirement obligations attributable to the proved reserves were estimated assuming that existing conditions would continue over the economic lives of the individual leases and costs were not escalated for the future.

The Company cautions against using the following data to determine the fair value of its crude oil and natural gas properties. To obtain the best estimate of fair value of the crude oil and natural gas properties, forecasts of future economic conditions, varying discount rates, and consideration of other than proved reserves would have to be incorporated into the calculation. In addition, there are significant uncertainties inherent in estimating quantities of proved reserves and in projecting rates of production that impair the usefulness of the data.

The standardized measure of discounted future net cash flows relating to proved crude oil and natural gas reserves are summarized as follows (amounts in thousands):

	December 31,
	2004			2005
Future cash inflows	$	2,203,900		$	4,891,094
Future production costs		(488,473	)		(1,029,393	)
Future development costs		(347,619	)		(527,399	)
Future income tax expense		(32,979	)		—
Future net cash flows		1,334,829			3,334,302
10% annual discount for estimated timing of cash flows		(563,549	)		(1,562,242	)
Standardized measure of discounted future net cash flows	$	771,280		$	1,772,060

F-88

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

The following are the principal sources of change in the standardized measure of discounted future net cash flows (amounts in thousands):

	Year Ended December 31,
	2003			2004			2005
Beginning of Period	$	310,632		$	613,752		$	771,280
Purchases of reserves		—			—			415,208
Contribution of reserves by member		101,804			75,239			—
Sales of reserves in place		(2,476	)		(1,375	)		(34,820	)
Sales and transfers of crude oil and natural gas produced, net of production costs		(74,186	)		(130,640	)		(205,838	)
Net changes in prices and production costs		76,655			16,686			408,909
Development costs incurred during the period and changes in estimated future development costs		(76,545	)		(89,491	)		(150,639	)
Extensions and discoveries, less related costs		211,324			193,022			411,092
Income taxes		—			—			24,097
Revisions of previous quantity estimates		37,718			31,730			68,937
Accretion of discount		34,457			62,050			77,128
Changes in production rates (timing) and other		(5,631	)		307			(13,294	)
Net change		303,120			157,528			1,000,780
End of Period	$	613,752		$	771,280		$	1,772,060

During recent years, there have been significant fluctuations in the prices paid for crude oil in the world markets. The net weighted average prices of crude oil and natural gas at December 31, 2003, 2004 and 2005, used in the above table were $29.14 and $41.80 and $57.28 per barrel of crude oil, respectively, and $5.89, $5.93 and $9.59 per thousand cubic feet of natural gas, respectively.

F-89

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND SEPTEMBER 30, 2006

	December 31,			September 30,
	2005			2006
				(Unaudited)
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	102,322		$	26,362
Accounts receivable, net		53,378			53,436
Notes receivable		10			9
Drilling prepayments		3,281			3,755
Derivative financial instruments		—			14,158
Other		9,798			5,788
Total current assets		168,789			103,508
Oil and gas properties, at cost (full cost method)		1,229,923			1,409,776
Accumulated depreciation, depletion and amortization		(488,560	)		(562,635	)
Net oil and gas properties		741,363			847,141
Other property and equipment		6,029			6,232
Accumulated depreciation		(4,934	)		(5,173	)
Net other property and equipment		1,095			1,059
Restricted deposits		24,267			30,713
Derivative financial instruments		—			15,787
Other assets		4,842			8,296
Total assets	$	940,356		$	1,006,504
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Accounts payable	$	18,105		$	20,058
Accounts payable — revenue		11,454			9,759
Accounts payable — affiliates		1,660			1,569
Current portion of notes payable		2,503			—
Advance from affiliate		39,800			—
Prepayments from partners		121			823
Accrued interest		162			61
Accrued interest — affiliates		2,194			2,194
Income tax payable — affiliate		2,749			2,749
Derivative financial instruments		68,039			—
Total current liabilities		146,787			37,213
Commitments and contingencies
Credit facility		300,000			300,000
Gas balancing		1,108			1,108
Derivative financial instruments		17,893			—
Other liabilities		250			250
Deferred income tax liability		—			2,128
Asset retirement obligation		41,228			47,609
Total liabilities		507,266			388,308
Member’s equity		433,090			618,196
Total liabilities and member’s equity	$	940,356		$	1,006,504

The accompanying notes are an integral part of these combined financial statements.

F-90

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC. AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC.,
BUT INCLUDING NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST
IN NEG HOLDING LLC

COMBINED STATEMENTS OF OPERATIONS

Nine Month Periods Ended September 30, 2005 and 2006

	Nine Months Ended
	September 30,
	2005			2006
	(Unaudited)
	(In thousands)
Revenues:
Oil and gas sales — gross	$	193,633		$	208,800
Unrealized derivatives (losses) gains		(111,631	)		115,877
Oil and gas revenues — net		82,002			324,677
Plant revenues		4,707			5,799
Total revenues		86,709			330,476
Costs and expenses:
Lease operating		19,632			26,817
Transportation and gathering		3,764			3,441
Plant and field operations		2,644			3,270
Production and ad valorem taxes		11,184			8,948
Depreciation, depletion and amortization		65,756			74,408
Accretion of asset retirement obligation		2,290			2,112
General and administrative		10,651			10,281
Total costs and expenses		115,921			129,277
Operating income (loss)		(29,212	)		201,199
Interest expense		(4,856	)		(16,738	)
Interest expense — affiliate		(3,047	)		—
Interest income and other		185			4,788
Income (loss) before income taxes		(36,930	)		189,249
Income tax benefit (expense)		2,932			(2,143	)
Net income (loss)	$	(33,998	)	$	187,106

The accompanying notes are an integral part of these combined financial statements.

F-91

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

COMBINED STATEMENTS OF CASH FLOWS

Nine Month Periods Ended September 30, 2005 and 2006

	Nine Months Ended
	September 30,
	2005			2006
	(Unaudited)
	(In thousands)
Operating activities:
Net income (loss)	$	(33,998	)	$	187,106
Noncash adjustments:
Deferred income tax expense (benefit)		(2,932	)		2,128
Depreciation, depletion and amortization		65,756			74,408
Unrealized derivative losses (gains)		111,631			(115,877	)
Accretion of asset retirement obligation		2,290			2,112
Amortization of note discount		66			27
Equity in loss on investment		917			—
Interest income-restricted deposits		(265	)		(616	)
Amortization of note costs		527			773
Gain on sale of assets		(9	)		(2	)
Changes in operating assets and liabilities:
Accounts receivable		(9,270	)		(212	)
Drilling prepayments		(1,616	)		(475	)
Derivative deposit		(64,068	)		—
Other assets		2,369			3,920
Accounts payable and accrued liabilities		(7,605	)		1,013
Net cash provided by operating activities		63,793			154,305
Investing activities:
Acquisition, exploration, and development costs		(183,479	)		(175,619	)
Proceeds from sales of oil and gas properties		679			37
Purchases of furniture, fixtures and equipment		(398	)		(293	)
Equity investment		(454	)		—
Investment in restricted deposits		(3,538	)		(5,832	)
Net cash used in investing activities		(187,190	)		(181,707	)
Financing activities:
Debt issuance costs		—			(573	)
Guaranteed payment to member		(7,989	)		(7,989	)
Equity contribution		—			7,989
Proceeds from/repayment of affiliate borrowings		73,443			(39,800	)
Dividend payment to member		—			(2,000	)
Proceeds from credit facility		59,100			—
Principal payments on debt		(1,554	)		(2,530	)
Deferred equity costs		—			(3,655	)
Net cash provided by (used in) financing activities		123,000			(48,558	)
Decrease in cash and cash equivalents		(397	)		(75,960	)
Cash and cash equivalents at beginning of period		30,846			102,322
Cash and cash equivalents at end of period	$	30,449		$	26,362
Supplemental cash flow information:
Cash paid for interest	$	13,205		$	16,052

The accompanying notes are an integral part of these combined financial statements.

F-92

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

COMBINED STATEMENT OF CHANGES IN TOTAL MEMBER’S EQUITY
Nine Month Period Ended September 30, 2006
(2006 Amounts Unaudited)

	(In thousands)
Total member’s equity — December 31, 2005	$	433,090
Dividend distribution		(2,000	)
Equity contribution		7,989
Guaranteed payment to member		(7,989	)
Net income		187,106
Total member’s equity — September 30, 2006	$	618,196

The accompanying notes are an integral part of these combined financial statements.

F-93

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)

1.   Organization, Basis of Presentation and Background

The accompanying combined financial statements present NEG Oil & Gas LLC and subsidiaries excluding National Energy Group, Inc., and the 103/4% Senior Notes due from National Energy Group, Inc., but including National Energy Group, Inc.’s 50% interest in NEG Holding LLC (collectively “the Company”). The Company is an oil and gas exploration and production company engaged in the exploration, development, production and operations of natural gas and oil properties, primarily located in Texas, Oklahoma, Arkansas and Louisiana (both onshore and in the Gulf of Mexico).

NEG Oil & Gas, LLC is wholly-owned by American Real Estate Holdings Limited Partnership (“AREH”). AREH is 99% owned by American Real Estate Partners, L.P. (“AREP”). AREP is a publicly traded limited partnership that is majority owned by Mr. Carl C. Icahn.

NEG Oil & Gas LLC was formed on December 2, 2004 to hold the oil and gas investments of the Company’s ultimate parent company, AREP. As of September 30, 2006 the Company’s assets and operations consist of the following:

•  A 50.01% ownership interest in National Energy Group, Inc (National Energy Group), a publicly traded oil and gas management company. National Energy Group’s principal asset consists of its 50% membership interest in NEG Holding LLC (Holding, LLC);

•  $148.6 million principal amount of 103/4% Senior Notes due from National Energy Group (the “103/4% Senior Notes”).

•  A 50% managing membership interest in Holding, LLC;

•  The oil and gas operations of National Onshore LP; and

•  The oil and gas operations of National Offshore LP.

All of the above assets initially were acquired by entities owned or controlled by Mr. Icahn and subsequently acquired by AREP (through subsidiaries) in various purchase transactions. In accordance with generally accepted accounting principles, assets transferred between entities under common control are accounted for at historical cost similar to a pooling of interest and the financial statements are combined from the date of acquisition by an entity under common control. The financial statements include the results of operations, financial position and cash flows of each of the above entities since its initial acquisition by entities owned or controlled by Mr. Icahn (the “Period of Common Control”).

On September 7, 2006, AREP signed a letter of intent to sell NEG Oil & Gas LLC and subsidiaries, excluding National Energy Group and the 103/4% Senior Notes due from National Energy Group, but including National Energy Group’s 50% interest in Holding LLC to Riata Energy, Inc., DBA Riata Energy, Inc. (“Riata Energy”) The combined financial statements include the entities to be sold to Riata Energy.

Basis of Presentation

The accompanying unaudited combined interim financial statements have been prepared in accordance both with accounting principles generally accepted in the United States of America for interim financial information, and Article 10 of Regulation S-X and are fairly presented. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash

F-94

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

flows for the periods indicated. The preparation of financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. Our financial data for the nine month periods ended September 30, 2005 and 2006 should be read in conjunction with our audited financial statements for the year ended December 31, 2005 including the notes thereto.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” of being sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is greater than 50 percent likely of being recognized upon ultimate settlement with the taxing authority, is recorded. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how to evaluate prior period financial statement misstatements for purposes of assessing their materiality in the current period. If the prior period effect is material to the current period, then the prior period is required to be corrected. Correcting prior year financial statements would not require an amendment of prior year financial statements, but such corrections would be made the next time the company files the prior year financial statements. Upon adoption, SAB 108 allows a one-time transitional cumulative effect adjustment to retained earnings for corrections of prior period misstatements required under this statement. SAB 108 is effective for fiscal years beginning after November 15, 2006. The adoption of SAB 108 is not expected to be material to the Company’s consolidated financial statements.

Background

National Energy Group, Inc — In February, 1999 National Energy Group was placed under involuntary, court ordered bankruptcy protection. Effective August 4, 2000 National Energy Group emerged from involuntary bankruptcy protection with affiliates of Mr. Icahn owning 49.9% of the common stock and $165 million principal amount of debt securities (“Senior Notes”). As mandated by National Energy Group’s Plan of Reorganization, Holding LLC was formed and on September 1, 2001, National Energy Group contributed to Holding LLC all of its oil and natural gas properties in exchange for an initial membership interest in Holding LLC. National Energy Group retained $4.3 million in cash. On September 1, 2001, an affiliate of Mr. Icahn contributed to Holding LLC oil and natural gas assets, cash and a $10.9 million note receivable from National Energy Group in exchange for the remaining membership interest, which was designated the managing membership interest. Concurrently, in September, 2001, but effective as of May 2001, Holding LLC formed a 100% owned subsidiary, NEG Operating Company, LLC (“Operating LLC”) and contributed all of its oil and natural gas assets to Operating LLC.

In October 2003, AREP acquired all outstanding Senior Notes ($148.6 million principal amount at October 2003) and 5,584,044 shares of common stock of National Energy Group from entities affiliated with Mr. Icahn for aggregate consideration of approximately $148.1 million plus approximately $6.7 million of accrued interest on the Senior Notes. As a result of this transaction and the acquisition by AREP of additional

F-95

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

shares of National Energy Group, AREP beneficially owned 50.01% of the outstanding stock of National Energy Group and had effective control. In June 2005, all of the stock of National Energy Group and the $148.6 million principal amount of Senior Notes owned by AREP was contributed to the Company and National Energy Group became a 50.01% owned subsidiary. The accrued, but unpaid interest on the $148.6 million principal amount of Senior Notes was retained by AREP. National Energy Group and the 103/4% Senior Notes will be retained by AREP.

NEG Holding LLC — On June 30, 2005, AREP acquired the managing membership interest in Holding LLC from an affiliate of Mr. Icahn for an aggregate consideration of approximately $320 million and contributed it to the Company. The membership interest acquired constituted all of the membership interests other than the membership interest already owned by National Energy Group. The combined financial statements include the consolidation of the acquired 50% membership interest in Holding LLC, together with the 50% membership interest owned by National Energy Group. The Period of Common Control for Holding LLC began on September 1, 2001, the initial funding of Holding LLC.

The Holding LLC Operating Agreement

Holding LLC is governed by an operating agreement effective May 12, 2001, which provides for management and control of Holding LLC by the Company and distributions to National Energy Group and the Company based on a prescribed order of distributions (the “Holding LLC Operating Agreement”).

Order of Distributions

Pursuant to the Holding LLC Operating Agreement, distributions from Holding LLC to National Energy Group and the Company shall be made in the following order:

1. Guaranteed payments (“Guaranteed Payments”) are to be paid to National Energy Group, calculated on an annual interest rate of 103/4% on the outstanding priority amount (“Priority Amount”). The Priority Amount includes all outstanding debt owed to NEG Oil & Gas, including the amount of National Energy Group’s 103/4% Senior Notes. As of December 31, 2005, the Priority Amount was $148.6 million. The Guaranteed Payments will be made on a semi-annual basis.

2. The Priority Amount is to be paid to National Energy Group. Such payment is to occur by November 6, 2006. This did not occur November 6, 2006 due to the pending transaction with Riata Energy as described above.

3. An amount equal to the Priority Amount and all Guaranteed Payments paid to National Energy Group, plus any additional capital contributions made by NEG Oil & Gas, less any distributions previously made by Holding LLC to NEG Oil & Gas, is to be paid to NEG Oil & Gas.

4. An amount equal to the aggregate annual interest (calculated at prime plus 1/2% on the sum of the Guaranteed Payments), plus any unpaid interest for prior years (calculated at prime plus 1/2% on the sum of the Guaranteed Payments), less any distributions previously made by Holding LLC to NEG Oil & Gas, is to be paid to NEG Oil & Gas.

5. After the above distributions have been made, any additional distributions will be made in accordance with the ratio of NEG Oil & Gas and National Energy Group’s respective capital accounts. (Capital accounts as defined in the Holding LLC Operating Agreement.)

F-96

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Redemption Provision in the Holding LLC Operating Agreement

The Holding LLC Operating Agreement contains a provision that allows the managing member (NEG Oil & Gas), at any time, in its sole discretion, to redeem National Energy Group’s membership interest in Holding LLC at a price equal to the fair market value of such interest determined as if Holding LLC had sold all of its assets for fair market value and liquidated.

Prior to closing the Riata Energy purchase transaction, AREP will cause NEG Oil & Gas to exercise the redemption provision and dividend the 103/4% Senior Notes to AREP or enter into transactions with a similar effect such that NEG Oil & Gas will own 100% of Holding LLC and no longer own the 103/4% Senior Notes receivable from National Energy Group. AREP will indemnify NEG Oil & Gas for any costs associated with the exercise of the redemption provision. The Holding LLC Operating Agreement will be cancelled.

National Onshore LP — On November 14, 2002, National Onshore filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. National Onshore’s First Amended Joint Plan of Reorganization submitted by an entity affiliated with Mr. Icahn, as modified on July 8, 2003 (the “National Onshore Plan”), was confirmed by the Bankruptcy Court on August 14, 2003 effective August 28, 2003.

As of the effective date of the National Onshore Plan, an entity affiliated with Mr. Icahn owned 89% of the outstanding shares of National Onshore. During June 2004, the entity affiliated with Mr. Icahn acquired an additional 5.7% of the outstanding shares of National Onshore from certain other shareholders. During December 2004, National Onshore acquired the remaining 5.3% of the outstanding shares that were not owned by an affiliate of Mr. Icahn. The difference between the purchase price for both acquisitions and the minority interest liability was treated as a purchase price adjustment which reduced the full cost pool.

On December 6, 2004, AREP purchased from an affiliate of Mr. Icahn $27.5 million aggregate principal amount, or 100%, of the outstanding term notes issued by National Onshore (the “National Onshore Notes”). The purchase price was $28.2 million, which equaled the principal amount of the National Onshore Notes plus accrued unpaid interest. The notes are payable annually in equal consecutive annual payments of $5.0 million, with the final installment due August 28, 2008. Interest is payable semi-annually in February and August at the rate of 10% per annum.

On April 6, 2005, AREP acquired 100% of the outstanding stock of National Onshore from entities owned by Mr. Icahn for an aggregate consideration of $180 million. The operations of National Onshore are considered to have been contributed to the Company on August 28, 2003 at a historical cost of approximately $116.3 million, representing the historical basis in the assets and liabilities of National Onshore of the entities owned by Mr. Icahn. AREP contributed The National Onshore Notes, but not the accrued and unpaid interest through the date of contribution, to the Company on June 30, 2005. The Period of Common Control of National Onshore began on August 28, 2003.

National Offshore LP — On July 16, 2002, National Offshore filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court of the Southern District of Texas. On November 3, 2004, the Bankruptcy Court entered a confirmation order for the National Offshore’s Plan of Reorganization (the “National Offshore Plan”). The National Offshore Plan became effective November 16, 2004 and National Offshore began operating as a reorganized entity. Upon emergence from bankruptcy, an entity controlled by Mr. Icahn owned 100% of the outstanding common stock of National Offshore.

On December 6, 2004, AREP purchased $38.0 million aggregate principal amount of term loans issued by National Offshore, which constituted 100% of the outstanding term loans of National Offshore from an

F-97

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

affiliate of Mr. Icahn. On June 30, 2005, AREP contributed the National Offshore term loan, but not the accrued and unpaid interest through the date of contribution, to the Company.

On June 30, 2005, AREP acquired 100% of the equity of National Offshore from affiliates of Mr. Icahn for consideration valued at approximately $125.0 million. The Period of Common Control for National Offshore began on November 16, 2004 when National Offshore emerged from bankruptcy. The acquisition of National Offshore has been recorded effective December 31, 2004. The historical cost of approximately $91.6 million, representing the historical basis in the assets and liabilities of National Offshore of the affiliates of Mr. Icahn, was considered to have been contributed to the Company on December 31, 2004.

2.   Management Agreements

The management and operation of Operating LLC is being undertaken by National Energy Group pursuant to the Management Agreement (the “Operating LLC Management Agreement”) which Operating LLC entered into with National Energy Group. However, neither National Energy Group’s officers nor directors control the strategic direction of Operating LLC’s oil and natural gas business, including oil and natural gas drilling and capital investments, which are controlled by the managing member of Holding LLC (NEG Oil & Gas). The Operating LLC management agreement provides that National Energy Group will manage Operating LLC’s oil and natural gas assets and business until the earlier of December 15, 2006 (previously November 1, 2006, before the amendment of such agreement effective October 30, 2006) or such time as Operating LLC no longer owns any of the managed oil and natural gas properties. National Energy Group’s employees conduct the day-to-day operations of Operating LLC’s oil and natural gas business, and all costs and expenses incurred in the operation of the oil and natural gas properties are borne by Operating LLC, although the Operating LLC Management Agreement provides that the salary of National Energy Group’s Chief Executive Officer shall be 70% attributable to the managed oil and natural gas properties, and the salaries of each of the General Counsel and Chief Financial Officer shall be 20% attributable to the managed oil and natural gas properties. In exchange for National Energy Group’s management services, Operating LLC pays National Energy Group a management fee equal to 115% of the actual direct and indirect administrative and reasonable overhead costs that National Energy Group incurs in operating the oil and natural gas properties. National Energy Group or Operating LLC may seek to change the management fee to within the range of 110%-115% as such change is deemed warranted. However, both have agreed to consult with each other to ensure that such administrative and reasonable overhead costs attributable to the managed properties are properly reflected in the management fee that is paid. In addition, Operating LLC has agreed to indemnify National Energy Group to the extent National Energy Group incurs any liabilities in connection with National Energy Group’s operation of the assets and properties of Operating LLC, except to the extent of National Energy Group’s gross negligence or misconduct. Operating LLC incurred $3.7 million and $5.5 million in general and administrative expenses for the nine month periods ended September 30, 2005 and 2006, respectively under this agreement.

On August 28, 2003, National Energy Group entered into a management agreement to manage the oil and natural gas business of National Onshore. The National Onshore management agreement was entered in connection with a plan of reorganization for National Onshore proposed by Thornwood Associates LP, an entity affiliated with Carl C. Icahn (the “National Onshore Plan”). On August 28, 2003, the United States Bankruptcy Court, Southern District of Texas, issued an order confirming the National Onshore Plan. NEG Oil & Gas owns all of the reorganized National Onshore, which is engaged in the exploration, production and transmission of oil and natural gas, primarily in South Texas, including the Eagle Bay field in Galveston Bay, Texas and the Southwest Bonus field located in Wharton County, Texas. Bob G. Alexander and Philip D. Devlin, National Energy Group’s President and CEO, and National Energy Group’s Vice President, Secretary and General Counsel, respectively, have been appointed to the reorganized National Onshore Board of Directors

F-98

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

and act as the two principal officers of National Onshore and its subsidiaries, Galveston Bay Pipeline Corporation and Galveston Bay Processing Corporation. Randall D. Cooley, National Energy Group’s Vice President and CFO, has been appointed Treasurer of reorganized National Onshore and its subsidiaries.

The National Onshore Management Agreement provides that National Energy Group shall be responsible for and have authority with respect to all of the day-to-day management of National Onshore business, but will not function as a Disbursing Agent as such term is defined in the National Onshore Plan. As consideration for National Energy Group services in managing the National Onshore business, National Energy Group receives a monthly fee of $0.3 million. The National Onshore Management Agreement is terminable (i) upon 30 days prior written notice by National Onshore, (ii) upon 90 days prior written notice by National Energy Group, (iii) upon 30 days following any day where High River designees no longer constitute the National Onshore Board of Directors, unless otherwise waived by the newly-constituted Board of Directors of National Onshore, or (iv) as otherwise determined by the Bankruptcy Court. The Company recorded $3.5 million and $3.6 million in general and administrative expenses for the nine month periods ended September 30, 2005 and 2006, respectively, under this agreement.

On November 3, 2004, the United States Bankruptcy Court for the Southern District of Texas issued an order effective November 16, 2004 confirming a plan of reorganization for National Offshore (“National Offshore Plan”). In connection with the National Offshore Plan, National Energy Group entered into a Management Agreement with National Offshore (the “National Offshore Management Agreement”) pursuant to the Bankruptcy Court’s order confirming the effective date of the National Offshore Plan. NEG Oil & Gas owns all of the reorganized National Offshore. Mr. Bob G. Alexander, National Energy Group’s President and CEO, has been appointed to the reorganized National Offshore Board of Directors and acts as the reorganized National Offshore’s President. Mr. Philip D. Devlin, National Energy Group’s Vice President, General Counsel and Secretary, has been appointed to serve in the same capacities for National Offshore. Mr. Randall D. Cooley, National Energy Group’s Vice President and CFO, has been appointed as Treasurer of the reorganized National Offshore. In exchange for management services, National Energy Group receives a monthly fee equal to 115% of the actual direct and indirect administrative overhead costs that are incurred in operating and administering the National Offshore oil and natural gas properties. The Company recorded $2.9 million and $4.1 million in general and administrative expenses for the nine month periods ended September 30, 2005 and 2006, respectively, under this agreement.

Substantially concurrent with the Riata Energy purchase transaction the management agreements will be terminated.

3.   Derivatives

From time to time, the Company enters into various derivative instruments consisting principally of no cost collar options (the “Derivative Contracts”) to reduce its exposure to price risk in the spot market for natural gas and oil. The Company follows Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which was amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. These pronouncements established accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. The Company elected not to designate these instruments as hedges for accounting purposes, accordingly the cash settlements and valuation gains and losses are included in oil and

F-99

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

natural gas sales. The following summarizes the cash settlements and valuation gains and losses for the nine month periods ended September 30, 2005 and 2006 (amounts in thousands):

	Nine Months Ended
	September 30,
	2005			2006
Realized loss — (net cash payments)	$	(19,486	)	$	(25,014	)
Unrealized gain (loss)		(111,631	)		115,877
Gain (loss) on Derivative Contracts	$	(131,117	)	$	90,863

The following is a summary of the Company’s Derivative Contracts as of September 30, 2006:

Type of Contract	Production Month		Volume per Month		Floor		Ceiling
No cost collars		Oct-Dec 2006		31,000 BBLS	$	41.65	$	45.25
No cost collars		Oct-Dec 2006		16,000 Bbls		41.75		45.40
No cost collars		Oct-Dec 2006		570,000 MMBTU		6.00		7.25
No cost collars		Oct-Dec 2006		120,000 MMBTU		6.00		7.28
No cost collars		Oct-Dec 2006		500,000 MMBTU		4.50		5.00
No cost collars		Oct-Dec 2006		46,000 Bbls		60.00		68.50
(The Company participates in a second ceiling at $84.50 on the 46,000 Bbls)
No cost collars		Jan-Dec 2007		30,000 Bbls		57.00		70.50
No cost collars		Jan-Dec 2007		30,000 Bbls		57.50		72.00
No cost collars		Jan-Dec 2007		930,000 MMBTU		8.00		10.23
No cost collars		Jan-Dec 2007		1,000 Bbls		65.00		87.40	(A)
No cost collars		Jan-Dec 2007		7,000 Bbls		65.00		86.00	(A)
No cost collars		Jan-Dec 2007		330,000 MMBTU		9.60		12.10	(A)
No cost collars		Jan-Dec 2007		100,000 MMBTU		9.55		12.60	(A)
No cost collars		Jan-Dec 2008		46,000 Bbls		55.00		69.00
No cost collars		Jan-Dec 2008		750,000 MMBTU		7.00		10.35
No cost collars		Jan-Dec 2008		9,000 Bbls		65.00		81.25	(A)
No cost collars		Jan-Dec 2008		70,000 MMBTU		8.75		11.90	(A)
No cost collars		Jan-Dec 2008		270,000 MMBTU		8.80		11.45	(A)
No cost collars		Jan-Dec 2009		19,000 Bbls		65.00		78.50	(A)
No cost collars		Jan-Dec 2009		26,000 Bbls		65.00		77.00	(A)
No cost collars		Jan-Dec 2009		330,000 MMBTU		7.90		10.80	(A)
No cost collars		Jan-Dec 2009		580,000 MMBTU		7.90		11.00	(A)

(A) On October 17, 2006 the Company terminated the derivative contract. See Note 12.

While the use of derivative contracts can limit the downside risk of adverse price movements, it may also limit future gains from favorable movements. The Company addresses market risk by selecting instruments whose value fluctuations correlate strongly with the underlying commodity. Credit risk related to derivative activities is managed by requiring minimum credit standards for counter parties, periodic settlements, and mark to market valuations.

F-100

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

A liability of $85.9 million (including a current liability of $68.0 million) and an asset of $29.9 million (including a current asset of $14.1 million) was recorded by the Company as of December 31, 2005 and September 30, 2006, respectively, in connection with these contracts. As of December 31, 2004, the Company had issued $11.0 million in letters of credit securing the Company’s derivative position. During 2005, the Company was required to provide security to counter parties for its Derivative Contracts in loss positions.

On December 22, 2005, concurrent with the execution of the company’s new credit facility the Company novated all of Derivative Contracts with Shell Trading (US) outstanding as of that date with identical Derivative Contracts with Citicorp (USA), Inc. as the counter party. Under this transaction, no contracts were settled, Citicorp (USA) replaced Shell Trading (US) as the counterparty and no gain or loss was recorded. Under the new credit facility, Derivatives Contracts with certain lenders under the credit facility do not require cash collateral or letters of credit and rank pari passu with the credit facility. All cash collateral and letters of credit have been released as of December 31, 2005.

As a condition to closing the Riata purchase transaction, all derivatives contracts will be terminated or assumed by AREP. See Note 12.

4.   Acquisitions

On July 10, 2006, we acquired an additional interest in our East Breaks 160 offshore block from BP America for approximately $14.1 million which increased our interest in East Breaks to approximately 66%. As a condition to closing the acquisition, we were required to issue a $16.0 million letter of credit to BP America to collaterize the potential plugging and abandonment liability associated with the offshore block. The purchase price was paid from cash on hand.

In March 2005, the Company purchased an additional interest in Longfellow Ranch for $31.9 million.

In October 2005, the Company executed a purchase and sale agreement to acquire Minden Field assets near its existing production properties in East Texas. This acquisition consists of 3,500 acres with 17 producing wells and numerous drilling opportunities. The purchase price was approximately $85.0 million, which was subsequently reduced to $82.3 million after purchase price adjustments, and the transaction closed on November 8, 2005.

5.   Sale of West Delta Properties

In March 2005, the Company sold its rights and interest in West Delta 52, 54, and 58 to a third party in exchange for the assumption of existing future asset retirement obligations on the properties and a cash payment of $0.5 million. The estimated fair value of the asset retirement obligations assumed by the purchaser was approximately $16.8 million. In addition, the Company transferred to the purchaser approximately $4.7 million in an escrow account that the Company had funded relating to the asset retirement obligations on the properties. The full cost pool was reduced by approximately $11.6 million and no gain or loss was recognized on the transaction.

6.   Investments/Note Receivable

In October 2003, the Company committed to an investment of $6.0 million in PetroSource Energy Company, LLC (“PetroSource”). The Company’s commitment was to acquire 24.8% of the outstanding stock for a price of $3.0 million and to advance $3.0 million as a subordinated loan bearing 6% interest due in six years. The Company initially purchased $1.8 million in stock and funded $1.8 million of the loan in October 2003. In February 2004, the Company purchased an additional $1.2 million of stock and funded the remaining $1.2 million loan commitment. PetroSource is in the business of selling CO₂ and also owns

F-101

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

pipelines and compressor stations for delivery purposes. During 2004, PetroSource sold additional equity shares which reduced the Company’s ownership to 20.63%. During 2005, the Company invested an additional $0.5 million in PetroSource stock. In December 2005, the Company sold its entire investment in PetroSource, including the subordinate loan, for total proceeds of $10.5 million and recorded a gain of $5.5 million.

In April 2002, the Company entered into a revolving credit commitment to extend advances to an third party. Under the terms of the revolving credit arrangement, the Company agreed to make advances from time to time, as requested by the third party and subject to certain limitations, in an amount up to $5.0 million. Advances made under the revolving credit commitment bear interest at prime rate plus 2% and are collateralized by inventory and receivables. As of December 31, 2004, the Company determined that a portion of the total outstanding advances of $1.3 million had been impaired and recorded a loss of $0.8 million. As of December 31, 2005, the Company determined that the majority of the total outstanding advance of $1.27 million had been impaired and recorded an additional loss of $0.5 million bringing the total allowance to $1.26 million.

7.   Restricted Deposits

In connection with the National Offshore transaction, the Company acquired restricted deposits aggregating $23.5 million. The restricted deposits represent bank trust and escrow accounts required to be set up by surety bond underwriters and certain former owners of National Offshore’s offshore properties. In accordance with requirements of the MMS, National Offshore was required to put in place surety bonds and/or escrow agreements to provide satisfaction of its eventual responsibility to plug and abandon wells and remove structures when certain offshore fields are no longer in use. As part of National Offshore’s agreement with the surety bond underwriter or the former owners of the particular fields, bank trust and escrow accounts were set up and funded based on the terms of the escrow agreements. Certain amounts are required to be paid upon receipt of proceeds from production.

The restricted deposits include the following at September 30, 2006:

1. A $4.4 million escrow account for the East Breaks 109 and 110 fields set up in favor of the surety bond underwriter who provides a surety bond to the MMS. The escrow account was fully funded as of September 30, 2006.

2. A $7.0 million escrow account for the East Breaks 165 and 209 fields set up in favor of the surety bond underwriter who provides a surety bond to the former owners of the fields and the MMS. The escrow account was fully funded as of September 30, 2006.

3. A $6.0 million escrow account set up in favor of a major oil company. The Company is required to make additional deposits to the escrow account in an amount equal to 10% of the net cash flow (as defined in the escrow agreement) from the properties that were acquired from the major oil company.

4. A $5.5 million escrow account that was required to be set up by the bankruptcy settlement proceedings of National Offshore. The Company is required to make monthly deposits based on cash flows from certain wells, as defined in the agreement.

5. $7.8 million in escrow accounts required to be set up by the MMS relating to East Breaks properties. The Company is required to make quarterly deposits to the escrow accounts of $0.8 million. Additionally, for some of the East Break properties, the Company will be required to deposit additional funds in the East Break escrow accounts, representing the difference between the required escrow deposit

F-102

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

under the surety bond and actual escrow deposit balance at various points in time in the future. Aggregate payments to the East Breaks escrow accounts are as follows (in thousands):

Year Ended December 31,
Remainder of 2006		800
2007		6,100
2008		3,200
2009		3,200
2010		5,000
Thereafter		4,000
	$	22,300

8.   Debt

The Company’s debt consists of credit facilities, notes payable, note payable to affiliates and senior notes payable to affiliates.

Credit Facilities

The Operating LLC Credit Facility

On December 29, 2003, Holding LLC entered into a Credit Agreement (the “Mizuho Facility”) with certain commercial lending institutions, including Mizuho Corporate Bank, Ltd. as the Administrative Agent and the Bank of Texas, N.A. and the Bank of Nova Scotia as Co-Agents.

The Credit Agreement provided for a loan commitment amount of up to $145.0 million and a letter of credit commitment of up to $15 million (provided, the outstanding aggregate amount of the unpaid borrowings, plus the aggregate undrawn face amount of all outstanding letters of credit shall not exceed the borrowing base under the Credit Agreement). The Credit Agreement provided further that the amount available to the Operating LLC at any time was subject to certain restrictions, covenants, conditions and changes in the borrowing base calculation. In partial consideration of the loan commitment amount, Operating LLC has pledged a continuing security interest in all of its oil and natural gas properties and its equipment, inventory, contracts, fixtures and proceeds related to its oil and natural gas business.

At Operating LLC’s option, interest on borrowings under the Credit Agreement bear interest at a rate based upon either the prime rate or the LIBOR rate plus, in each case, an applicable margin that, in the case of prime rate loans, can fluctuate from 0.75% to 2.50% per annum. Fluctuations in the applicable interest rate margins are based upon Operating LLC’s total usage of the amount of credit available under the Credit Agreement, with the applicable margins increasing as Operating LLC’s total usage of the amount of the credit available under the Credit Agreement increases.

At the closing of the Credit Agreement, Operating LLC borrowed $43.8 million to repay $42.9 million owed by Operating LLC to an affiliate of Mr. Icahn under the secured loan arrangement which was then terminated and to pay administrative fees in connection with this borrowing. Approximately $1.4 million of loan issuance costs was capitalized in connection with the closing of this transaction.

The Credit Agreement required, among other things, semiannual engineering reports covering oil and natural gas properties, and maintenance of certain financial ratios, including the maintenance of a minimum interest coverage, a current ratio, and a minimum tangible net worth.

F-103

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

NEG Oil & Gas LLC Senior Secured Revolving Credit Facility

On December 22, 2005, NEG Oil & Gas entered into a credit agreement, dated as of December 20, 2005, with Citicorp USA, Inc., as administrative agent, Bear Stearns Corporate Lending Inc., as syndication agent, and other lender parties thereto (the “NEG Credit Facility”). The NEG Credit Facility is secured by substantially all the assets of NEG Oil & Gas and its subsidiaries, has a five-year term and permits payments and re-borrowings, subject to a borrowing base calculation based on the proved oil and gas reserves of the Company and its subsidiaries. Under the NEG Credit Facility, the Company will be permitted to borrow up to $500 million, and the initial borrowing base is set at $335 million. The Company used a portion of the initial $300 million funding under the NEG Credit Facility to purchase the Operating LLC Credit Facility. On a combined basis, the Operating LLC Credit Facility is no longer outstanding.

In consideration of each lender’s commitment to make loans under the NEG Credit Facility, the Company is required to pay a quarterly commitment fee ranging from 0.375% to 0.50% of the available borrowing base. Commitment fees are based upon the facility utilization levels.

At the Company’s option, borrowings under the NEG Credit Facility bear interest at Base Rate or Euro Dollar Rate, as defined in the borrowing agreement, plus, in each case, an applicable margin that, in the case of Base Rate loans, can fluctuate from 0.00% to 0.75% per annum, and, in the case of Euro Dollar loans, can fluctuate from 1.00% to 1.75% per annum. Fluctuations in the applicable interest rate margins are based upon the Company’s total usage of the amount of credit available under the NEG Credit Facility, with the applicable margins increasing as the Company’s total usage of the amount of the credit available under the NEG Credit Facility increases. Base Rate and Euro Dollar Rate fluctuate based upon Prime rate or LIBOR, respectively. At September 30, 2006 the interest rate on the outstanding amount under the credit facility was 7.38% and $14.8 million was available for future borrowings.

NEG Credit Facility agreement requires, among other things, semiannual engineering reports covering oil and natural gas properties, limitation on distributions, and maintenance of certain financial ratios, including maintenance of leverage ratio, current ratio and a minimum tangible net worth. The Company was in compliance with all covenants at September 30, 2006.

In addition to purchasing the Operating LLC Credit Facility, the Company used the proceeds from the NEG Credit Facility to (1) repay a loan of approximately $85 million by AREP used to purchase properties in the Minden Field; (2) pay a distribution of $78.0 million, and (3) pay transaction costs.

Notes Payable

Notes payable consist of the following (amounts in thousands):

	December 31,			September 30,
	2005			2006
Notes payable to various prior creditors of National Onshore in settlement of bankruptcy claims. The notes are generally payable over a 30 month period with a stated interest rate of 6%; however, the notes have been discounted to an effective rate of 10%	$	2,503		$	—
Less Current maturities		(2,503	)		—
	$	—		$	—

F-104

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Advance from Affiliate

During 2005, AREP made unsecured non-interest bearing advance of $49.8 million, payable on demand, to fund their drilling programs as well as to fund derivative contract deposits, of which $39.8 million were outstanding at December 31, 2005. The outstanding balance was repaid in January 2006.

9.   Income Taxes

National Onshore and National Offshore were organized as corporations until their respective acquisitions by NEG Oil & Gas, LLC, and were subject to corporate taxes up until the date of acquisition as part of a tax sharing arrangement with the Starfire, Inc. consolidated group. The Company accounts for income taxes of National Onshore and National Offshore according to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

In May 2006, the State of Texas enacted legislation that replaces the taxable capital and earned surplus components of its franchise tax with a new franchise tax that is based on modified gross revenue. The new franchise tax becomes effective beginning with the 2007 tax year. The current franchise tax remains in effect through the end of 2006.

In accordance with generally accepted accounting principles in the United States, the new franchise tax is based on a measure of income, and thus accounted for in accordance with Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (SFAS 109). The provisions of SFAS 109 require recognition of the effects of the tax law change in the period of enactment. During the nine month period ended September 30, 2006, the Company recorded an income tax expense and a deferred tax liability of $2.1 million to record effects of the change in Texas franchise law.

10.   Commitments and Contingencies

During the nine month period ended September 30, 2006, we entered into four drilling contracts to provide us with drilling rigs at specified drilling day rates. Due to previous commitments of the drilling rig operators, we have not taken delivery of the drilling rigs as of September 30, 2006. Our future obligations, and the estimated year of expenditure, under the drilling rig contracts are estimated as follows (dollar amounts in thousands):

				Estimated Commitment as of
				September 30, 2006
Expected Drilling Location	Contract Duration			Total		2006		2007		2008
Onshore West Texas		Six wells (approximately 3 months	)	$	1,201	$	1,201	$	—	$	—
Onshore East Texas		18 months			10,900		1,800		7,300		1,800
Onshore East Texas		18 months			10,900		1,200		7,300		2,400
Offshore		6 months			8,100		—		8,100		—
Total estimated commitments				$	31,101	$	4,201	$	22,700	$	4,200

During 2000 and 2001 National Energy Group entered into several hedge contracts with Enron North America Corp (“Enron NAC”). In 2001, Enron Corporation and many Enron Corporation affiliates and subsidiaries, including Enron NAC filed for protection under Chapter 11 of the US bankruptcy code. The

F-105

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

derivative contracts were subsequently contributed to Holding LLC and then to Operating LLC. Operating LLC has filed a claim for damages in the Enron NAC bankruptcy proceeding and our designee has been appointed as a representative to the official committee of unsecured creditors. The Company’s claim is unsecured. We received $0.2 million and $1.0 million for the nine month periods ended September 30, 2005 and 2006, respectively, in partial settlement of our claims, which was recorded in interest income and other. In October 2006, we received an additional $.9 million.

The Company expects to receive additional distributions from the Enron bankruptcy proceeding in accordance with its plan of reorganization. We will record such additional payments, if any, when the amounts are known.

Other than routine litigation incidental to its business operations which are not deemed by the Company to be material, there are no additional legal proceedings in which the Company, is a defendant.

Environmental Matters

The Company’s operations and properties are subject to extensive federal, state, and local laws and regulations relating to the generation, storage, handling, emission, transportation, and discharge of materials into the environment. Permits are required for various of the Company’s operations, and these permits are subject to revocation, modification, and renewal by issuing authorities. The Company’s operations are also subject to federal, state, and local laws and regulations that impose liability for the cleanup or remediation of property which has been contaminated by the discharge or release of hazardous materials or wastes into the environment. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines or injunctions, or both. The Company believes that it is in material compliance with applicable environmental laws and regulations. Noncompliance with such laws and regulations could give rise to compliance costs and administrative penalties. Management does not anticipate that the Company will be required in the near future to expend amounts that are material to the financial condition or operations of the Company by reason of environmental laws and regulations, but because such laws and regulations are frequently changed and, as a result, may impose increasingly strict requirements, the Company is unable to predict the ultimate cost of complying with such laws and regulations.

11.   Asset Retirement Obligation

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. It also requires the Company to record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The ARO assets are recorded on the balance sheet as part of the Company’s full cost pool and are included in the amortization base for the purposes of calculating depreciation, depletion and amortization expense. For the purpose of calculating the ceiling test, the future cash outflows associated with settling the ARO liability are excluded from the computation of the discounted present value of estimated future net revenues.

F-106

NEG OIL & GAS LLC AND SUBSIDIARIES, EXCLUDING NATIONAL ENERGY GROUP, INC.
AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The following is a rollforward of the asset retirement obligation as of December 31, 2005 and September 30, 2006 (amounts in thousands).

Balance as of December 31, 2005	$	41,228
Add: Accretion		2,112
Drilling additions		—
Acquired properties		4,269
Less: Revisions		—
Settlements		—
Dispositions		—
Balance as of September 30, 2006	$	47,609

12.   Subsequent Events

As a condition to closing the Riata Energy purchase transaction, the Company is required to terminate or otherwise assign all derivatives contracts to AREP. On October 17, 2006, the Company terminated all of its derivatives contracts for 2009 production and some of it derivatives contracts relating to 2007 and 2008 production. The Company received $17.6 million in cash upon termination of the contracts. No gain or loss was recognized upon termination because the derivatives contracts are recorded at fair market value.

F-107

ANNEX A

GLOSSARY OF OIL AND NATURAL GAS TERMS

The following is a description of the meanings of some of the oil and natural gas industry terms used in this prospectus.

2-D seismic or 3-D seismic.  Geophysical data that depict the subsurface strata in two dimensions or three dimensions, respectively. 3-D seismic typically provides a more detailed and accurate interpretation of the subsurface strata than 2-D seismic.

Bbl.  One stock tank barrel, or 42 U.S. gallons liquid volume, used in this prospectus in reference to crude 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.

Boe.  Barrels of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.

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

Completion.  The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Condensate.  Liquid hydrocarbons associated with the production of a primarily natural gas reserve.

CO₂.  Carbon Dioxide.

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

Development well.  A well drilled into a proved natural gas or oil reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole.  A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Environmental Assessment (EA).  A study to determine whether a federal action significantly affect the environment, which federal agencies may be required by the National Environmental Policy Act or similar state statutes to undertake prior to the commencement of activities that would constitute federal actions, such as natural gas and oil exploration and production activities on federal lands.

Environmental Impact Statement.  A more detailed study of the environmental effects of a federal undertaking and its alternatives than an EA, which may be required by the National Environmental Policy Act or similar state statutes, either after the EA has been prepared and determined that the environmental consequences of a proposed federal undertaking, such as natural gas and oil exploration and production activities on federal lands, may be significant, or without the initial preparation of an EA if a federal agency anticipates that a proposed federal undertaking may significantly impact the environment.

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

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.

A-1

Gross acres or gross wells.  The total acres or wells, as the case may be, in which a working interest is owned.

High CO₂ gas.  Natural gas that contains more than 10% CO₂ by volume.

Imbricate stacking.  A geological formation characterized by multiple layers lying lapped over each other.

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

Mcf.  Thousand cubic feet of natural gas.

Mcf/d.  Mcf per day.

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

MmBbls.  Million barrels of crude oil or other liquid hydrocarbons.

Mmboe.  Million barrels of oil equivalent.

MBtu.  Thousand British Thermal Units.

MmBtu.  Million British Thermal Units.

Mmcf.  Million cubic feet of natural gas.

Mmcf/d.  Mmcf per day.

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

Mmcfe/d.  Mmcfe per day.

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

Plugging and abandonment.  Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of all states require plugging of abandoned wells.

Present value of future net revenues (PV-10).  The present value of estimated future revenues to be generated from the production of proved reserves, before income taxes, calculated in accordance with SEC guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation and without giving effect to hedging activities, non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization. PV-10 is calculated using an annual discount rate of 10%.

Productive well.  A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.

Prospect.  A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

Proved developed reserves.  Has the meaning given to such term in Rule 4-10(a)(3) of Regulation S-X, which defines proved developed reserves as:

Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as proved developed

A-2

reserves only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

Proved reserves.  Has the meaning given to such term in Rule 4-10(a)(2) of Regulation S-X, which defines proved reserves as:

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.

(i) Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.

(ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the proved classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based.

(iii) Estimates of proved reserves do not include the following: (A) Oil that may become available from known reservoirs but is classified separately as indicated additional reserves; (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (C) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources.

Proved undeveloped reserves.  Has the meaning given to such term in Rule 4-10(a)(4) of Regulation S-X, which defines proved undeveloped reserves as:

Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be 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. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.

Pulling Units.  Pulling units are used in connection with completions and workover operations.

PV-10.  See “Present value of future net revenues.”

Rental Tools.  A variety of rental tools and equipment, ranging from trash trailers to blow out preventors to sand separators, for use in the oil field.

Reservoir.  A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.

Roustabout Services.  The provision of manpower to assist in conducting oil field operations.

A-3

Standardized Measure or Standardized Measure of Discounted Future Net Cash Flows.  The present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs and future income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculate PV-10. Standardized Measure differs from PV-10 because Standardized Measure includes the effect of future income taxes and asset retirement obligations on future net revenues.

Stratigraphic play.  An oil or natural gas formation contained within an area created by permeability and porosity changes characteristic of the alternating rock layer that result from the sedimentation process.

Trucking.  The provision of trucks to move our drilling rigs from one well location to another and to deliver water and equipment to the field.

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 natural gas and oil regardless of whether such acreage contains proved reserves.

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 and requires the owner to pay a share of the costs of drilling and production operations.

A-4

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.   Other Expenses of Issuance and Distribution

Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee the amounts set forth below are estimates:

Securities and Exchange Commission registration fee	$	39,995
Printing and engraving expenses		*
Legal fees and expenses		*
Accounting fees and expenses		*
Transfer agent and registrar fees		*
Miscellaneous		*
TOTAL	$	*

* To be completed by amendment.

Item 14.   Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law (“DGCL”) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. The Company’s certificate of incorporation and bylaws provide that indemnification shall be to the fullest extent permitted by the DGCL for all current or former directors or officers of the Company. As permitted by the DGCL, the certificate of incorporation provides that directors of the Company shall have no personal liability to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except (1) for any breach of the director’s duty of loyalty to the Company or its stockholders, 2 for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (3) under Section 174 of the DGCL or (4) for any transaction from which a director derived an improper personal benefit.

II-1

Item 15.   Recent Sales of Unregistered Securities

During the past three years, we have issued unregistered securities to a limited number of persons, as described below:

On December 21, 2005, we acquired ownership interests in a variety of entities in which we previously held interests, as well as additional leasehold and working interests in natural gas and oil properties in the Piceance Basin, in exchange for consideration of $68.5 million, including 3,508,335 shares of our common stock and $15.9 million in additional cash. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Each of the recipients of these securities represented their status as an “accredited investor” as defined in Rule 501(a) under the Securities Act.

We sold 12,500,000 shares of our common stock on December 21, 2005 and an additional 239,630 shares of our common stock on January 9, 2006 in a private placement to Banc of America Securities LLC and Goldman, Sachs & Co. who resold those shares to certain eligible investors. In connection with this private placement, we received net proceeds of $175.7 million after deducting the initial purchasers’ discount of $13.4 million and expenses of $2.0 million. This transaction did not involve a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act. We believe the resale of the securities by the initial purchasers’ was exempt from registration requirements pursuant to Rule 144A promulgated under the Securities Act and the analysis commonly known as Rule 4(11/2).

On December 21, 2005, we granted restricted stock awards consisting of an aggregate of 1,552,167 shares of our common stock. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Securities and Exchange Commission Rule 701 under the Securities Act.

On December 22, 2005, we acquired certain interests in several natural gas and oil properties in West Texas from Carl E. Gungoll Exploration, LLC and certain other parties in exchange for consideration of approximately $6.0 million, including 174,833 shares of our common stock and $5.4 million in additional cash. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder. Each of the recipients of these securities represented their status as an “accredited investor” as defined in Rule 501(a) under the Securities Act.

On May 26, 2006, we acquired working interests in leases in West Texas in exchange for consideration of approximately $12.9 million, including 251,351 shares of our common stock and $8.2 million in additional cash. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Each of the recipients of these securities represented their status as an “accredited investor” as defined in Rule 501(a) under the Securities Act.

On June 7, 2006, we acquired the remaining 1% equity interest in PetroSource in exchange for approximately $0.1 million consisting of 27,749 shares of our common stock. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Each of the recipients of these securities represented their status as an “accredited investor” as defined in Rule 501(a) under the Securities Act.

On November 21, 2006, we acquired all of the outstanding equity interests of NEG in exchange for consideration of approximately $1,500.5 million, including $990.4 million in cash, the assumption of $300 million in debt, the receipt of $21.1 million in cash and 12,842,000 shares of our common stock. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Each of the recipients of these securities represented their status as an “accredited investor” as defined in Rule 501(a) under the Securities Act.

On November 21, 2006, we issued 2,136,667 shares of our convertible preferred stock and common units consisting of and aggregate of 5,331,580 shares of our common stock and warrants entitling the holder to shares

II-2

of our convertible preferred stock upon surrender of an equal amount of the shares of common stock issued as part of a common unit. In connection with this private placement, we received net proceeds of approximately $536.9 million after deducting expenses of approximately $13.2 million. Banc of America Securities LLC acted as placement agent in connection with this transaction. This offering was only made to (a) two large “institutional accredited investors” as such term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act and (b) investors that are both (i) “accredited investors” as defined in Rule 501(a) under the Securities Act and (ii) “qualified institutional buyers” within the meaning of Rule 144A under the Securities Act. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On March 22, 2007, we issued 11,111,111 shares of common stock to an “institutional accredited investor” as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act and an additional 6,669,544 shares of common stock to certain holders of our convertible preferred stock pursuant to a preemptive right. In connection with this private placement, we received net proceeds of approximately $318.9 million after deducting expenses of approximately by $1.1 million. This transaction did not involve any underwriter or a public offering, and we believe this transaction was exempt from registration requirements pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

Item 16.   Exhibits and Financial Statement Schedules

a. Exhibits:

3	.1*	—	Certificate of Incorporation
3	.2*	—	Certificate of Designation of convertible preferred stock
3	.3*	—	Bylaws
4	.1**	—	Specimen Stock Certificate representing common stock
4	.2*	—	Resale Registration Rights Agreement, dated December 21, 2005, by and between SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Securities, LLC
4	.3*	—	Registration Rights Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto
4	.4*	—	Securities Purchase Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto
4	.5**	—	Specimen Stock Certificate representing convertible preferred stock
4	.6*	—	Form of Warrant
4	.7*	—	Amended and Restated Shareholders Agreement, dated April 4, 2007, among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and certain shareholders
4	.8**	—	Registration Rights Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and the several purchasers party thereto
4	.9**	—	Stock Purchase Agreement, dated February 12, 2007, by and among SandRidge Energy, Inc. and each of the investors signatory thereto
4	.10**	—	Shareholders Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and certain common shareholders
5	.1**	—	Opinion of Vinson & Elkins L.L.P.
10	.1**	—	401(k) Plan of SandRidge Energy, Inc.
10	.2*	—	2005 Stock Plan of SandRidge Energy, Inc.
10	.3*	—	Employment Participation Plan of SandRidge Energy, Inc.
10	.4*	—	Well Participation Plan of SandRidge Energy, Inc.
10	.5**	—	Form of Indemnification Agreement
10	.6*	—	Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager

II-3

10	.7*	—	Senior Bridge Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Bridge LLC, as the Initial Bridge Lender and Banc of America Securities LLC, Credit Suisse Security, Goldman, Sachs Credit Partners L.P., and Lehman Brothers, Inc. as joint lead arrangers and book runners
10	.8*	—	Credit Agreement, dated March 22, 2007 by and among SandRidge Energy, Inc. and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger
10	.9*	—	Amendment No. 1 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager
10	.10*	—	Amendment No. 2 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager
10	.11*	—	Employment Agreement of Tom L. Ward
10	.12*	—	Employment Agreement of Larry K. Coshow
21	.1**	—	Subsidiaries of SandRidge Energy, Inc.
23	.1*	—	Consent of PricewaterhouseCoopers LLP
23	.2*	—	Consent of DeGolyer & MacNaughton
23	.3**	—	Consent of Vinson & Elkins L.L.P. (Contained in Exhibit 5.1)
23	.4*	—	Consent of Grant Thornton LLP
23	.5*	—	Consent of Netherland, Sewell & Associates, Inc.
24	.1	—	Power of Attorney (included on signature page)

*	Filed herewith.
**	To be filed by amendment.

b. Financial Statement Schedules

None.

Item 17.   Undertakings

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

II-4

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma, in the State of Oklahoma on August 13, 2007.

SANDRIDGE ENERGY, INC.

By:  /s/  Tom L. Ward

Name: Tom L. Ward

Title:  President, Chief Executive Officer

And Chairman of the Board

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Tom L. Ward and V. Bruce Thompson, and each of them severally, his true and lawful attorney or attorneys-in-fact and agents, with full power to act with or without the others and with full power of substitution and resubstitution, to execute in his name, place and stead, in any and all capacities, any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement and any registration statement for the same offering filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform in the name of on behalf of the undersigned, in any and all capacities, each and every act and thing necessary or desirable to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying, approving and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated below.

Signature	Title	Date
/s/  Tom L. Ward Tom L. Ward	President, Chief Executive Officer And Chairman of the Board (Principal Executive Officer)	August 13, 2007
/s/  Dirk M. Van Doren Dirk M. Van Doren	Chief Financial Officer and Executive Vice President (Principal Financial Officer)	August 13, 2007
/s/  Randall D. Cooley Randall D. Cooley	Vice President of Accounting (Principal Accounting Officer)	August 13, 2007
/s/  N. Malone Mitchell, 3rd N. Malone Mitchell, 3rd	Director	August 13, 2007
/s/  Dan Jordan Dan Jordan	Director	August 13, 2007
/s/  Bill Gilliland Bill Gilliland	Director	August 13, 2007

II-6

Signature	Title	Date
/s/  Roy T. Oliver, Jr. Roy T. Oliver, Jr.	Director	August 13, 2007
/s/  D. Dwight Scott D. Dwight Scott	Director	August 13, 2007
/s/  Jeff Serota Jeff Serota	Director	August 13, 2007

II-7

EXHIBIT INDEX

3	.1*	—	Certificate of Incorporation
3	.2*	—	Certificate of Designation of convertible preferred stock
3	.3*	—	Bylaws
4	.1**	—	Specimen Stock Certificate representing common stock
4	.2*	—	Resale Registration Rights Agreement, dated December 21, 2005, by and between SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Securities, LLC
4	.3*	—	Registration Rights Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto
4	.4*	—	Securities Purchase Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto
4	.5**	—	Specimen Stock Certificate representing convertible preferred stock
4	.6*	—	Form of Warrant
4	.7*	—	Amended and Restated Shareholders Agreement, dated April 4, 2007, among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and certain shareholders
4	.8**	—	Registration Rights Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and the several purchasers party thereto
4	.9**	—	Stock Purchase Agreement, dated February 12, 2007, by and among SandRidge Energy, Inc. and each of the investors signatory thereto
4	.10**	—	Shareholders Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and certain common shareholders
5	.1**	—	Opinion of Vinson & Elkins L.L.P.
10	.1**	—	401(k) Plan of SandRidge Energy, Inc.
10	.2*	—	2005 Stock Plan of SandRidge Energy, Inc.
10	.3*	—	Employment Participation Plan of SandRidge Energy, Inc.
10	.4*	—	Well Participation Plan of SandRidge Energy, Inc.
10	.5**	—	Form of Indemnification Agreement
10	.6*	—	Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager
10	.7*	—	Senior Bridge Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Bridge LLC, as the Initial Bridge Lender and Banc of America Securities LLC, Credit Suisse Security, Goldman, Sachs Credit Partners L.P., and Lehman Brothers, Inc. as joint lead arrangers and book runners
10	.8*	—	Credit Agreement, dated March 22, 2007 by and among SandRidge Energy, Inc. and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger
10	.9*	—	Amendment No. 1 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager
10	.10*	—	Amendment No. 2 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager
10	.11*	—	Employment Agreement of Tom L. Ward
10	.12*	—	Employment Agreement of Larry K. Coshow
21	.1**	—	Subsidiaries of SandRidge Energy, Inc.

23	.1*	—	Consent of PricewaterhouseCoopers LLP
23	.2*	—	Consent of DeGolyer & MacNaughton
23	.3**	—	Consent of Vinson & Elkins L.L.P. (Contained in Exhibit 5.1)
23	.4*	—	Consent of Grant Thornton LLP
23	.5*	—	Consent of Netherland, Sewell & Associates, Inc.
24	.1	—	Power of Attorney (included on signature page)

*	Filed herewith.
**	To be filed by amendment.

EX-3.1

Exhibit 3.1

CERTIFICATE OF INCORPORATION

OF

SANDRIDGE ENERGY, INC.

     I, the undersigned, for the purposes of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, do execute this Certificate of Incorporation and do hereby certify as follows:

ARTICLE ONE

     The name of the corporation is SandRidge Energy, Inc.

ARTICLE TWO

     The address of the corporation’s current registered office in the State of Delaware is One Rodney Square, 10^th Floor, Tenth and King Streets, in the City of Wilmington, County of New Castle, 19801 and the name of the current registered agent at such address is RL&F Service Corp.

ARTICLE THREE

     The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State Delaware.

ARTICLE FOUR

     The aggregate number of shares of capital stock which the corporation shall have authority to issue is FOUR HUNDRED FIFTY MILLION (450,000,000) shares, of which FOUR HUNDRED MILLION (400,000,000) shares shall be designated as Common Stock, par value $0.001 per share, and FIFTY MILLION (50,000,000) shares shall be designated as Preferred Stock, par value $0.001 per share.

     The following is a statement fixing certain of the designations and rights, voting rights, preferences, and relative, participating, optional or other rights of the Preferred Stock and the Common Stock of the corporation, and the qualifications, limitations or restrictions thereof, and the authority with respect thereto expressly granted to the Board of Directors of the corporation to fix any such provisions not fixed by this Certificate of Incorporation:

     A. Preferred Stock

     The Board of Directors is hereby expressly vested with the authority to adopt a resolution or resolutions providing for the issuance of authorized but unissued shares of Preferred Stock, which shares may be issued from time to time in one or more series and in such amounts as may be determined by the Board of Directors in such resolution or resolutions. The rights, voting rights, designations, preferences, and relative, participating, optional or other rights, if any, of each series of

Preferred Stock and the qualifications, limitations or restrictions, if any, of such preferences and/or rights (collectively the “Series Terms”), shall be such as are stated and expressed in a resolution or resolutions providing for the creation or revision of such Series Terms adopted by the Board of Directors, and by filing a certificate pursuant to the applicable law of the State of Delaware (a “Preferred Stock Designation”). The Board shall have the power and authority, to the fullest extent permissible under the General Corporation Law of the State of Delaware (the “DGCL”), as currently in effect or as amended, to determine and establish by a Preferred Stock Designation, the Series Terms of a particular series, including, without limitation, determination of the following:

     (1) The number of shares constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number;

     (2) The dividend rate on the shares of that series, if any; whether such dividends, if any, shall be cumulative, noncumulative, or partially cumulative and, if cumulative or partially cumulative, the date or dates from which dividends payable on such shares shall accumulate; and the relative rights of priority, if any, of payment of dividends on shares of that series;

     (3) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;

     (4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate upon occurrence of such events as the Board of Directors shall determine;

     (5) Whether the shares of that series shall be redeemable at the option of either the corporation or the holder, and, if so, the terms and conditions of such redemption, including relative rights of priority, if any, of redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

     (6) Whether the corporation shall have any repurchase obligation with respect to the shares of that series and, if so, the terms and conditions of such obligation, subject, however, to the limitations of the DGCL;

     (7) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund;

     (8) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series;

     (9) The conditions or restrictions upon the creation of indebtedness of the corporation or upon the issuance of additional Preferred Stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation;

     (10) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the Preferred Stock or to any series thereof with respect to dividends or distribution of assets upon liquidation;

     (11) The relative priority of each series of Preferred Stock in relation to other series of Preferred Stock with respect to dividends or distribution of assets upon liquidation; and

     (12) Any other designations, powers, preferences and rights, including, without limitation, any qualifications, limitations or restrictions thereof.

     Any of the Series Terms, including voting rights, of any series may be made dependent upon facts ascertainable outside the Certificate of Incorporation and the Preferred Stock Designation, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in the Certificate of Incorporation or in the Preferred Stock Designation.

     Subject to the provisions of this Article Four, shares of one or more series of Preferred Stock may be authorized or issued from time to time as shall be determined by and for such consideration as shall be fixed by the Board of Directors, in an aggregate amount not exceeding the total number of shares of Preferred Stock authorized by the Certificate of Incorporation. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative.

     B. Common Stock

     1. Dividends. Subject to the provisions of any Preferred Stock Designation, the Board of Directors may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the Common Stock of the corporation.

     No dividend (other than a dividend in capital stock ranking on a parity with the Common Stock or cash in lieu of fractional shares with respect to such stock dividend) shall be declared or paid on any share or shares of any class of stock or series thereof ranking on a parity with the Common Stock in respect of payment of dividends for any dividend period unless there shall have been declared, for the same dividend period, like proportionate dividends on all shares of Common Stock then outstanding.

     2. Liquidation. In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary (each, a “Liquidation Event”), after payment or provision for payment of the debts and other liabilities of the corporation and payment or setting aside for payment of any preferential amount due to the holders of any other class or series of stock,

the holders of the Common Stock shall be entitled to receive ratably any or all assets remaining to be paid or distributed.

     3. Voting Rights. Subject to any special voting rights set forth in any Preferred Stock Designation, the holders of the Common Stock of the corporation shall be entitled at all meetings of shareholders to one vote for each share of such stock held by them.

     C. Prior, Parity or Junior Stock

     Whenever reference is made in this Article Four to shares “ranking prior to” another class of stock or “on a parity with” another class of stock, such reference shall mean and include all other shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions upon a Liquidation Event, as the case may be, are given preference over, or rank on an equality with, as the case may be, the rights of the holders of such other class of stock. Whenever reference is made to shares “ranking junior to” another class of stock, such reference shall mean and include all shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions upon a Liquidation Event, as the case may be, are junior and subordinate to the rights of the holders of such class of stock.

     Except as otherwise provided herein or in any Preferred Stock Designation, each series of Preferred Stock ranks on a parity with each other with respect to the payment of dividends and distributions upon a Liquidation Event, and each ranks prior to the Common Stock with respect to the payment of dividends and distributions upon a Liquidation Event. Common Stock ranks junior to the Preferred Stock with respect to the payment of dividends and distributions upon a Liquidation Event.

     D. Liquidation

     For the purposes of Section 2 of Section B of this Article Four and for the purpose of the comparable sections of any Preferred Stock Designation, the merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or the sale, lease, or conveyance of all or substantially all the assets, property or business of the corporation, shall not be deemed to be a liquidation, dissolution or winding up of the corporation.

     E. Reservation and Retirement of Shares

     The corporation shall at all times reserve and keep available, out of its authorized but unissued shares of Common Stock or out of shares of Common Stock held in its treasury, the full number of shares of Common Stock into which all shares of any series of Preferred Stock having conversion privileges from time to time outstanding are convertible.

     Unless otherwise provided in a Preferred Stock Designation with respect to a particular series of Preferred Stock, all shares of Preferred Stock redeemed or acquired (as a result of conversion or otherwise) shall be retired and restored to the status of authorized but unissued shares without designation as to series.

ARTICLE FIVE

     The incorporator of the corporation is Matthew McCann, whose mailing address is 1601 NW Expressway, 12^th Floor, Oklahoma City, OK 73118.

ARTICLE SIX

     The number of directors of the corporation shall be fixed by, or in the manner provided by, the bylaws. The right of stockholders to cumulative voting in the election of directors is expressly prohibited.

ARTICLE SEVEN

     An annual meeting of the stockholders shall be held at such times as may be stated or fixed in accordance with the bylaws. Special meetings may only be called (1) by the Chairman of the Board (if any), the President, the Board of Directors, or such other person or persons as may be authorized in the certificate of incorporation or the bylaws or (2) by the holders of not less than fifty (50) percent in voting power of all the shares entitled to vote at the proposed special meeting.

ARTICLE EIGHT

     No holder of shares of stock of the corporation shall have any preemptive or other right, except as such rights are expressly provided by contract, to purchase or subscribe for or receive any shares of any class, or series thereof, of stock of the corporation, whether now or hereafter authorized, or any warrants, options, bonds, debentures or other securities convertible into, exchangeable for or carrying any right to purchase any shares of any class, or series thereof, of stock; but such additional shares of stock and such warrants, options, bonds, debentures or other securities convertible into, exchangeable for or carrying any right to purchase any shares of any class, or series thereof, of stock may be issued or disposed of by the Board of Directors to such persons, and on such terms and for such lawful consideration, as in its discretion it shall deem advisable or as to which the corporation shall have by binding contract agreed.

ARTICLE NINE

     A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.

ARTICLE TEN

     In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend and repeal the bylaws.

ARTICLE ELEVEN

     Unless and except to the extent that the bylaws of the corporation shall so require, the election of directors of the corporation need not be by written ballot.

ARTICLE TWELVE

     The corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of any nature conferred upon stockholders, directors or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.

     The undersigned incorporator hereby acknowledges that the foregoing certificate of incorporation is his act and deed on this 11th day of December, 2006.

 /s/ Matthew McCann

Matthew McCann 

Incorporator 

EX-3.2

Exhibit 3.2

CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
SANDRIDGE ENERGY, INC.

Pursuant to Section 151 of the General Corporation Law
of the State of Delaware

     SandRidge Energy, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

     The name of the corporation is SandRidge Energy, Inc. (the “Company”).

     The following resolution, establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof, was duly adopted by the board of directors of the Company on December 11, 2006.

     RESOLVED that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by the provisions of Article Four, Section A of its Certificate of Incorporation (the “Certificate of Incorporation”) and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors hereby creates a series of preferred stock of the Company and hereby states that the voting powers, designations, preferences and relative, participating, optional or other special rights of which, and qualifications, limitations or restrictions thereof (in addition to the provisions set forth in the Certificate of Incorporation which are applicable to the preferred stock of all classes and series), shall be as follows:

1. Designation and Amount; Ranking.

     (a) There shall be created from the 50,000,000 shares of preferred stock, par value $0.001 per share, of the Company authorized to be issued pursuant to the Articles of Incorporation, a series of preferred stock, designated as the “Series A Convertible Preferred Stock,” par value $0.001 per share (the “Preferred Stock”), and the number of shares of such series shall be 2,625,000. Such number of shares may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Preferred Stock to a number less than that of the shares of Preferred Stock then outstanding plus the number of shares issuable upon exercise of warrants or other rights then outstanding.

     (b) The Preferred Stock will, with respect to both dividend rights and rights upon the liquidation, dissolution or winding-up of the Company, rank (i) senior to all Junior Stock, (ii) on a parity with all other Parity Stock and (iii) junior to all Senior Stock.

2. Definitions. As used herein, the following terms shall have the following meanings:

     “Accreted Value” shall mean, with respect to each share of Preferred Stock and as to any shares of Preferred Stock, whether or not issued on the Issue Date or on any date thereafter, the Initial Liquidation Value as further adjusted pursuant to Section 3(b).

     “Affiliate” shall mean, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by,” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

     “Approved Plan” shall mean the Riata 2005 Stock Plan, as amended to the Issue Date, and any other written stock option, stock purchase, stock incentive or stock appreciation plan or arrangement that is approved by the Board of Directors and the Company’s stockholders to the extent required by law or other regulation.

     “Certificate of Incorporation” shall have the meaning set forth in the recitals hereof.

     “Authorized Share Allocation” shall have the meaning set forth in Section 6(h) hereof.

     “Board of Directors” shall mean the Board of Directors of the Company or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action.

     “Bridge Facility” shall mean that certain Bridge Loan Agreement, dated as of November 21, 2006, among the Company, Bank of America, N.A., as administrative agent, and the other lenders party thereto.

     “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close.

     “Buy-In” shall have the meaning set forth in Section 9(e) hereof.

     “Change of Control” shall mean (a) any sale or disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to another Person other than a wholly-owned Subsidiary of the Company, (b) any merger or consolidation of the Company with or into another Person (other than (i) any merger or consolidation the result of which holders of the Company’s Voting Stock immediately prior to such merger continue after such merger to hold the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities and (ii) any migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company), or (c) the acquisition by any “person” or “group” (as such term is defined in Section 13(d) and 14(d) of the Exchange Act of 1934 and the related regulations), excluding any “person” or “group” comprising the Ward/Mitchell Group, who has expressed intent to control the affairs of the Company of more than 50% of the total voting power of outstanding Voting Stock of the Company.

     “Change of Control Notice” shall have the meaning set forth in Section 8(b) hereof.

     “Change of Control Period” shall have the meaning set forth in Section 8(b) hereof.

     “Change of Control Redemption Date” shall have the meaning set forth in Section 8(b) hereof.

     “Change of Control Redemption Notice” shall have the meaning set forth in Section 8(b) hereof.

     “Common Stock” shall mean the common stock, par value $0.001 per share, of the Company, or any other class of stock resulting from successive changes or reclassifications of such common stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision, combination, or merger, consolidation or similar transaction in which the Company is a constituent corporation.

     “Company” shall have the meaning set forth in the recitals hereof.

     “Consolidated Net Tangible Assets” shall mean, without duplication, as of the date of determination,

(a) the sum of:

(i) discounted future net revenue from proved oil and gas reserves of the Company and its consolidated Subsidiaries calculated in accordance with SEC guidelines before any state, federal or foreign income or similar taxes, as estimated by a nationally recognized independent petroleum engineer in a reserve report prepared as of the end of the Company’s most recently completed fiscal year or, if available a more recent fiscal quarter, as increased by, as of the date of determination, the discounted future net revenue of

(A)	estimated proved oil and gas reserves of the Company and its consolidated Subsidiaries attributable to any acquisition consummated since the date of such most recent reserve report and
(B)	estimated proved oil and gas reserves of the Company and its consolidated Subsidiaries attributable to extensions, discoveries and other additions and upward revisions of estimates of proved oil and gas reserves due to exploration, development or exploitation, production or other activities conducted which were not reflected in such most recent reserve report

which, in the case of sub-clauses (A) and (B), would, in accordance with standard industry practice, result in such increases as calculated in accordance with SEC guidelines (utilizing the prices utilized in such reserve report), and decreased by, as of the date of determination, the discounted future net revenue of

(C) estimated proved oil and gas reserves of the Company and its consolidated Subsidiaries produced or disposed of since the date of such most recent reserve report and

(D) reductions in the estimated oil and gas reserves of the Company and its consolidated Subsidiaries since the date of such most recent reserve report attributable to downward revisions of estimates of proved oil and gas reserves due to exploration, development or exploitation, production or other activities conducted or otherwise occurring since the date of such most recent reserve report

which, in the case of sub-clauses (C) and (D) would, in accordance with standard industry practice, result in such decreases as calculated in accordance with SEC guidelines (utilizing the prices utilized in such reserve report); provided that, in the case of each of the determinations made pursuant to clauses (i) through (iv), such increases and decreases may be as estimated by the Company’s engineers, except that if as a result of such acquisitions, dispositions, discoveries, extensions or revisions, there is an increase of more than 20% in the discounted future net revenues from proved oil and gas reserves of the Company and its consolidated Subsidiaries calculated above, then such increases and decreases in discounted future net revenue shall be confirmed in writing by a nationally recognized petroleum engineer to the extent not previously estimated by a nationally recognized independent petroleum engineer in connection with an acquisition and with respect to which a report or reports of such engineer exists.

(ii)	the appraised value of the Company’s rig fleet determined based on the most recent third party appraisal available to the Company,
(iii)	the historical cost of the Company’s midstream assets, and
(iv)	the greater of (A) the net book value on a date no earlier than the date of the Company’s latest annual or quarterly financial statements and (B) the appraised value, as estimated by independent appraisers, of other tangible assets (including investments in unconsolidated Subsidiaries) of the Company and its consolidated Subsidiaries, as of a date no earlier than the date of the Company’s latest audited financial statements, minus

     (b) to the extent not otherwise take into account in the immediately preceding clause (a), the sum of:

(i)	minority interests,
(ii)	any gas balancing liabilities of the Company and its consolidated Subsidiaries reflected in the Company’s latest annual or quarterly financial statements,
(iii)	the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the prices utilized in the Company’s most recent reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its consolidated Subsidiaries with respect to volumetric Production Payments,

(iv)

the discounted future net revenue, calculated in accordance with SEC guidelines, attributable to reserves subject to dollar-denominated Production Payments which, based on the estimates of production included in determining the discounted future net revenue specified in (a)(i) above (utilizing the same prices utilized in the Company’s year-end reserve report), would be necessary to fully satisfy the payment obligations of the Company and its consolidated Subsidiaries with respect to dollar-denominated Production Payments on the schedules specified with respect thereto, and

(v)

the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the same prices utilized in the Company’s year-end reserve report), attributable to reserves subject to participation interests, overriding royalty interests or other interests of third parties, pursuant to participation, partnership, vendor financing or other agreements then in effect, or which otherwise are required to be delivered to third parties.

Consolidated Net Tangible Assets will be calculated based on the full cost method of accounting.

     “Conversion Notice” shall have the meaning set forth in Section 6(b) hereof.

     “Conversion Option Payment” shall mean an amount per share of Preferred Stock in cash equal to the Accreted Value, multiplied by 0.0775, multiplied by the applicable Specified Year(s).

     “Conversion Price” shall mean $21.00, subject to adjustment as set forth in Section 6(c).

     “Convertible Securities” shall have the meaning set forth in Section 6(c).

     “Debtor Relief Law” shall mean the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

     “Dividend Payment Date” shall mean February 15, May 15, August 15 and November 15 of each year, commencing February 15, 2007.

     “Dividend Rate” shall have the meaning set forth in Section 3(a) hereof.

     “Dividend Record Date” shall mean February 1, May 1, August 1 and November 1 of each year.

     “Equipment Financing Facility” shall mean those certain equipment finance loan facilities and promissory notes relating thereto between the Company and Merrill Lynch Capital, providing for aggregate borrowings of up to $92.5 million, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.

     “Equity Conditions” shall mean each of the following:

     (a) Effective Registration Statement. On each day during the Equity Conditions Measuring Period either (i) the shelf registration statement shall have been filed pursuant to the Registration Rights Agreement, and on the date of determination for such Equity Conditions, shall be effective and available for the resale of all Transfer Restricted Securities (as defined in the Registration Rights Agreement) held by Holders who have submitted appropriate information to be included in such registration statement as a selling securityholder in accordance with the terms of the Registration Rights Agreement or (ii) all shares of Common Stock issuable upon conversion of the Preferred Stock shall be eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act;

     (b) Principal Market Conditions. On each day during the Equity Conditions Measuring Period, the Common Stock shall be designated for quotation on a Principal Market and shall not have been suspended from trading on such exchange or market nor shall delisting or suspension by such Principal Market been threatened or pending either (i) in writing by such exchange or market or (ii) by falling below the then effective minimum listing maintenance requirements of such exchange or market;

     (c) Delivery of Common Stock Upon Conversion. On the applicable date of determination for such Equity Conditions, the Company shall not be in default for failure to have delivered Common Stock upon conversion of the Preferred Stock on a timely basis as set forth herein;

     (d) Compliance with Rules of Principal Market. Any applicable shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without the violation of the rules or regulations of the Principal Market, such shares shall have been approved for listing on the Principal Market subject only to notice of official issuance, and the Company’s Common Stock shall not have been suspended from trading for more than ten Trading Days during the Equity Conditions Measuring Period;

     (e) Defaults. During the Equity Conditions Measuring Period, there shall not have occurred (A) an Event of Default or (B) an event that with the passage of time or giving of notice would constitute an Event of Default; and

     (f) Material Non-Public Information. On the applicable date of determination for such Equity Conditions, the Company shall notify the Holders that it has no knowledge of any fact that would cause (i) the shelf registration statement required pursuant to the Registration Rights Agreement not to be effective and available for the resale of all remaining Transfer Restricted Securities in accordance with the terms of the Registration Rights Agreement or (ii) any shares of Common Stock issuable upon conversion of the Preferred Stock not to be eligible for sale without restriction pursuant to Rule 144(k) promulgated under the Securities Act and any applicable state securities law.

     “Equity Conditions Measuring Period” shall mean the period beginning 30 days prior to the applicable date of determination and ending on and including the applicable date of determination.

     “Equity Securities” shall mean any capital stock of the Company.

     “Event of Default” shall mean,

     (a) the failure by the Company to pay when due any amount payable by it pursuant to the terms of this Certificate of Designations;

     (b) the Company fails to perform or observe any other covenant or agreement (not specified in subsection (a) above ) contained in this Certificate of Designations and such failure continues for ten Trading Days after notice from any Holder;

     (c) following an IPO, the suspension from trading or failure of the Common Stock to be listed on a Principal Market, which suspension or failure continues for a period of more than five consecutive Trading Days;

     (d) at any time following the tenth consecutive Trading Day that the Holders’ Authorized Share Allocation is less than the Full Conversion Amount;

     (e) any default under, redemption of or acceleration prior to maturity of any indebtedness for borrowed money of the Company or any of its Subsidiaries in excess of $5,000,000;

     (f) the purchase in the open market of the Company’s Common Stock by any “person” or “group” (as such term is defined in Section 13(d) and 14(d) of the Exchange Act and the related regulations) that is part of the Ward/Mitchell Group at any time when the aggregate Market Value of the Company’s Common Stock held by non-Affiliates of the Company, giving effect to such purchase, is less than $300 million;

     (g) the Company or any of its significant Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 days, or an order for relief is entered in any such proceeding; and

     (h) the Company or any significant Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy.

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Excluded Stock” shall have the meaning set forth in Section 6(c).

     “Existing Credit Facility” shall mean that certain Credit Agreement, dated as of November 21, 2006 among the Company, Bank of America, N.A., as administrative agent, and the other lenders party thereto as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time (and whether or not with the original administrative agent and lenders or another administrative agent or agents or other lenders and whether provided under the original Existing Credit Facility or any other credit or other agreement or indenture) provided that the debt for borrowed money incurred pursuant to any amendment, restatement, modification, renewal, refunding, replacement or refinancing does not exceed the amount of debt for borrowed money that could be incurred pursuant to the borrowing base formula contained in the Existing Credit Facility as of the Issue Date as applied to the Company and its Subsidiaries as of the date of such incurrence.

     “Full Conversion Amount” shall mean, as of any date of measurement, the number of shares of Common Stock that each Holder would be entitled to receive upon a voluntary conversion in full of such Holder’s Preferred Stock (without regard to any limitations on conversion set forth in Section 6(i) or otherwise).

     “Fundamental Transaction” shall have the meaning set forth in Section 4(b) hereof.

     “High-Yield Transaction” shall mean one or more underwritten public offerings pursuant to the Securities Act or one or more private placements of the Company’s debt securities under Rule 144A.

     “Holder” shall mean a holder of record of the Preferred Stock.

     “Hydrocarbon Interests” means all rights, titles and interests in and to oil and gas leases, oil, gas and mineral leases, other Hydrocarbon leases, mineral interests, mineral servitudes, overriding royalty interests, royalty interests, net profits interests, Production Payments and other similar interests.

     “Hydrocarbons” means, collectively, crude oil, natural gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state.

     “Initial Liquidation Value” shall mean the amount of $210.00 per share of Preferred Stock, as appropriately adjusted for any stock split, stock dividend, stock combination, reverse stock split, recapitalization or similar event with respect to the Preferred Stock.

     “IPO” shall mean a Non-Qualified IPO or a Qualified IPO.

     “Issue Date” shall mean the earliest date of original issuance of any shares of the Preferred Stock, provided, however that any shares of Preferred Stock issued on or prior to December 31, 2006 shall, solely for purposes of Section 3 of this Certificate of Designation, be deemed to have been issued on November 21, 2006.

     “Junior Stock” shall mean all classes of common stock of the Company and each other class of capital stock or series of preferred stock established after the Issue Date, by the Board of Directors, the terms of which expressly provide that such class or series ranks junior to the Preferred Stock as to dividend rights or rights upon the liquidation, dissolution or winding-up of the Company in all respects.

     “Liquidation Event” shall have the meaning set forth in Section 5(a) hereof.

     “Mandatory Conversion Date” shall have the meaning set forth in Section 7(c) hereof.

     “Market Value” at any date shall mean, in the event the Common Stock is traded in the over the counter market or on a national securities exchange, the average of the daily closing price per share of Common Stock for the five consecutive Trading Days preceding such date. The closing price for each day shall be the last reported sale price, regular way, or, in case no such reported sale takes place on such day, the average of the last closing bid and asked prices, regular way, in either case on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the closing sale price for such day reported by Nasdaq, if the Common Stock is traded over-the-counter and quoted in the Nasdaq Global Market, or if the Common Stock is so traded, but not so quoted, the average of the closing reported bid and asked prices of the Common Stock as reported by Nasdaq or any comparable system, or, if the Common Stock is not listed on Nasdaq or any comparable system, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Board of Directors for that purpose. If the Common Stock is not publicly traded or is not traded in such manner that the quotations referred to above are available for the period required hereunder, Market Value per share of Common Stock shall be deemed to be the fair value per share of Common Stock as determined in good faith by a majority of the Board of Directors, and if Holders of a majority of the Preferred Stock reasonably object in writing to such determination of Market Value, the Market Value shall be determined by a nationally recognized investment banking firm, accounting firm or valuation firm selected by the Board of Directors with the costs of such firm being paid by the Company.

     “Maturity Date” shall mean May 15, 2013.

     “Maturity Date Redemption Price” shall have the meaning set forth in Section 8(a)(i) hereof.

     “Maximum Percentage” shall have the meaning set forth in Section 6(i) hereof.

     “Maximum Permitted Debt Amount” shall mean debt for borrowed money (a) incurred pursuant to the Existing Credit Facility, (b) incurred pursuant to the Bridge Facility, in connection with any High-Yield Transaction or otherwise or in connection with any combination of the foregoing provided that the maximum debt for borrowed money incurred pursuant to this clause (b) does not exceed $850 million, (c) incurred pursuant to the Equipment Financing Facility, and (d) incurred in connection with mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price of equipment used in the business of the Company or any of its Subsidiaries.

     “Non-Qualified IPO” shall mean any firm commitment underwritten primary offering by the Company of newly issued Common Stock to the public pursuant to an effective registration statement under the Securities Act with one or more nationally recognized underwriters and after which the Common Stock is listed on a Principal Market that does not satisfy the criteria set forth in the definition of Qualified IPO.

     “Oil and Gas Properties” means Hydrocarbon Interests; Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including all units created under orders, regulations and rules of any governmental authority having jurisdiction) which may affect all or any portion of Hydrocarbon Interests; all operating agreements, joint venture agreements, contracts and other agreements which relate to any Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to Hydrocarbon Interests, the lands covered thereby and all oil in tanks and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to Hydrocarbon Interests; all tenements, profits à prendre, hereditaments, appurtenances and Properties in anywise appertaining, belonging, affixed or incidental to Hydrocarbon Interests, Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, water wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

     “Opinion of Counsel” shall mean a written opinion from legal counsel who is acceptable to the Transfer Agent. The counsel may be an employee of or counsel to the Company or the Transfer Agent.

     “Options” shall have the meaning set forth in Section 6(c).

     “Parity Stock” shall mean any class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, subject to Section 4(b), the terms of which expressly provide that such class or series will rank on parity with the Preferred Stock as to dividend rights or rights upon the liquidation, dissolution or winding-up of the Company.

     “Person” shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.

     “Preferred Stock” shall have the meaning set forth in Section 1 hereof.

     “Preferred Stock Delivery Date” shall have the meaning set forth in Section 6(b).

     “Preferred Stock Warrants” shall mean the warrants exercisable for shares of Preferred Stock issued pursuant to the Purchase Agreement.

     “Principal Market” shall mean a national securities exchange, including The New York Stock Exchange and the American Stock Exchange, or the Nasdaq Global Market.

     “Production Payment” shall mean a production payment obligation (whether volumetric or dollar-denominated) of the Company or any of its Subsidiaries which is payable from a specified share of proceeds received from production from specified Oil and Gas Properties, together with all undertakings and obligations in connection therewith.

     “Property” or “property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

     “Purchase Agreement” shall mean that certain Securities Purchase Agreement related to the sale of the Preferred Stock by the Company dated November 21, 2006.

     “Qualified IPO” shall mean the initial firm commitment underwritten primary offering by the Company of newly issued Common Stock to the public pursuant to an effective registration statement or registration statements under the Securities Act with one or more nationally recognized underwriters and after which the Common Stock is listed on a Principal Market for which (a) the aggregate proceeds to be received by the Company from such offering (without deducting underwriting discounts, expenses and commissions) are at least $300 million and (b) the initial offering price to the public per share of Common Stock is no less than $21.00 (as appropriately adjusted for any stock split, stock dividend, stock combination, reverse stock split, recapitalizations or similar event).

     “Qualifying Preferred Stock” means a series of shares of preferred stock of an issuer that is a U.S. corporation so long as the rank, terms, privileges (including conversion privileges), rights (including dividend, adjustment, voting and redemption rights, including in connection with the applicable Fundamental Transaction), preferences (including dividend and liquidation preferences), restrictions, qualifications and limitations are no less favorable to the holders of such shares than the rank, terms, privileges (including conversion privileges), rights (including dividend, conversion, adjustment, voting and redemption rights), preferences (including dividend and liquidation preferences), restrictions, qualifications and limitations of the shares of Preferred Stock.

     “Registration Rights Agreement” shall mean that certain Registration Rights Agreement related to the sale of certain shares of Preferred Stock by the Company dated November 21, 2006.

     “SEC” shall mean the Securities and Exchange Commission.

     “Securities Act” shall mean the Securities Act of 1933, as amended.

     “Senior Stock” shall mean each class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, subject to Section 4(b), the terms of which expressly provide that such class or series will rank senior to the Preferred Stock as to dividend rights or rights upon the liquidation, dissolution or winding-up of the Company.

     “Share Delivery Date” shall have the meaning set forth in Section 6(b) hereof.

     “Specified Years” shall mean the lesser of (i) two or (ii) the quotient of the number of whole months remaining prior to the Maturity Date at the time any Conversion Option Payment is triggered divided by twelve (rounded to first decimal place); provided, however, if a Qualified IPO has closed on or prior to September 30, 2007, Specified Years shall be determined based on the following table:

Initial Public Offering Price	Specified Year(s)
$24.39 or less		2.0
$24.40 to 26.78		1.5
$26.79 or greater		1.0

     “Subsidiary” shall mean, with respect to any Person, any corporation, partnership, limited partnership, limited liability company, association or other business entity of which more than 50% of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person.

     “Trading Day” with respect to any security means (i) if such security is listed or admitted for trading on a national securities exchange, a day on which such securities exchange is open for trading, (ii) if such security is quoted on the Nasdaq Global Market, or any similar system of automated dissemination of quotations of securities prices, a day on which trades may be made on such system, (iii) if not listed or admitted for trading on a national securities exchange as described in clause (i) or quoted as described in clause (ii), a day on which quotations are reported by the National Quotation Bureau Incorporated, or (iv) otherwise, any Business Day.

     “Transfer Agent” shall mean any duly appointed transfer agent, registrar and conversion and dividend disbursing agent for the Preferred Stock. Until notice is given by the Company to the Holders of the appointment of a separate Transfer Agent, the Company shall act as the Transfer Agent for the Preferred Stock, and all references herein to the Transfer Agent shall be references to the Company acting in such capacity.

     “Void Change of Control Redemption Notice” shall have the meaning set forth in Section 8(b) hereof.

     “Voting Stock” means with respect to any Person, equity securities of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person, and, in the case of the Company, including the Preferred Stock.

     “Ward/Mitchell Group” shall mean (a) each of Tom L. Ward (“Ward”) and N. Malone Mitchell III (“Mitchell”), (b) the wife of either of them, (c) a lineal descendant of either of them,

(d) the estate of either of them, (e) any trust of which at least one of the trustees is Ward or Mitchell, or the principal beneficiaries of which are any one or more of the Persons in (a)-(d), (f) any Person which is Controlled by any one or more of the persons in (a)-(e); and (g) any group (as such term is defined in Section 13(d) and 14(d) of the Exchange Act and the related regulations) of which Ward or Mitchell is a member.

3. Dividends.

     (a) The Holders shall be entitled to receive with respect to each share of Preferred Stock, out of any funds or assets legally available for that purpose, cash dividends at the annual rate of 7.75% of the Accreted Value per share in effect immediately after the prior Dividend Payment Date (or the Issue Date in respect of the first Dividend Payment Date) (the “Dividend Rate”), in each case, based on a 365-day year. Such dividends shall only be payable when, as and if declared by the Board of Directors. Except as set forth in Section 3(b), such dividends shall not be cumulative. To the extent that the Board of Directors so declares, such dividends shall be payable in arrears on each Dividend Payment Date for the quarterly period ending on the Dividend Record Date immediately prior to such Dividend Payment Date, to the Holders of record of Preferred Stock at the close of business on such Dividend Record Date. If a Dividend Payment Date is not a Business Day, then the dividend shall be due and payable on the first Business Day following such Dividend Payment Date.

     (b) Notwithstanding the foregoing Section 3(a), the Company may elect not to declare or pay cash dividends in respect of any Dividend Payment Date subject to the provisions of this Section 3(b). In the event that the Company does not declare and pay a cash dividend at the Dividend Rate on any Dividend Payment Date pursuant to Section 3(a), then upon such Dividend Payment Date on which such cash dividend is not paid, the Accreted Value of each share of Preferred Stock, regardless of its date of issue, shall increase by an amount equal to 2.3125% (the “PIK Rate”) of the Accreted Value in effect immediately after the prior Dividend Payment Date (or the Issue Date in respect of the first Dividend Payment Date). Dividends shall accrue at the Dividend Rate on a day-to-day basis, whether or not earned or declared, from and after the Issue Date or the most recent Dividend Payment Date, as applicable, until cash dividends are paid pursuant to Section 3(a) or the Accretion Value of each share of Preferred Stock is increased pursuant to this Section 3(b).

     (c) No dividends or other distributions (other than a dividend or distribution payable solely in shares of Junior Stock (in the case of Junior Stock) and other than cash paid in lieu of fractional shares) may be declared, made or paid, or set apart for payment upon, any Parity Stock or Junior Stock, nor may any Parity Stock or Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any money paid to or made available for a sinking fund for the redemption of any Parity Stock or Junior Stock) by or on behalf of the Company (except by conversion into or exchange for shares of Junior Stock (in the case of Junior Stock); provided that this restriction shall not apply to (i) the repurchase of Equity Securities from directors, employees, or consultants of the Company or a Subsidiary pursuant to agreements under which the Company has the option to repurchase such shares upon the occurrence of certain events, such as the termination of service to the Company or a subsidiary or (ii) dividends, distributions, redemptions, purchases or other acquisitions for which the Company has obtained the consent of Holders of at least a majority of the outstanding shares of Preferred Stock.

     (d) Each Holder shall be entitled to any dividend or other distribution paid or made with respect to any Common Stock to the same extent as if such Holder had converted its Preferred Stock and held such shares of Common Stock on the record date for such dividend or other distribution. Payments or other distributions under the preceding sentence shall be paid or made to Holders concurrently with the related dividend or other distribution to holders of Common Stock. Except as provided in this Section 3(d), Holders shall not be entitled to any dividends or other distributions on the Preferred Stock, whether payable in cash, property or stock, in excess of the dividends or increase in Accretion Value contemplated by this Section 3.

4. Voting.

     (a) The Holders shall be entitled to vote with the holders of the Common Stock on all matters submitted to a vote of stockholders of the Company, except as otherwise expressly provided by applicable law. Each Holder shall be entitled to the number of votes equal to the largest number of full shares of Common Stock into which all shares of Preferred Stock held of record by such Holder could then be converted at the Conversion Price if the Preferred Stock were converted at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is first executed. The Holders shall be entitled to notice of any stockholders’ meeting at the time and in the manner given to the holders of the Common Stock in accordance with the bylaws of the Company.

     (b) So long as any shares of Preferred Stock remain outstanding, and in addition to any other vote required by applicable law, unless a greater percentage shall then be required by applicable law, the Company shall not, without the affirmative vote or consent of the Holders of at least a majority of the then outstanding Preferred Stock voting or consenting, as the case may be, separately as one class:

     (i) create, authorize or issue (by reclassification or otherwise) any class or series of Senior Stock or Parity Stock, including Preferred Stock (other than upon exercise of warrants issued pursuant to the Purchase Agreement), or any security convertible into Senior Stock or Parity Stock;

     (ii) amend, alter or repeal (whether by merger, consolidation, operation of law or otherwise) the Certificate of Incorporation, this Certificate of Designation or the Company’s Bylaws so as to affect adversely the specified rights, preferences, privileges or voting rights of Holders; or

     (iii) effect any recapitalization, reorganization, reclassification, merger, consolidation, or statutory share exchange (each, a “Fundamental Transaction”) unless, under the terms of such Fundamental Transaction, (a) if such Fundamental Transaction does not constitute a Change of Control (1) either the shares of Preferred Stock outstanding immediately prior to such Fundamental Transaction will remain outstanding after such Fundamental Transaction or the shares of Preferred Stock will be exchanged in such Fundamental Transaction for an equal number of shares of Qualifying Preferred Stock (and such shares of Qualifying Preferred Stock will be issuable solely in such Fundamental Transaction), and (2) such Fundamental Transaction either does not result

in any reclassification, conversion, exchange or cancellation of outstanding shares of the Common Stock or results in a cancellation and exchange of such shares solely into shares of common stock of the issuer of the Qualifying Preferred Stock, or (b) if such Fundamental Transaction constitutes a Change of Control and the conditions set forth in clauses (a)(1) and (2) of this Section 4(b)(iii) are not satisfied, the Holders of shares of Preferred Stock outstanding immediately prior to such Fundamental Transaction will be entitled to elect to receive in respect of each such share of Preferred Stock either (1) 110% of the Accreted Value plus dividends accrued and unpaid since the last Dividend Payment Date to but excluding the date of the consummation of such Fundamental Transaction or (2) the amount and type of consideration paid for the number of shares of Common Stock or other securities into which such share of Preferred Stock is convertible immediately prior to such Fundamental Transaction (and the Holders of such Preferred Stock shall also be entitled to any election right granted to the holders of Common Stock in connection with such Fundamental Transaction).

     (c) In exercising the separate class voting rights set forth in Section 4(b), each share of Preferred Stock shall be entitled to one vote.

     (d) The Company may authorize, increase the authorized amount of, or issue any class or series of Junior Stock with or without voting rights, without the consent of the Holders, and in taking such actions the Company shall not be deemed to have affected adversely the rights, preferences, privileges or voting rights of the Holders.

5. Liquidation Rights.

     (a) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, or its Subsidiaries the assets of which constitute all or substantially all of the assets of the Company and its Subsidiaries taken as a whole, in either case in a single or series of transactions (a “Liquidation Event”), subject to the payment or provision for payment of the debts and other liabilities of the Company, each Holder shall be entitled to receive and to be paid out of the remaining assets and funds of the Company available for distribution to its stockholders, prior to the holders of Junior Stock an amount for each share of Preferred Stock then held by such Holder equal to the greater of (a) the Accreted Value as of the date of such Liquidation Event and (b) the amount that such Holder would have received if, immediately prior to such Liquidation Event, it has voluntarily converted its Preferred Stock pursuant to Section 6..

     (b) Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the assets or business of the Company and its Subsidiaries (other than in connection with a Liquidation Event) nor the merger or consolidation of the Company and/or its Subsidiaries into or with any other Person shall be deemed to be a Liquidation Event, for purposes of this Section 5.

     (c) After the indefeasible payment in cash to the Holders of full preferential amounts provided for in this Section 5, Holders as such shall have no right or claim to any of the remaining assets or funds of the Company.

     (d) In the event the assets and funds of the Company available for distribution to Holders upon any Liquidation Event shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to Section 5(a), no such distribution shall be made on account of any shares of Parity Stock upon such Liquidation Event unless proportionate distributable amounts shall be paid on account of the shares of Preferred Stock, ratably, in proportion to the full distributable amounts for which Holders of all Preferred Stock and of any Parity Stock are entitled upon such Liquidation Event.

     (e) The provisions of this Section 5 shall not in any way limit the right of Holders to elect to convert their shares of Preferred Stock into shares of Common Stock pursuant to Section 6 prior to or in connection with any Liquidation Event.

6. Conversion at the Option of Holders.

     (a) Each Holder shall, subject to Section 6(i), have the right, at its option, exercisable at any time and from time to time from the Issue Date to convert, subject to the terms and provisions of this Section 6, any or all of such Holder’s shares of Preferred Stock. In such case, the shares of Preferred Stock shall be converted into such whole number of fully paid and nonassessable shares of Common Stock as is equal, subject to Section 6(c)(iv), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (i) the Accreted Value divided by (ii) the Conversion Price then in effect. In the event a Holder elects to convert its Preferred Stock at its option pursuant to this Section 6, no Conversion Option Payment shall be payable in connection with such election and conversion.

     (b) The conversion right of a Holder shall be exercised by the Holder by delivery to the Company and the Transfer Agent of written notice in the form of Exhibit B (“Conversion Notice”), at any time during usual business hours of the Company and the Transfer Agent, that the Holder elects to convert all or a portion of the shares of Preferred Stock represented by its related certificate and specifying the name or names (with address) in which a certificate or certificates for shares of Common Stock are to be issued and (if so required by the Company or the Transfer Agent, if any) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company or the Transfer Agent, if any, duly executed by the Holder or its duly authorized legal representative. The Holder shall not be required to physically surrender certificates representing the Preferred Stock to be converted with the Conversion Notice. The Holder shall physically surrender the original certificate representing the Preferred Stock being converted (or a lost certificate affidavit which shall include customary indemnity provisions sufficient in the reasonable judgment of the Company and such Transfer Agent to protect the Company and such Transfer Agent from any loss which either of them may suffer) to the Company promptly after such conversion. The Holder and the Company shall maintain records showing the number of Preferred Stock converted by such Holder and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of certificates representing the Preferred Stock upon exercise. Immediately prior to the close of business on the date of receipt by the Company and the Transfer Agent, if any, of the Conversion Notice, each converting Holder shall be deemed to be the holder of record of Common Stock issuable upon conversion of such Holder’s Preferred Stock being converted notwithstanding that the share register of the Company shall then be closed or that certificates representing such Common Stock shall not then be actually

delivered to such Holder. On the date of any conversion, all rights with respect to the shares of Preferred Stock so converted (the “Conversion Date”), including the rights, if any, to receive notices, will terminate, except only the rights of Holders thereof to (i) receive certificates for the number of whole shares of Common Stock into which such shares of Preferred Stock have been converted and cash, in lieu of any fractional shares as provided in Section 6(f) and (ii) exercise the rights to which they are entitled as holders of Common Stock. If the Conversion Date shall not be a Business Day, then such Conversion Date shall be deemed to be the next succeeding Business Day. Upon receipt by the Company of copy of a Conversion Notice, the Company shall (i) as soon as practicable, but in any event within two (2) Trading Days, provide a confirmation of receipt of such Conversion Notice to such Holder and the Transfer Agent, if any, which confirmation shall constitute an instruction to the Company and the Transfer Agent to process such Conversion Notice in accordance with the terms herein and (ii) on or before the third (3rd) Trading Day following the date of receipt by the Company and the Transfer Agent of such Conversion Notice (the “Share Delivery Date”), (a) provided the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (b) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If the number of shares of Preferred Stock represented by the certificate(s) submitted for conversion is greater than the number of shares of Preferred Stock being converted, then the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the certificate(s) (the “Preferred Stock Delivery Date”) and at its own expense, instruct the Transfer Agent to issue and deliver to the Holder a new Preferred Stock certificate representing the number of shares of Preferred Stock not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

     (c) The Conversion Price shall be subject to adjustment as follows:

     (i) Common Stock Issued at less than the Conversion Price. If and whenever, on or after the date of this Certificate of Designations is filed with the Secretary of State of the State of Delaware, the Company issues or sells, or is deemed to have issued or sold, any shares of its Common Stock (other than Excluded Stock) for consideration per share less than the Conversion Price, then immediately upon such issue or sale, the Conversion Price shall be reduced to the price determined by multiplying the Conversion Price in effect immediately prior to such time by a fraction:

     (A) the numerator of which shall be (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale (assuming the conversion of all Preferred Stock and the exercise of the Preferred Stock Warrants and conversion of the Preferred Stock relating thereto) plus (y) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of additional shares of Common Stock so issued or

sold (or deemed to be issued or sold) would purchase at the Conversion Price in effect immediately prior to such issue or sale; and

     (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale or deemed issuance or sale (assuming the conversion of all Preferred Stock and the exercise of the Preferred Stock Warrants and conversion of the Preferred Stock relating thereto).

     For purposes of this Section 6(c)(i), “Excluded Stock” means shares of Common Stock (in each case as adjusted for any stock splits, stock dividends, recapitalizations, combinations or similar transactions), Options (as defined below) and Convertible Securities (as defined below) issued,

     (i) pursuant to one or more Approved Plans provided that such shares shall not exceed the number of share that have been reserved for such issuance as of the Issue Date,

     (ii) on the Issue Date pursuant to the Purchase Agreement,

     (iii) upon conversion of the Preferred Stock (including Preferred Stock issuable upon exercise of the Preferred Stock Warrants),

     (iv) in connection with any acquisition or exchange of assets or businesses by the Company (including pursuant to a merger, consolidation or other business combination) the primary purpose of which is not to raise equity capital,

     (v) in connection with any (A) stock splits, stock dividends, recapitalizations or reorganizations for which an adjustment to the Conversion Price is made pursuant to Section 6(c)(iii), or (B) mergers or consolidations for which an adjustment to the Conversion Price is made pursuant to Section 6(c)(iv), and

     (vi) following any IPO.

     For purposes of this Section 6(c), outstanding shares of Preferred Stock will be deemed convertible at all times into shares of Common Stock, where each share of Preferred Stock is deemed convertible into the greatest whole number of shares of Common Stock which would be issuable upon conversion of such share Preferred Stock if the Preferred Stock were then convertible at the Conversion Price then in effect.

     (ii) Options and Convertible Securities. For purposes of determining the adjusted Conversion Price under Section 6(c)(i), the following shall be applicable (it being acknowledged that the issuance of Excluded Stock shall not be subject to the provisions of this Section 6(c)(ii)):

     (A) If the Company in any manner issues or grants any options, warrants, or similar rights (“Options”) to purchase or acquire Common Stock or Equity Securities convertible or exchangeable, with or without consideration, into or for Common Stock (“Convertible Securities”) and the price per share for

which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share on the date of such issuance or grant. For purposes of this subparagraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (a) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of such Convertible Securities and the conversion or exchange of such Convertible Securities, by (b) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

     (B) If the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share on the date of such issuance or sale. For the purposes of this subparagraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (a) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of such Convertible Securities, by (b) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 6(c), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

     (C) If the exercise price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock increases at any time, the Conversion Price in effect at the time of such change shall be reduced to the Conversion Price which would have been in effect at such time had an adjustment been made upon the issuance of such Options or Convertible Securities still outstanding on the basis of such changed exercise price, additional consideration, or changed conversion rate, as the case may be, at the time initially granted, issued, or sold.

     (D) If any Common Stock, Option, or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received for such Common Stock, Option, or Convertible Security shall be deemed to be the net amount received by the Company for such Common Stock, Option, or Convertible Security. In case any Common Stock, Options, or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the Market Value of such Common Stock, Options, or Convertible Securities as of the date of receipt. If any Common Stock, Option, or Convertible Security is issued in connection with any merger in which the Company is the surviving Company, the amount of consideration for such Common Stock, Option, or Convertible Security shall be deemed to be the Market Value of such portion of the net assets and business of the non-surviving Company as is attributable to such Common Stock, Options, or Convertible Securities, as the case may be.

     (E) In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties to such transaction, the Option shall be deemed to have been issued for a consideration of $0.001.

     (F) The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock.

     (G) If the Company takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options, or Convertible Securities or (b) to subscribe for or purchase Common Stock, Options, or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

     (iii) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced so that the conversion of the Preferred Stock after such time shall entitle the Holder to receive the aggregate number of shares of Common Stock or other securities of the Company which, if the Preferred Stock had been converted immediately prior to such time, such Holder would have owned upon such conversion and been entitled to receive by virtue of such stock split, stock dividend, recapitalization or other event, and if the Company at any time combines (by reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

     (iv) Reorganization, Mergers, Consolidations, or Sales of Assets. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares, provided for elsewhere in this Section 6(c)), or a merger or consolidation of the Company with or into another entity then, as a part of such reorganization, merger, or consolidation, provision shall be made so that the Holders shall, after such reorganization, merger, or consolidation, be entitled to receive upon conversion of the Preferred Stock shares of stock of the Company, or of the successor entity resulting from such merger or consolidation, other securities and/or property to which the Common Stock issuable upon conversion of the Preferred Stock at the then Conversion Price (as in effect immediately prior to such reorganization, merger or consolidation) would have been entitled to receive upon such reorganization, merger or consolidation if such shares were then convertible at the Conversion Price at that time, and Common Stock issuable in connection with a conversion of the Preferred Stock after such reorganization, merger or consolidation shall refer to the shares of stock, other securities and/or property to be issued in respect of Common Stock in connection with such reorganization, merger or consolidation. If the holders of Common Stock have the right to elect the kind and amount of consideration receivable upon consummation of such transaction, then the Holders, in connection with such transaction and at the same time holders of Common Stock are allowed to make such election, shall be given the right to make a similar election with respect to the consideration into which the Preferred Stock shall thereafter be convertible.

     (v) Non-Qualified IPO. In the event that the Company completes a Non-Qualified IPO, the Conversion Price in effect immediately prior to the completion of such Non-Qualified IPO shall be reduced to equal the per share public offering price in such Non-Qualified IPO, if such per share public offering price is lower than the Conversion Price in effect immediately prior to the completion of such Non-Qualified IPO.

     (vi) Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section 6(c) shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (A) issuing to the Holder converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment

required by such event over and above the shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such Holder any amount of cash in lieu of a fractional share of Common Stock pursuant to Section 6(f); provided that the Company upon request shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

     (d) Statement Regarding Adjustments. Whenever the Conversion Price shall be adjusted as provided in Section 6(c), the Company shall forthwith file, at the office of the Transfer Agent, a statement showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Holder at its address appearing on the Company’s records. Each such statement shall be signed by the Company’s chief financial officer. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of Section 6(e). The Company shall, upon written request at any time of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) all adjustments and readjustments to the Conversion Price, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such Holder’s shares of Preferred Stock if such shares were convertible at such time at the Conversion Price at that time in effect.

     (e) Notice to Holders. In the event the Company shall propose to take any action of the type described in clauses (i) (but only if the action of the type described in clause (i) would result in an adjustment in the Conversion Price), (iii), (iv) or (v) of Section 6(c), the Company shall give notice to each Holder, in the manner set forth in Section 6(d), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon conversion of shares of the Preferred Stock. Except as otherwise provided herein, (x) in the case of any action that would require the fixing of a record date, such notice shall be given at least five days prior to the date so fixed; and (y) in the case of all other action, such notice shall be given at least five days prior to the taking of such proposed action.

     (f) No Fractional Shares. No fractional shares or securities representing fractional shares of Common Stock shall be issued upon the conversion of any shares of Preferred Stock, whether voluntary or mandatory. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate Accreted Value of the shares of Preferred Stock so surrendered. If the conversion of any share or shares of Preferred Stock results in a fraction, an amount equal to such fraction multiplied by the Market Value of the Common Stock on the Trading Day next preceding the day of conversion shall be paid to such Holder in cash by the Company. In connection with any conversion pursuant to this Section 6, cash shall be paid by the Company to the Holder surrendering such shares for conversion in respect of dividends on the tendered Preferred Stock accrued since the last Dividend Payment Date and remaining unpaid.

     (g) Costs. The Company shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of shares of Common Stock upon conversion of any shares of the Preferred Stock or deemed issuances pursuant to this Sections 6 or 7; provided that the Company shall not be required to pay any federal or state income taxes, franchise or similar taxes or other taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the Holder in respect of which such shares are registered with the Company.

     (h) Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Stock, such number of shares of Common Stock (the “Authorized Share Allocation”) equal to 110% of the shares of Common Stock necessary from time to time to effect the conversion of all outstanding shares of Preferred Stock (plus shares of Preferred Stock issuable upon exercise of the Preferred Stock Warrants at the Conversion Price then in effect and the conversion of such Preferred Stock pursuant to its terms, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Company shall use its commercially reasonable efforts to take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

     (i) Beneficial Ownership Restrictions. For so long as Common Stock is registered pursuant to Section 12 of the Exchange Act, the Company shall not effect any conversion of any Holder’s Preferred Stock, and such Holder shall not have the right to convert any portion of its Preferred Stock, to the extent (but only to the extent) that after giving effect to such conversion, such Holder would become the beneficial owner of more than of 9.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. The Company shall not give effect to any voting rights of the Preferred Stock, and any Holder shall not have the right to exercise voting rights with respect to any Preferred Stock pursuant hereto, to the extent that giving effect to such voting rights would result in such Holder (together with its Affiliates) being deemed to beneficially own in excess of the Maximum Percentage of the number of shares of Common Stock outstanding immediately after giving effect to such exercise, assuming such exercise as being equivalent to conversion. For purposes of the foregoing, the number of shares of Common Stock beneficially owned by a Person and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which the determination of such sentence is being made. Except as set forth in the preceding sentence, for purposes of this Section 6(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes of this Section 6(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 8-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company by the

Holder or its Affiliates since the date as of which such number of outstanding Common Shares was reported.

7. Conversion at the Option of the Company.

     (a) With Conversion Option Payment. At any time on or after the 180^th day following the closing of an IPO, the Company shall have the right, at its option, to cause all of the Preferred Stock to be automatically converted into that whole number of fully paid and nonassesable shares of Common Stock as is equal, subject to Section 6(c)(iv), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (1) the Accreted Value divided by (2) the Conversion Price then in effect, with any resulting fractional shares of Common Stock to be settled in accordance with Section 6(f). The Company may exercise its right to cause a mandatory conversion pursuant to this Section 7(a) only if following the closing of a Qualified IPO, (i) the shelf registration statement shall have been filed pursuant to the Registration Rights Agreement, and on the date of the Company’s exercise of the mandatory conversion, shall be effective and available for resale of all Transfer Restricted Securities (as defined in the Registration Rights Agreement), held by Holders who have submitted appropriate information to be included in such registration statement as a selling securityholder in accordance with the terms of the Registration Rights Agreement, (ii) the Common Stock is listed on a Principal Market and the closing price of the Common Stock equals or exceeds 100% of the Conversion Price then in effect for at least 20 Trading Days in any consecutive 30 Trading Day period on such Principal Market, including the last Trading Day of such 30-day period, ending on the Trading Day prior to the Company’s issuance of a press release announcing the mandatory conversion pursuant to this Section 7(a) as described in Section 7(c), and (iii) each of the other Equity Conditions has been satisfied (or waived in writing by the applicable Holder).

In connection with any automatic conversion pursuant to this Section 7(a), the Company shall be required to pay the Conversion Option Payment with respect to each share of Preferred Stock so converted. On the Mandatory Conversion Date, the Company shall deliver written request to each Holder requesting payment instructions respecting the Conversion Option Payment. Within two (2) Business Days following delivery thereof, each Holder shall deliver written payment instructions to the Company. Holders may elect to have the Conversion Option Payment satisfied through the issuance of shares of Common Stock. In such case, the Conversion Option Payment shall be converted into such whole number of fully paid and non-assessable shares of Common Stock as is equal to the aggregate Conversion Option Payment divided by the per share public offering price in such IPO (as appropriately adjusted for any post-IPO stock splits, stock dividends, combinations or similar events with respect to Common Stock).

     (b) Without Conversion Option Payment. At any time on or after the 180th day following the closing of an IPO, the Company shall have the right, at its option, on one or more occasions to cause the Preferred Stock, in whole or in part, to be automatically converted into that whole number of fully paid and nonassesable shares of Common Stock as is equal, subject to Section 6(c)(iv), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (1) the Accreted Value divided by (2) the Conversion Price then in effect, with any resulting fractional shares of Common Stock to be settled in accordance with Section 6(f). If not all of the outstanding shares of Preferred Stock are proposed to be converted, then outstanding shares of Preferred Stock shall be converted on a pro rata basis among the

Holders of outstanding shares of Preferred Stock in proportion to the aggregate number of shares held by such Holders. The Company may exercise its right to cause a mandatory conversion pursuant to this Section 7(b) only if following the closing of an IPO (i) the shelf registration statement shall have been filed pursuant to the Registration Rights Agreement, and on the date of the Company’s exercise of the mandatory conversion, shall be effective and available for resale of all Transfer Restricted Securities (as defined in the Registration Rights Agreement), held by Holders who have submitted appropriate information to be included in such registration statement as a selling securityholder in accordance with the terms of the Registration Rights Agreement, (ii) the Common Stock is listed on a Principal Market and the closing price of the Common Stock equals or exceeds 150% of the Conversion Price then in effect for at least 20 Trading Days in any consecutive 30 Trading Day period on the principal national securities exchange or automated quotation system on which the Common Stock is then listed or authorized for quotation, including the last Trading Day of such 30-day period, ending on the Trading Day prior to the Company’s issuance of a press release announcing the mandatory conversion pursuant to this Section 7(b) as described in Section 7(c), and (iii) each of the other Equity Conditions has been satisfied (or waived in writing by the applicable Holder).

In connection with any automatic conversion pursuant to this Section 7(b), the Company shall not be required to pay the Conversion Option Payment with respect to each share of Preferred Stock so converted.

     (c) To exercise the mandatory conversion right described in Section 7(a) or Section 7(b), the Company must give irrevocable notice by mail or by publication (with subsequent prompt notice) to the Holders (not more than one Trading Day after the date of the press release) confirming the Company’s election to convert the Preferred Stock pursuant to this Section 7. The conversion date will be a date selected by the Company (the “Mandatory Conversion Date”) and will be no more than three Trading Days after the date on which the Company issues the press release described in this Section 7(c).

     (d) In addition to any information required by applicable law or regulation, the press release and notice of a mandatory conversion described in Section 7(c) shall state, as appropriate: (i) the Mandatory Conversion Date; (ii) the number of shares of Common Stock to be issued upon conversion of each share of Preferred Stock to be converted; (iii) the number of shares of Preferred Stock; (iv) that dividends on the Preferred Stock to be converted will cease to accrue on the Mandatory Conversion Date; and (v) the amount of the Conversion Option Payment, if applicable.

     (e) On and after the Mandatory Conversion Date and, if applicable, the receipt by the Holders of the Conversion Option Payment, dividends will cease to accrue on the Preferred Stock called for a mandatory conversion pursuant to Section 7(a) or Section 7(b) and all rights of Holders will terminate except for the right to receive the whole shares of Common Stock issuable upon conversion thereof and cash in lieu of any fractional shares of Common Stock in accordance with Section 6(f). In connection with any conversion pursuant to this Section 7, cash shall be paid by the Company to the Holder surrendering such shares for conversion in respect of dividends on the tendered Preferred Stock accrued since the last Dividend Payment Date and remaining unpaid.

     (f) The Conversion Price determined pursuant to this Section 7 shall be subject to adjustment as provided in Section 6(c).

8. Redemption.

     (a) Mandatory Redemption at Maturity Date.

     (i) If any Preferred Stock remains outstanding on the Maturity Date, the Company shall within fifteen days following the Maturity Date redeem such Preferred Stock for an amount in cash per share of Preferred Stock (the “Maturity Date Redemption Price”) equal to the Accreted Value plus dividends accrued and unpaid since the last Dividend Payment Date by wire transfer of immediately available funds to an account designated in writing by such Holder. Promptly following the Maturity Date, the Company shall deliver written request to each Holder requesting payment instructions respecting the Maturity Date Redemption Price. Within two Business Days following delivery thereof, each Holder shall deliver written payment instructions to the Company along with certificates representing such Holder’s Preferred Stock.

     (ii) Upon receipt by the Holders of the Maturity Date Redemption Price, notwithstanding that the certificates evidencing any shares of Preferred Stock to be redeemed have not been surrendered, the dividends with respect to Preferred Stock shall cease to accrue, the Preferred Stock shall no longer be deemed outstanding, all rights of Holders as stockholders of the Company shall cease, and all rights whatsoever with respect to the Preferred Stock shall terminate (except the right of Holders (A) to receive the Maturity Date Redemption Price with default interest, if applicable, as described in Section 8(a)(iii) with respect to their shares of Preferred Stock upon surrender of their certificates therefore or (B) to convert their shares of Preferred Stock as described in Section 8(a) (iii)) shall terminate.

     (iii) If the Company fails to redeem all of the Preferred Stock outstanding on the Maturity Date by payment of the Maturity Date Redemption Price within five days following the Maturity Date, then (A) the applicable Maturity Date Redemption Price payable in respect of such unredeemed shares of Preferred Stock shall bear interest at the rate of 0.75% per month, prorated for partial months, until paid in full and (B) any Holder shall have the option to require the Company to convert any or all of such Holder’s shares of Preferred Stock for which the Maturity Date Redemption Price has not been paid into (on a per share basis) shares of Common Stock equal to the number which results from dividing the Maturity Date Redemption Price by the Conversion Price; provided, however, that the monthly interest penalty shall not accrue for any Holder that fails to timely provide payment instructions and surrender certificates representing its shares of Preferred Stock in accordance with Section 8(a)(i).

     (b) Change of Control Redemption. Subject to any contractual restrictions and applicable law, the Company will use commercially reasonable efforts to give each Holder notice of any Change of Control no less than 30 days prior to the consummation of a Change of Control. Within ten days following the consummation of a Change of Control, the Company shall provide written notice thereof to the Holders (a “Change of Control Notice”). At any time

during the period (the “Change of Control Period”) beginning after a Holder’s receipt of a Change of Control Notice and ending on the date that is 20 Trading Days after the receipt of such Change of Control Notice, such Holder may require the Company to redeem all or any portion of such Holder’s Preferred Stock by delivering written notice thereof (“Change of Control Redemption Notice”) to the Company, which Change of Control Redemption Notice shall indicate the number of shares of Preferred Stock that such Holder elects for the Company to redeem. Any Preferred Stock subject to redemption pursuant to this Section 8 shall be redeemed by the Company in cash at a price equal to 110% of the Accreted Value plus dividends accrued and unpaid since the last Dividend Payment Date. The Company shall make payment of the Change of Control Redemption Price within five Trading Days after the Company’s receipt of such notice (the “Change of Control Redemption Date”). To the extent redemptions required by this Section 8(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Preferred Stock by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 8(b), until the Change of Control Redemption Price is paid in full, the shares of Preferred Stock submitted for redemption under this Section 8 may be converted pursuant to Section 6, in whole or in part, by the Holder into shares of Common Stock, or in the event the conversion date is after the consummation of the Change of Control, equity interests of the successor entity substantially equivalent to the Company’s Common Stock pursuant to Section 6(c)(iv). The parties hereto agree that in the event of the Company’s redemption of any portion of the Preferred Stock under this Section 8(b), a Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for each Holder. Accordingly, any redemption premium due under this Section 8(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. In the event that the Company does not pay the Change of Control Redemption Price on the Change of Control Redemption Date within ten days thereafter, then the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to such Holder any or all of the shares of Preferred Stock that were submitted for redemption by such Holder under this Section 8(b) and for which the applicable Change of Control Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company (the “Void Change of Control Redemption Notice”). Upon the Company’s receipt of such Void Change of Control Redemption Notice, (i) the Change of Control Redemption Notice shall be null and void with respect to those shares of Preferred Stock subject to the Void Change of Control Redemption Notice and (ii) the Company shall immediately return any Preferred Stock subject to the Void Change of Control Redemption Notice. No Conversion Option Payment shall be paid to any Holder in connection with a Change of Control Redemption.

9. Certificates.

     (a) Form and Dating. The Preferred Stock and the Transfer Agent’s certificate of authentication (if a Transfer Agent other than the Company is appointed) shall be substantially in the form set forth in Exhibit A, which is hereby incorporated in and expressly made a part of this Certificate of Designation. The Preferred Stock certificate may have notations, legends or endorsements required by law, stock exchange or National Association of Securities Dealers rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Preferred Stock

certificate shall be dated the date of its authentication. The terms of the Preferred Stock certificate set forth in Exhibit A are part of the terms of this Certificate of Designation.

     (b) Record Holders. The Company and any Transfer Agent other than the Company may deem and treat the record Holder as the true and lawful owner thereof for all purposes, and neither the Company nor any such Transfer Agent shall be affected by any notice to the contrary.

     (c) Registration of Transfer. Upon the surrender of any certificate representing Preferred Stock to the Company or any Transfer Agent other than the Company accompanied by a duly executed and completed certificate in the form of Exhibit C hereto which is hereby incorporated by reference in this Certificate of Designation, the Company shall, or shall cause such Transfer Agent to, at the request of the record Holder of such certificate, execute and deliver (at the Company’s expense) a new certificate or certificates in exchange therefor, of Preferred Stock representing in the aggregate the number of shares of Preferred Stock represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares of Preferred Stock as is requested by the Holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate.

     (d) Replacement Certificates. If a mutilated Preferred Stock certificate is surrendered to the Company or any Transfer Agent other than the Company or if the Holder of a Preferred Stock certificate claims that the Preferred Stock certificate has been lost, destroyed or wrongfully taken, the Company shall issue and the Transfer Agent (if one is then appointed) shall countersign a replacement Preferred Stock certificate if the reasonable requirements of such Transfer Agent and the Company are met. If required by such Transfer Agent or the Company, such Holder shall agree to customary indemnity provisions sufficient in the reasonable judgment of the Company and such Transfer Agent to protect the Company and such Transfer Agent from any loss which either of them may suffer if a Preferred Stock certificate is replaced. The Company and such Transfer Agent may charge the Holder for their respective expenses in replacing a Preferred Stock certificate.

     (e) Failure to Timely Convert; Cash Damages. If (i) within three Trading Days after the Company’s receipt of the facsimile copy of a Conversion Notice, the Company shall fail to credit a Holder’s balance account with DTC or issue and deliver a certificate to such Holder for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion or the Company’s conversion, as applicable, of Preferred Stock or (ii) within three Trading Days of the Company’s receipt of a Preferred Stock Certificate the Company shall fail to issue and deliver a new Preferred Stock Certificate representing the number of Preferred Shares to which such Holder is entitled (a “Conversion Failure”), then the Company shall pay the greater of (A) damages to such Holder for each day after the Share Delivery Date that such conversion is not timely effected and/or each day after the Preferred Stock Delivery Date that such Preferred Stock Certificate is not delivered in an amount equal to 1% of the product of (1) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which such Holder is entitled as set forth in the applicable Conversion Notice and, in the event the Company has failed to deliver a certificate representing

Preferred Stock to the Holder on or prior to the Preferred Stock Delivery Date, the number of shares of Common Stock issuable upon conversion of the Preferred Stock represented by such Preferred Stock certificate as of the Preferred Stock Delivery Date and (2) the Market Value of the Common Stock on the Share Delivery Date in the case of the failure to deliver Common Stock, or the Preferred Stock Delivery Date, in the case of failure to deliver a Preferred Stock certificate and (B) if the Common Stock is listed, designated or quoted on Principal Market, and if after such third Trading Day the Holder purchases (in an open market transaction or otherwise) shares to deliver in satisfaction of a sale by the Holder of Common Stock which the Holder anticipated receiving upon such exercise (a “Buy-In”), an amount in cash to the Holder equal to the amount by which, (1) the Holder’s total purchase price (including brokerage commissions, if any) for the shares so purchased, exceeds (2) the amount obtained by multiplying (A) the number of shares of Common Stock that the Company was required to deliver to the Holder in connection with the conversion, by (2) the price at which the sell order giving rise to such purchase obligation was executed. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company.

10. Covenants; Default Rates.

     (a) In addition to any other vote required by applicable law, unless a greater percentage shall then be required by applicable law, the Company and its Subsidiaries shall not, without the affirmative vote or consent of the Holders of at least a majority of the then outstanding Preferred Stock voting or consenting, as the case may be, separately as one class:

     (i) except for those transactions disclosed in the Private Placement Memorandum (as defined in the Purchase Agreement), directly or indirectly, engage in any transaction, including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service, with any Affiliate of the Company (excluding transactions in the ordinary course of business consistent with past practice) except (A) upon fair and reasonable terms no less favorable to the Company than could be obtained in a comparable arm’s-length transaction with an unrelated Person, and (B)(1) with respect to any transaction or series of related transactions involving aggregate consideration in excess of $1.0 million, such transaction is approved by at least a majority of the disinterested members of the Board of Directors or (2) with respect to any transaction or series of related transactions involving aggregate consideration in excess of $5 million, the Company obtains a written opinion issued by an investment banking, accounting or appraisal firm of national recognized standing that such transaction or series of related transactions are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arms-length basis from a Person that is not an Affiliate of the Company;

     (ii) prior to the consummation of any pre-IPO High-Yield Transaction, incur debt for borrowed money, unless on a pro forma basis, after giving effect to such incurrence and the application of the proceeds therefrom, the sum of (a) the aggregate debt for borrowed money of the Company and its Subsidiaries and (b) the Accreted Value of all outstanding Shares of Preferred Stock (plus accrued but unpaid dividends thereon) does not exceed 100% of Consolidated Net Tangible Assets as of the date of such

incurrence; provided, however, that the conversion of the Bridge Facility into a term loan in accordance with its terms shall not be deemed an incurrence of debt for borrowed money for purposes of the foregoing covenant; or

     (iii) following any pre-IPO High Yield Transaction, incur debt for borrowed money in excess of the Maximum Permitted Debt Amount.

     (b) The covenants set forth in Section 10(a)(i) and (iii) shall expire and be of no further force or effect as such time as the Company completes a Qualified IPO (but substituting “no less than $15” in place of “no less than $21” in the definition thereof). The covenant set forth in Section 10(a)(ii) shall expire and be of no further force or effect at the earlier of (i) such time as the Company completes a pre-IPO High-Yield Transaction and (ii) such time as the Company completes a Qualified IPO (but substituting “no less than $15” in place of “no less than $21” in the definition thereof). Upon the occurrence and during the continuance of an Event of Default, the Dividend Rate shall increase by 2.0% percent per annum and the PIK Rate shall increase by an amount equal to 0.5%.

11. Other Provisions.

     (a) Any notice required by this Certificate of Designations to Holders shall be deemed given upon personal delivery, upon delivery by nationally recognized overnight delivery service with proof of receipt maintained, upon delivery by telecopy with receipt confirmed or five business days after deposit in the United States mail, certified mail, return receipt requested, postage prepaid, and addressed to each Holder of record at such Holder’s address appearing on the Company’s books.

     (b) With respect to any notice to a Holder required to be provided hereunder, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular Holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other Holders or affect the legality or validity of any distribution, rights, warrant, reclassification, consolidation, merger, business combination, conveyance, transfer, dissolution, liquidation or winding-up, or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives the notice.

     (c) Shares of Preferred Stock issued and reacquired will be retired and canceled promptly after reacquisition thereof and, upon compliance with the applicable requirements of Delaware law, have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may, subject to Section 4(b), with any and all other authorized but unissued shares of preferred stock of the Company be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, except that any issuance or reissuance of shares of Preferred Stock must be in compliance with this Certificate of Designation.

     (d) The shares of Preferred Stock shall be issuable only in whole shares.

     (e) All notice periods referred to herein shall commence on the date of the mailing of the applicable notice.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate this 11^th day of December, 2006.

SANDRIDGE ENERGY, INC.
By:	/s/ Tom L. Ward
	Tom L. Ward
	Chief Executive Officer

EXHIBIT A

FORM OF PREFERRED STOCK

FACE OF SECURITY

     IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE COMPANY OR ANY TRANSFER AGENT APPOINTED BY THE COMPANY SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY OR SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH APPLICABLE RESTRICTIONS ON TRANSFER. UNTIL OTHERWISE DETERMINED, THE COMPANY HAS ELECTED TO ACT AS TRANSFER AGENT.

     THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS (I) REGISTERED UNDER THE APPLICABLE SECURITIES LAWS, (II) SUCH TRANSACTION IS PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (III) AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY, HAS BEEN DELIVERED TO THE COMPANY AND SUCH OPINION STATES THAT THE SHARES MAY BE TRANSFERRED WITHOUT SUCH REGISTRATION.

     A STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF SHARES OF EACH CLASS OF STOCK OF THE CORPORATION, INCLUDING A DENIAL OF PREEMPTIVE RIGHTS, IS SET FORTH IN THE CERTIFICATE OF INCORPORATION OF THE CORPORATION. A COPY OF THE CERTIFICATE OF INCORPORATION OF THE COMPANY IS ON FILE WITH THE DELAWARE SECRETARY OF STATE AND MAY BE OBTAINED BY THE RECORD HOLDER FREE OF CHARGE BY WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.

A-1

Certificate Number

[        ] Number of Shares of
Convertible Preferred Stock
[        ]

Series A Convertible Preferred Stock
of
SandRidge Energy, Inc.

     SandRidge Energy, Inc., a Delaware corporation (the “Company”), hereby certifies that [                    ] (the “Holder”) is the registered owner of [                    ] fully paid and non-assessable preferred securities of the Company designated the Series A Convertible Preferred Stock, par value $0.001, (the “Preferred Stock”). The shares of Preferred Stock are transferable on the books and records of the Company, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated December ___, 2006, as the same may be amended from time to time (the “Certificate of Designation”). Capitalized terms used herein but not defined shall have the meaning given them in the Certificate of Designation. The Company will provide a copy of the Certificate of Designation to a Holder without charge upon written request to the Company at its principal place of business.

     Reference is hereby made to select provisions of the Preferred Stock set forth on the reverse hereof, and to the Certificate of Designation, which select provisions and the Certificate of Designation shall for all purposes have the same effect as if set forth at this place.

     Upon receipt of this certificate, the Holder is bound by the Certificate of Designation and is entitled to the benefits thereunder.

     If at any time a Transfer Agent other than the Company has been appointed and is acting, unless the Transfer Agent’s Certificate of Authentication hereon has been properly executed, these shares of Preferred Stock shall not be entitled to any benefit under the Certificate of Designation or be valid or obligatory for any purpose.

A-2

     IN WITNESS WHEREOF, the Company has executed this certificate this ___ day of December, 2006.

SANDRIDGE ENERGY, INC.
By:
	Name:	Tom L. Ward
	Title:	Chairman and Chief Executive Officer

A-3

REVERSE OF SECURITY

     Cash dividends on each share of Preferred Stock shall be payable at a rate per annum set forth in the face hereof or as provided in the Certificate of Designation.

     The shares of Preferred Stock shall be convertible into the Company’s Common Stock in the manner and according to the terms set forth in the Certificate of Designation.

     The Company is authorized to issue more than one class of stock and the Company will furnish without charge to each Holder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock and the qualifications, limitations or restrictions of such preferences and/or rights.

A-4

ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Preferred Stock evidenced hereby to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

and irrevocably appoints:

agent to transfer the shares of Preferred Stock evidenced hereby on the books of the Transfer Agent. The agent may substitute another to act for him or her.

Date:

Signature:

(Sign exactly as your name appears on the other side of this Preferred Stock Certificate)

Signature Guarantee:

A-5

EXHIBIT B

NOTICE OF CONVERSION

(To be Executed by the Holder
in order to Convert the Preferred Stock)

     The undersigned hereby irrevocably elects to convert (the “Conversion”) shares of Series A Convertible Preferred Stock (the “Preferred Stock”), represented by stock certificate No.(s)                    . (the “Preferred Stock Certificates”) into shares of common stock (“Common Stock”) of Riata Energy, Inc. (the “Company”) according to the conditions of the Certificate of Designation of the Preferred Stock (the “Certificate of Designation”), as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith the Preferred Stock Certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

     The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933 (the “Act”), or pursuant to any exemption from registration under the Act.

     Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designation.

     Date of Conversion:                                                                                                                                                                                         

     Applicable Conversion Price:                                                                                                                                                                           

     Number of shares of Preferred Stock to be Converted:                                                                                                                                  

     Signature:                                                                                                                                                                                                           

     Name:                                                                                                                                                                                                                 

     Address:**                                                                                                                                                                                                          

     Fax No.:                                                                                                                                                                                                                

*	The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of this notice.
**	Address where shares of Common Stock and any other payments or certificates shall be sent by the Company.

B-1

EXHIBIT C

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF PREFERRED STOCK

Re: Series A Convertible Preferred Stock (the “Preferred Stock”) of SandRidge Energy, Inc. (the “Company”)

          This Certificate relates to                      shares of Preferred Stock held by __________________________ (the “Transferor”).

          The Transferor has requested the Company by written order to exchange or register the transfer of Preferred Stock.

          In connection with such request and in respect of such Preferred Stock, the Transferor does hereby certify that the Transferor is familiar with the Certificate of Designation relating to the above-captioned Preferred Stock and that the transfer of this Preferred Stock does not require registration under the Securities Act of 1933 (the “Securities Act”) because:

¨ Such Preferred Stock is being acquired for the Transferor’s own account without transfer.

¨ Such Preferred Stock is being transferred to the Company.

¨ Such Preferred Stock is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act (and based on an Opinion of Counsel if the Company so requests).

_______________________________________________
(INSERT NAME OF TRANSFEROR]

by: ____________________________________________

Date:                     

Please check applicable box.

C-1

EX-3.3

Exhibit 3.3

AMENDED AND RESTATED BYLAWS

OF

SANDRIDGE ENERGY, INC.

A Delaware Corporation

December 11, 2006

TABLE OF CONTENTS

Article I. Registered Office			1
Article II. Stockholders			1
	Section 1.	Place of Meetings	1
	Section 2.	Quorum; Required Vote for Stockholder Action; Adjournment of Meetings	1
	Section 3.	Annual Meetings	2
	Section 4.	Special Meetings	2
	Section 5.	Record Date	2
	Section 6.	Notice of Meetings	3
	Section 7.	Voting List	3
	Section 8.	Proxies	3
	Section 9.	Voting; Elections; Inspectors	4
	Section 10.	Conduct of Meetings	4
	Section 11.	Notice of Stockholder Business and Nominations	4
	Section 12.	Action by Written Consent of Stockholders	7
Article III. Board of Directors			7
	Section 1.	Power; Number; Classification; Term of Office; Election Procedures	7
	Section 2.	Quorum; Required Vote for Director Action	8
	Section 3.	Meetings; Order of Business	8
	Section 4.	First Meeting	9
	Section 5.	Regular Meetings	9
	Section 6.	Special Meetings	9
	Section 7.	Compensation	9
	Section 8.	Telephonic Meetings Permitted	9
	Section 9.	Action by Unanimous Consent of Directors	9
Article IV. Committees			9
	Section 1.	Designation; Powers	9
	Section 2.	Procedure; Meetings; Quorum	10
	Section 3.	Substitution of Members	10
	Section 4.	Dissolution	10
Article V. Officers			10
	Section 1.	Number, Titles and Term of Office	10
	Section 2.	Salaries	10
	Section 3.	Removal	10
	Section 4.	Vacancies	10
	Section 5.	Powers and Duties of the Chief Executive Officer	11
	Section 6.	Powers and Duties of the Chairman of the Board	11

	Section 7.	Powers and Duties of the President	11
	Section 8.	Vice Presidents	11
	Section 9.	Treasurer	11
	Section 10.	Assistant Treasurers	11
	Section 11.	Secretary	12
	Section 12.	Assistant Secretaries	12
	Section 13.	Action With Respect to Securities of Other Corporations	12
Article VI. Indemnification of Directors, Officers, Employees and Agents			12
	Section 1.	Right to Indemnification	12
	Section 2.	Advance Payment	13
	Section 3.	Indemnification of Employees and Agents	13
	Section 4.	Appearance as a Witness	13
	Section 5.	Nonexclusivity of Rights	14
	Section 6.	Insurance	14
	Section 7.	Claims	14
	Section 8.	Savings Clause	14
Article VII. Capital Stock			14
	Section 1.	Certificates of Stock	14
	Section 2.	Transfer of Shares	15
	Section 3.	Ownership of Shares	15
	Section 4.	Regulations Regarding Certificates	15
	Section 5.	Lost, Stolen, Destroyed or Mutilated Certificates	15
Article VIII. Miscellaneous Provisions			16
	Section 1.	Fiscal Year	16
	Section 2.	Corporate Seal	16
	Section 3.	Notice and Waiver of Notice	16
	Section 4.	Resignations	16
	Section 5.	Facsimile Signatures	16
	Section 6.	Books and Records	16
	Section 7.	Reliance Upon Books, Reports and Records	17
Article IX. Amendments			17

AMENDED AND RESTATED BYLAWS

OF

SANDRIDGE ENERGY, INC.

A Delaware Corporation

Article I.

Registered Office

     The registered office of the SandRidge Energy, Inc. (the “Corporation”) required by the General Corporation Law of the State of Delaware (the “General Corporation Law”) to be maintained in the State of Delaware shall be the registered office named in the original Certificate of Incorporation of the Corporation or such other office (which need not be a place of business of the Corporation) as may be designated from time to time by the Board of Directors in the manner provided by law.

Article II.

Stockholders

     Section 1. Place of Meetings. All meetings of the stockholders shall be held at the principal place of business of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notices or waivers of notice thereof.

     Section 2. Quorum; Required Vote for Stockholder Action; Adjournment of Meetings. Unless otherwise required by law or provided in the Certificate of Incorporation or these Bylaws, the holders of issued and outstanding shares representing a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business, and the act of a majority of the voting power of such stock so represented at any meeting of stockholders at which a quorum is present shall constitute the act of the meeting of stockholders.

     Notwithstanding the other provisions of the Certificate of Incorporation or these Bylaws, the chairman of the meeting or the holders of a majority of the voting power of the issued and outstanding stock present in person or represented by proxy at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. At such adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

     Section 3. Annual Meetings. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, within or without the State of Delaware, on such date and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within 13 months subsequent to the date of incorporation or the last annual meeting of stockholders, whichever most recently occurred.

     Section 4. Special Meetings. Unless otherwise provided in the Certificate of Incorporation, special meetings of the stockholders for any proper purpose or purposes may be called at any time by (a) the Chairman of the Board (if any), the President, the Board of Directors, or such other person or persons as may be authorized in the Certificate of Incorporation or (b) unless the Certificate of Incorporation provides otherwise, the holders of issued and outstanding shares representing at least fifty percent of all the votes entitled to be cast at the proposed special meeting.

     Only business within the purpose or purposes described in the notice (or waiver thereof) required by these Bylaws may be conducted at a special meeting of the stockholders.

     Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

     Section 6. Notice of Meetings. Unless otherwise provided by law, notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than 60 days before the date of the meeting by or at the direction of the President, the Secretary or the officer or person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, any such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid.

     Any notice required to be given to any stockholder, under any provision of the General Corporation Law or the Certificate of Incorporation or these Bylaws need not be given to the stockholder if (a) notice of two consecutive annual meetings and all notices of meetings or the taking of action by written consent without a meeting to such person during the period between those annual meetings, or (b) all (but in no event less than two) payments of distributions or interest on securities during a 12-month period have been mailed to that person by first-class mail, addressed to him at his address as shown on the records of the Corporation, and have been returned undeliverable. Any action or meeting taken or held without notice to such person shall have the same force and effect as if the notice had been duly given and, if the action taken by the Corporation is reflected in any document filed with the Secretary of State, such document may state that notice was duly given to all persons to whom notice was required to be given. If such a person delivers to the Corporation written notice setting forth his then current address, the requirement that notice be given to that person shall be reinstated.

     Section 7. Voting List. The officer who has charge of the stock ledger of the Corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be open to examination of any stockholder (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 7 or to vote in person or by proxy at any meeting of stockholders.

     Section 8. Proxies. Except as otherwise provided by or pursuant to the provisions of the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. No proxy shall be valid after three years from the date of its execution unless otherwise provided in the proxy. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest sufficient in law to support an irrevocable power.

     Section 9. Voting; Elections; Inspectors. Unless otherwise required by law or provided in the Certificate of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders.

     All voting, except as required by the Certificate of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, that a vote by ballot shall be taken upon demand therefor by stockholders holding issued and outstanding shares representing a majority of the voting power present in person or by proxy at any meeting. Every vote by ballot shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting.

     At any meeting at which a vote is taken by ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. Such inspector shall receive the ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector.

     At each election of directors each stockholder entitled to vote thereat shall, unless otherwise provided by law or by the Certificate of Incorporation, have the right to vote the number of shares owned by him for as many persons as there are to be elected and for whose election he has a right to vote. No stockholder shall have the right to cumulate his votes.

     At all meetings of stockholders for the election of directors at which a quorum is present, a plurality of the votes cast shall be sufficient to elect. All other elections and questions presented to the stockholders at a meeting at which a quorum is present, shall, unless otherwise provided by the Certificate of Incorporation, these Bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the Corporation which are present in person or by proxy and entitled to vote thereon.

     Section 10. Conduct of Meetings. All meetings of the stockholders shall be presided over by the chairman of the meeting, who shall be the Chairman of the Board (if any), or if he is not present, the President, or if neither the Chairman of the Board (if any) nor President is present, a chairman elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings, or if he is not present, an Assistant Secretary (if any) shall so act; if neither the Secretary nor an Assistant Secretary (if any) is present, then a secretary shall be appointed by the chairman of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order.

     Section 11. Notice of Stockholder Business and Nominations

     (a) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the

stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation’s notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Bylaw.

          (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of Section 11 of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-11 thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner and (ii) the class or series and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

          (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of Section 11 of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement of the increased Board is first made by the Corporation.

     (b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (1) by or at the direction of the Board of Directors or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by paragraph (a)(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

     (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 11, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the corporation. For purposes of this Section 11, to be considered a qualified representative of the stockholder, a person must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

          (2) For purposes of this Bylaw, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

          (3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors under specified circumstances.

     Section 12. Action by Written Consent of Stockholders. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which minutes of proceedings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by law, be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation.

Article III.

Board of Directors

     Section 1. Power; Number; Classification; Term of Office; Election Procedures. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

     The number, classification, and terms of the board of directors of the Corporation and the procedures to elect directors, to remove directors, and to fill vacancies in the board of directors shall be as follows:

     (a) Unless otherwise provided in the Certificate of Incorporation, the number of directors that shall constitute the whole board of directors shall from time to time be fixed exclusively by the Board of Directors by a resolution adopted by a majority of the whole board of directors serving at the time of that vote. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Directors of the Corporation need not be elected by written ballot unless the by-laws of the Corporation otherwise provide. Unless otherwise provided in the Certificate of Incorporation, directors need not be stockholders of the Corporation or residents of the State of Delaware.

     (b) The board of directors of the Corporation shall be divided into three classes designated Class I, Class II, and Class III, respectively, all as nearly equal in number as possible. The initial term of office of directors of Class I shall expire at the first annual meeting of stockholders of the Corporation following the effectiveness of these Amended and Restated Bylaws, of Class II shall expire at the second annual meeting of stockholders of the Corporation following the effectiveness of these Amended and Restated Bylaws, and of Class III shall expire at the third annual meeting of stockholders of the Corporation following the effectiveness of these Amended and Restated Bylaws, and in all cases as to each director until his successor is elected and qualified or until his earlier death, resignation or removal. At each annual meeting of stockholders, each director elected to succeed a director whose term is then expiring shall hold his office until the third annual meeting of stockholders after his election and until his successor is elected and qualified or until his earlier death, resignation or removal.

     (c) Vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause and newly-created directorships resulting from any increase in the authorized number of directors shall be filled by the Board of Directors by no less than a majority vote of the remaining directors then in office, though less than a quorum, and each director so chosen shall receive the classification of the vacant directorship to which he has been appointed or, if it is a newly-created directorship, shall receive the classification that at least a majority of the board of directors designates and shall hold office until the first meeting of stockholders held after his election for the purpose of electing directors of that classification and until his successor is elected and qualified or until his earlier death, resignation, or removal from office.

     (d) A director of any class of directors of the Corporation may be removed before the expiration date of that director’s term of office, only for cause, by an affirmative vote of the holders of not less than a majority of the votes of the outstanding shares of the class or classes or series of stock then entitled to be voted at an election of directors, voting together as a single class, cast at the annual meeting of stockholders or at any special meeting of stockholders called by a majority of the whole board of directors for this purpose.

     Section 2. Quorum; Required Vote for Director Action. Unless otherwise required by law or provided in the Certificate of Incorporation or these Bylaws, a majority of the total number of directors shall constitute a quorum for the transaction of business of the Board of Directors, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

     Section 3. Meetings; Order of Business. Meetings of the Board of Directors may be held at such place or places as shall be determined from time to time by resolution of the Board of Directors. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the Chairman of the Board (if any), or in his absence by the President (if the President is director), or by resolution of the Board of Directors.

     Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business an the ground that the meeting is not lawfully called or convened.

     Section 4. First Meeting. In connection with any annual meeting of stockholders at which directors were elected, the Board of Directors may, if a quorum is present, hold its first meeting for the transaction of business immediately after and at the same place as such annual meeting of the stockholders. Notice of such meeting at such time and place shall not be required.

     Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by resolution of the Board of Directors. Notice of such regular meetings shall not be required.

     Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board (if any), the President or, on the written request of any one director, by the Secretary, in each case on at least 24 hours personal, written, electronic or wireless notice to each director. Such notice, or any waiver thereof pursuant to Article VIII, Section 3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for by the Certificate of Incorporation or these Bylaws.

     Section 7. Compensation. Unless restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation, if any, of directors.

     Section 8. Telephonic Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.

     Section 9. Action by Unanimous Consent of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the board or committee in accordance with applicable law.

Article IV.

Committees

     Section 1. Designation; Powers. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management

of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it.

     Section 2. Procedure; Meetings; Quorum. Any committee designated pursuant to Section 1 of this Article shall choose its own chairman and secretary, shall keep regular minutes of its proceedings and report the same to the Board of Directors when requested, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by resolution of such committee or of the Board of Directors. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum, and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution.

     Section 3. Substitution of Members. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee.

     Section 4. Dissolution. The Board of Directors may dissolve any committee at any time, unless otherwise provided in the Certificate of Incorporation or these Bylaws.

Article V.

Officers

     Section 1. Number, Titles and Term of Office. The officers of the Corporation shall be a President and a Secretary and such other officers as the Board of Directors may from time to elect or appoint, including, without limitation, a chairman of the Board, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Treasurer, one or more Assistant Treasurers and one or more Assistant Secretaries. Each officer shall hold office until his successor shall be duly elected and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any number of offices may be held by the same person. Except for the Chairman of the Board, if any, no officer need be a director.

     Section 2. Salaries. The salaries or other compensation, if any, of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors.

     Section 3. Removal. Any officer or agent or member of a committee elected or appointed by the Board of Directors may be removed, either with or without cause, by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent or member of a committee shall not of itself create contract rights.

     Section 4. Vacancies. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors.

     Section 5. Powers and Duties of the Chief Executive Officer. The President shall be the chief executive officer of the Corporation unless the Board of Directors designates the

Chairman of the Board (if any) or other officer as chief executive officer. Subject to the control of the Board of Directors, the chief executive officer shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; he may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and he shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him by the Board of Directors.

     Section 6. Powers and Duties of the Chairman of the Board. The chairman of the Board (if any) shall preside at all meetings of the stockholders and of the Board of Directors; and the Chairman shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the Board of Directors.

     Section 7. Powers and Duties of the President. Unless the Board of Directors otherwise determines, the President shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and, unless the Board of Directors otherwise determines, he shall, in the absence of the Chairman of the Board or if there be no Chairman of the Board, preside at all meetings of the stockholders and (should he be a director) of the Board of Directors; and the President shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to him by the Board of Directors.

     Section 8. Vice Presidents. The Vice President(s), if any, shall perform such duties and have such powers as the Board of Directors may from time to time prescribe. In addition, in the absence of the Chairman of the Board (if any) or President, or in the event of their inability or refusal to act, (i) a Vice President designated by the Board of Directors or (ii) in the absence of such designation, the Vice President who is present and who is senior in terms of time as a Vice President of the Corporation, shall perform the duties of the Chairman of the Board (if any), or the President, as the case may be, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board (if any), or the President; provided that he shall not preside at meetings of the Board of Directors unless he is a director.

     Section 9. Treasurer. The Treasurer, if any, shall have responsibility for the custody and control of all the funds and securities of the Corporation, and he shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the Board of Directors. He shall perform all acts incident to the position of Treasurer subject to the control of the chief executive officer and the Board of Directors; and the Treasurer shall, if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form as the Board of Directors may require.

     Section 10. Assistant Treasurers. Each Assistant Treasurer, if any, shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors or the Treasurer. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer’s absence or inability or refusal to act.

     Section 11. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, and the minutes of all meetings of the stockholders, in books provided for that purpose; he shall attend to the giving and serving of all notices; he may in the name of the Corporation affix the seal (if any) of the Corporation to all contracts of the Corporation and attest thereto; he may sign with the other appointed officers permitted by law all certificates for shares of capital stock of the Corporation; he shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; he shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors; and he shall in general perform all duties incident to the office of Secretary, subject to the control of the chief executive officer and the Board of Directors.

     Section 12. Assistant Secretaries. Each Assistant Secretary, if any, shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors or the Secretary. The Assistant Secretaries shall exercise the powers of the Secretary during that officer’s absence or inability or refusal to act.

     Section 13. Action With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, each of the chief executive officer and the Treasurer (if any), or either of them, shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

Article VI.

Indemnification of Directors,

Officers, Employees and Agents

     Section 1. Right to Indemnification. Subject to the limitations and conditions as provided in this Article VI, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative arbitrative or investigative (hereinafter a “proceeding”), or any appeal in such a proceeding or any inquiry or investigation that could lead to such a proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or while a director or officer of the Corporation is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise shall be indemnified by the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended against judgments, penalties (including excise and similar taxes and punitive damages),

fines, settlements and reasonable expenses (including, without limitation, attorneys’ fees) actually incurred by such person in connection with such proceeding, and indemnification under this Article VI shall continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity hereunder. The rights granted pursuant to this Article VI shall be deemed contract rights, and no amendment, modification or repeal of this Article VI shall have the effect of limiting or denying any such rights with respect to actions taken or proceedings arising prior to any such amendment, modification or repeal. It is expressly acknowledged that the indemnification provided in this Article VI could involve indemnification for negligence or under theories of strict liability. Notwithstanding the preceding sentences in this Section 1, except as otherwise provided in Section 7 hereof, the Corporation shall be required to indemnify any person in connection with a proceeding (or part thereof) commenced by such person only if the commencement of such proceeding (or part thereof) by such person was authorized in the specific case by the Board of Directors of the Corporation.

     Section 2. Advance Payment. The right to indemnification conferred in this Article VI shall include the right to be paid or reimbursed by the Corporation the reasonable expenses incurred by a person of the type entitled to be indemnified under Section 1 who was, is or is threatened to be made a named defendant or respondent in a proceeding in advance of the final disposition of the proceeding and without any determination as to the person’s ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such person in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of a written affirmation by such director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification under this Article VI and a written undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such indemnified person is not entitled to be indemnified under this Article VI or otherwise.

     Section 3. Indemnification of Employees and Agents. The Corporation, by adoption of a resolution of the Board of Directors, may indemnify and advance expenses to an employee, or agent of the Corporation to the same extent and subject to the same conditions under which it may indemnify and advance expenses to directors and officers under this Article VI; and, the Corporation may indemnify and advance expenses to persons who are not or were not directors, officers, employees or agents of the Corporation but who are or were serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such a person to the same extent that it may indemnify and advance expenses to directors under this Article VI.

     Section 4. Appearance as a Witness. Notwithstanding any other provision of this Article VI, the Corporation may pay or reimburse expenses incurred by a director or officer in connection with his or her appearance as a witness or other participation in a proceeding at a time when he or she is not a named defendant or respondent in the proceeding.

     Section 5. Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article VI shall not be exclusive of any other right which a director or officer or other person indemnified pursuant to Section 3 of this

Article VI may have or hereafter acquire under any law (common or statutory), provision of the Certificate of Incorporation of the Corporation or these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

     Section 6. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was serving as a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, proprietorship, employee benefit plan, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under this Article VI.

     Section 7. Claims. If a claim for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Article VI is not paid in full within thirty days after a written claim therefor by a person covered by Section 1 of this Article VI has been received by the Corporation, such person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the person is not entitled to the requested indemnification or advancement of expenses under applicable law.

     Section 8. Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director, officer or any other person indemnified pursuant to this Article VI as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the ‘full extent permitted by any applicable portion of this Article VI. that shall not have been invalidated and to the fullest extent permitted by applicable law.

Article VII.

Capital Stock

     Section 1. Certificates of Stock. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. If certificated, the certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the Certificate of Incorporation, as shall be approved by the Board of Directors. The Chairman of the Board (if any), President or a Vice President (if any) shall cause to be issued to each stockholder one or more certificates, which shall be signed by the Chairman of the Board (if any), President or a Vice President (if any) and the Secretary or an Assistant Secretary (if any) or the Treasurer or an Assistant Treasurer (if any) certifying the number of shares (and, if the stock of the Corporation shall be divided into classes or series, the class and series of such shares) owned by such stockholder in the Corporation; provided, however, that any of or all the signatures on the certificate may be facsimile. If the Board of

Directors shall have provided for a seal, such certificates shall bear such seal or a facsimile thereof. The stock record books and the blank stock certificate books shall be kept by the Secretary, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time by resolution determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same affect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder’s name and number of shares.

     Each certificate shall conspicuously bear any legend required pursuant to Section 151(f) and/or Section 202 of the General Corporation Law, as well as any other legend required by law.

     Section 2. Transfer of Shares. The shares of stock of the Corporation, shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives, upon surrender and cancellation of certificates for a like number of shares (or upon compliance with the provisions of Section 5 of this Article VII, if applicable). Upon such surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer (or upon compliance with the provisions of Section 5 of this Article VII, if applicable) and of compliance with any transfer restrictions applicable thereto contained in an agreement to which the Corporation is a party or of which the Corporation has knowledge by reason of legend with respect thereto placed an any such surrendered stock certificate, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

     Section 3. Ownership of Shares. To the fullest extent permitted by law, the Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

     Section 4. Regulations Regarding Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation.

     Section 5. Lost, Stolen, Destroyed or Mutilated Certificates. The Board of Directors may determine the conditions upon which a new certificate of stock may be issued in place of a certificate that is alleged to have been lost, stolen, destroyed or mutilated; and may, in its discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety, to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the issuance of a new certificate in the place of the one so lost, stolen, destroyed or mutilated.

Article VIII.

Miscellaneous Provisions

     Section 1. Fiscal Year. The fiscal year of the Corporation shall be such as established from time to time by the Board of Directors.

     Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation. The Secretary shall have charge of the seal (if any). If and when so directed by the Board of Directors, duplicates of the seal may be kept and used by the Treasurer, if any, or by any Assistant Secretary or Assistant Treasurer.

     Section 3. Notice and Waiver of Notice. Whenever any notice is required to be given by law, the Certificate of Incorporation or these Bylaws, except with respect to notices of meetings of stockholders (with respect to which the provisions of Article II, Section 6 apply) and except with respect to notices of special meetings of directors (with respect to which the provisions of Article VIII, Section 6 apply), said notice shall be deemed to be sufficient if given (a) by electronic or wireless transmission to the fullest extent permitted by the General Corporation Law of the State of Delaware or (b) by deposit of same in a post office box in a sealed prepaid wrapper addressed to the person entitled thereto at his address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing, as the case may be.

     Whenever notice is required to be given by law, the Certificate of Incorporation or these Bylaws, a waiver thereof, given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.

     Section 4. Resignations. Any director, member of a committee or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time be specified, at the time of its receipt by the chief executive officer or secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.

     Section 5. Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors.

     Section 6. Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its stockholders and Board of Directors and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each. Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time.

     Section 7. Reliance Upon Books, Reports and Records. A member of the Board of Directors, or a member of any committee designated by the board of directors, shall, in the

performance of such member’s duties, be fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Article IX.

Amendments

     The Bylaws may be altered, amended or repealed, and new Bylaws made, by the Board of Directors, but the stockholders may make additional Bylaws and may later and repeal any Bylaws whether adopted by them or otherwise.

EX-4.2

Exhibit 4.2

EXECUTION COPY

BANC OF AMERICA SECURITIES LLC

16,000,000 SHARES

RIATA ENERGY, INC.

COMMON STOCK

Resale Registration Rights Agreement

dated December 21, 2005

          RESALE REGISTRATION RIGHTS AGREEMENT, dated as of December 21, 2005, between Riata Energy, Inc., a Texas corporation (together with any successor entity, herein referred to as the "Company”), and Banc of America Securities LLC, as representative (the “Representative”) of the several initial purchasers (the “Initial Purchasers”) under the Purchase Agreement (as defined below).

          Pursuant to the Purchase Agreement, dated as of December 15, 2005, between the Company, the Selling Shareholders and Banc of America Securities LLC, as representative of the Initial Purchasers (the “Purchase Agreement”), relating to the initial placement (the “Initial Placement”) of the Common Stock (as defined below), the Initial Purchasers have agreed to purchase from the Company and the Selling Shareholders an aggregate of 16,000,000 shares (18,400,000 shares if the Initial Purchasers exercise their option to purchase additional shares in full) of common stock, par value $0.001 per share, of the Company (the “Common Stock”). To induce the Initial Purchasers to purchase the Common Stock, the Company has agreed to provide the registration rights set forth in this Agreement pursuant to Section 5(j) of the Purchase Agreement.

          The parties hereby agree as follows:

          1. Definitions. Capitalized terms used in this Agreement without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings:

          "Affiliate” of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

          "Agreement”: This Resale Registration Rights Agreement.

          "Amended Effectiveness Deadline Date”: has the meaning set forth in Section 2(f) hereof.

          "Blue Sky Application”: As defined in Section 7(a)(i) hereof.

          "Business Day”: A day, other than a Saturday or Sunday, that in the City of New York, is not a day on which banking institutions are authorized or required by law, regulation or executive order to close.

          "Closing Date”: The date of the first issuance of the Common Stock.

          "Commission”: Securities and Exchange Commission.

          “Common Stock”: As defined in the preamble hereto.

          “Company”: As defined in the preamble hereto.

          “Effectiveness Period”: As defined in Section 2(a)(iii) hereof.

          “Effectiveness Target Date”: As defined in Section 2(a)(ii) hereof.

          “Exchange Act”: Securities Exchange Act of 1934, as amended.

          “Holder”: A Person who owns, beneficially or otherwise, Transfer Restricted Securities.

          “Indemnified Holder”: As defined in Section 7(a) hereof.

          “Initial Placement”: As defined in the preamble hereto.

          “Initial Purchasers”: As defined in the preamble hereto.

          “Liquidated Damages”: As defined in Section 4(a) hereof.

          “Liquidated Damages Payment Date”: The date on which a Registration Default occurs and then each March 31, June 30, September 30 and December 31 until all Registration Defaults have been cured.

          “Losses”: As defined in Section 7(e) hereof.

          “Majority of Holders”: Holders holding over 50% of the Transfer Restricted Securities outstanding.

          “Managing Underwriter”: The investment banker or investment bankers and manager or managers that administer an underwritten offering, if any, conducted pursuant to Section 9 hereof.

          “NASD”: National Association of Securities Dealers, Inc.

          “Notice and Questionnaire” means a written notice executed by the respective Holder and delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex III to the Offering Memorandum of the Company relating to the Common Stock.

          “Notice Holder”: On any date, any Holder of Transfer Restricted Securities that has delivered a Notice and Questionnaire to the Company on or prior to such date.

2

          “Person”: An individual, partnership, corporation, company, unincorporated organization, trust, joint venture or a government or agency or political subdivision thereof.

          “Piggyback Registration Statement”: As defined in Section 3(a) hereof.

          “Purchase Agreement”: As defined in the preamble hereto.

          “Prospectus”: The prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such prospectus.

          “Record Holder”: With respect to any Liquidated Damages Payment Date, each Person who is a Holder on the 15^th day preceding the relevant Liquidated Damages Payment Date.

          “Registration Default”: As defined in Section 4(a) hereof.

          “Representative”: As defined in the preamble hereto.

          “Securities Act”: Securities Act of 1933, as amended.

          “Shelf Filing Deadline”: As defined in Section 2(a)(i) hereof.

          “Shelf Registration Statement”: As defined in Section 2(a)(i) hereof.

          “Subsequent Shelf Registration Statement” has the meaning set forth in Section 2(c) hereof.

          “Suspension Notice”: As defined in Section 5(c) hereof.

          “Suspension Period”: As defined in Section 5(b)(i) hereof.

          “Transfer Agent”: American Stock Transfer & Trust Company.

          “Transfer Restricted Securities”: Each share of Common Stock until the earlier of:

          (a) the date on which such share of Common Stock has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement;

          (b) the date on which such share of Common Stock is transferred in compliance with Rule 144 under the Securities Act or may be sold or transferred by a person who is not an affiliate of the Company pursuant to Rule 144 under the Securities Act (or any other similar provision then in force) without any volume or manner of sale restrictions thereunder; or

3

          (c) the date on which such share of Common Stock ceases to be outstanding (whether as a result of repurchase and cancellation or otherwise).

          “underwriter”: Any underwriter of Common Stock in connection with an offering thereof under the Shelf Registration Statement.

          “Underwritten Registration”: A registration in which Common Stock of the Company is sold to an underwriter or underwriters for reoffering to the public.

          Unless the context otherwise requires, the singular includes the plural, and words in the plural include the singular.

2. Shelf Registration.

(a) The Company shall:

          (i) as promptly as practicable (but in no event more than 90 days after the Closing Date) (the “Shelf Filing Deadline”), cause to be filed a registration statement pursuant to Rule 415 under the Securities Act or any similar rule that may be adopted by the Commission (the “Shelf Registration Statement”), which Shelf Registration Statement shall provide for the registration and resales, on a continuous or delayed basis, of all Transfer Restricted Securities, plus any additional shares of Common Stock issued in respect thereof whether by stock dividend, stock split or otherwise, held by Holders that have provided the information required pursuant to the terms of Section 2(b) hereof;

          (ii) use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act by the Commission not later than 210 days after the Closing Date (the “Effectiveness Target Date”); and

          (iii) use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the Securities Act and by the provisions of Section 5(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled, subject to Section 2(b), to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act and the rules and regulations of the Commission promulgated thereunder as announced from time to time, for a period (the “Effectiveness Period”) from the date the Shelf Registration Statement is declared effective by the Commission until the earliest of:

4

          (1) the sale of all of the shares of Common Stock covered by the Shelf Registration Statement pursuant to the registration statement or Rule 144 under the Securities Act or any similar provision then in effect;

          (2) such time as all of the shares of Common Stock sold in the Initial Placement and covered by the Shelf Registration Statement and not held by Affiliates of the Company are, in the opinion of counsel for the Company, eligible for sale pursuant to Rule 144(k) (or any successor or analogous rule) under the Securities Act; or

          (3) the second anniversary of the issuance of shares of Common Stock pursuant to the Purchase Agreement with the Initial Purchasers.

          The Company shall be deemed not to have used its commercially reasonable efforts to keep the Shelf Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities not being able to offer and sell such Securities at any time during the Effectiveness Period, unless such action is (x) required by applicable law or otherwise undertaken by the Company in good faith and for valid business reasons (not including avoidance of the Company’s obligations hereunder), including the acquisition or divestiture of assets, and (y) permitted by Section 5(b)(ii) hereof.

          (b) At the time the Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date ten (10) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Transfer Restricted Securities in accordance with applicable law. None of the Company’s securityholders (other than the Holders of Transfer Restricted Securities) shall have the right to include any of the Company’s securities in the Shelf Registration Statement.

          (c) If the Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Transfer Restricted Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Transfer Restricted Securities), the Company shall use its commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof or file an additional Shelf Registration Statement covering all of the

5

securities that as of the date of such filing are Transfer Restricted Securities ( a “Subsequent Shelf Registration Statement”). If a Subsequent Shelf Registration Statement is filed, the Company shall use its commercially reasonable efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable after such filing and to keep such Registration Statement (or subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period.

          (d) The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as reasonably requested by the Initial Purchasers or by the Holders of the Transfer Restricted Securities covered by such Shelf Registration Statement.

          (e) The Company shall cause the Shelf Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement or such amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act, and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading.

          (f) Each Holder agrees that if such Holder wishes to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(f) and Section 5(b). Each Holder wishing to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least ten (10) Business Days prior to any intended distribution of Transfer Restricted Securities under the Shelf Registration Statement. From and after the date the Shelf Registration Statement is declared effective the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered to it, and in any event upon the later of (x) ten (10) Business Days after such date (but no earlier than ten (10) Business Days after effectiveness) or (y) ten (10) Business Days after the expiration of any Suspension Period in effect when the Notice and Questionnaire is delivered or put into effect within ten (10) Business Days of such delivery date:

          (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document

6

incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Transfer Restricted Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best effort to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the “Amendment Effectiveness Deadline Date”) that is forty-five (45) days after the date such post effective amendment is required by this clause to be filed;

          (ii) provide such Holder copies of the any documents filed pursuant to Section 2(f)(i); and

          (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(f)(i);

provided that if such Notice and Questionnaire is delivered during a Suspension Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Suspension Period in accordance with Section 5(b). Notwithstanding anything contained herein to the contrary, (i) the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Shelf Registration Statement or related Prospectus and (ii) the Amendment Effectiveness Deadline Date shall be extended by up to ten (10) Business Days from the Expiration of a Suspension Period (and the Company shall incur no obligation to pay Liquidated Damages during such extension) if such Suspension Period shall be in effect on the Amendment Effectiveness Deadline Date.

3. Piggyback Registration.

          (a) If, after the date hereof, the Company proposes to file a registration statement under the Securities Act providing for an initial public offering of the Company’s equity securities, other than the Shelf Registration Statement, or a registration statement on Form S-8 or Form S-4 or any similar form hereafter adopted by the Commission as a replacement therefor (including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement, the “Piggyback Registration Statement”), the Company will notify each Holder of the proposed filing

7

if clause (i) or (ii) of the following sentence applies, or only those affected Holders if clause (iii) of the following sentence applies. If (i) the Piggyback Registration Statement relates to an Underwritten Registration, (ii) the Shelf Registration Statement is not then effective or (iii) Transfer Restricted Securities eligible for inclusion on the Shelf Registration Statement when initially declared effective were not included in the Shelf Registration Statement (unless such securities can and will be added to the Shelf Registration Statement at such time), then each Holder in the case of clause (i) and (ii), and each such affected Holder in the case of clause (iii), shall be given an opportunity to include in such Piggyback Registration Statement all or any part of such Holder’s Transfer Restricted Securities. Each such Holder desiring to include in any such Piggyback Registration Statement all or part of such Holder’s Transfer Restricted Securities shall, within ten (10) days after delivery of the above-described notice by the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Transfer Restricted Securities such Holder wishes to include in such Piggyback Registration Statement and provide, as a condition to such inclusion, such information regarding itself, its Transfer Restricted Securities and the intended method of disposition of such securities as is required pursuant to Regulation S-K promulgated under the Securities Act to effect the registration of the Transfer Restricted Securities. Any election by any Holder to include any Transfer Restricted Securities in such Piggyback Registration Statement will not affect the inclusion of such Transfer Restricted Securities in the Shelf Registration Statement until such Transfer Restricted Securities have been sold under the Piggyback Registration Statement; provided, however, that at such time, the Company may remove from the Shelf Registration Statement the Transfer Restricted Securities sold pursuant to the Piggyback Registration Statement.

          (b) At any time, the Company may terminate or withdraw any Piggyback Registration Statement referred to in this Section 3, and without any obligation to any such Holder whether or not any Holder has elected to include Transfer Restricted Securities in such registration. The Company may suspend the effectiveness and use of any Piggyback Registration Statement at any time for an unlimited amount of time whether or not any Holder has elected to include Transfer Restricted Securities in such registration.

          (c) The Company shall advise the Holders of the managing underwriters for any Underwritten Registration proposed under the Piggyback Registration Statement. The right of any such Holder’s Transfer Restricted Securities to be included in any such Piggyback Registration Statement pursuant to this Section 3 shall be condition upon such Holder’s participation in such Underwritten Registration and the inclusion of such Holder’s Transfer Restricted Securities in the

8

Underwritten Registration to the extend provided herein. All Holders proposing to distribute their Transfer Restricted Securities through such Underwritten Registration shall enter into an underwriting agreement in customary form with the managing underwriters selected for such underwriting and complete and execute any questionnaires, powers of attorney, indemnities, securities escrow agreements and other documents reasonably required under the terms of such underwriting, and furnish to the Company such information in writing as the Company may reasonably request for inclusion in the Piggyback Registration Statement; provided, however, that no Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements as are customary and reasonably requested by the underwriters. Notwithstanding any other provision of this Agreement, if the managing underwriters determine in good faith that marketing factors require a limitation on the number of securities to be included, then the managing underwriters may exclude securities (including Transfer Restricted Securities) from the Piggyback Registration Statement and the Underwritten Registration, and any securities included in the Piggyback Registration Statement and the Underwritten Registration shall be allocated, first, to the Company, and second, to each of the Holders requesting inclusion of their Transfer Restricted Securities in such Piggyback Registration Statement on a pro rata basis based on the total number of such securities requested to be included. If any Holder disapproves of the terms of any Underwritten Registration, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) Business Days prior to the effective date of the Piggyback Registration Statement. Any Transfer Restricted Securities excluded or withdrawn from such Underwritten Registration shall be excluded and withdrawn from the Piggyback Registration Statement.

          (d) By electing to include Transfer Restricted Securities in the Piggyback Registration Statement, if any, the Holder shall be deemed to have agreed not to effect any sale or distribution of securities of the Company of the same or similar class or classes of the securities included in the Piggyback Registration Statement or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act, during such periods as reasonably requested (but in no event for a period longer than sixty (60) days following the effective date of the Piggyback Registration Statement, provided each of the executive officers and directors of the Company that hold shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company are subject to the same restriction for the entire time period required of the Holders hereunder) by the representatives of the underwriters, if an Underwritten Registration.

9

          (e) Upon an initial public offering of the Company’s equity securities, Holders that are beneficiaries of this Agreement, whether or not they sell in the initial public offering, will not be able to sell any remaining Transfer Restricted Securities not included in the Piggyback Registration Statement for a period of 60 days following the effective date of such Piggyback Registration Statement.

          (f) The Company’s obligation to file the Shelf Registration Statement shall not be affected by the filing or effectiveness of the Piggyback Registration Statement.

4. Liquidated Damages.

(a) If:

          (i) the Shelf Registration Statement is not filed with the Commission prior to or on the Shelf Filing Deadline; or

          (ii) the Shelf Registration Statement has not been declared effective by the Commission prior to or on the Effectiveness Target Date;

(each such event referred to in foregoing clauses (i) and (ii), a (“Registration Default”)), the Company hereby agrees to pay damages (“Liquidated Damages”) with respect to the Transfer Restricted Securities at the close of business on the date of such Registration Default in an amount per share of Common Stock equal to 0.5% of the offering price per share set forth on the cover page of the Offering Memorandum. In addition, additional liquidated damages will accrue daily commencing on the date of such Registration Default at an annual rate per share equal to 0.5% of such offering price of the Common Stock with respect to the first 90-day period following the occurrence of such Registration Default and will increase by an additional 0.5% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured up to a maximum rate of 2.0% per annum with respect to all Registration Defaults.

          (b) All accrued Liquidated Damages shall be paid in arrears to Record Holders by the Company on each Liquidated Damages Payment Date. Upon the cure of all Registration Defaults relating to any particular share of Common Stock, the accrual of Liquidated Damages with respect to such share of Common Stock will cease.

          All obligations of the Company set forth in this Section 4 that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Transfer Restricted Security shall have been satisfied in full.

10

          The Liquidated Damages set forth above shall be the exclusive monetary remedy available to the Holders of Transfer Restricted Securities for each Registration Default.

5. Registration Procedures.

          (a) In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 5(b) hereof and shall use its commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities, and pursuant thereto, shall as expeditiously as possible prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Securities Act.

          (b) In connection with the Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Company shall:

          (i) Subject to any notice by the Company in accordance with this Section 5(b) of the existence of any fact or event of the kind described in Section 5(b)(iv)(D), use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; upon the occurrence of any event that would cause the Shelf Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, the Company shall file promptly an appropriate amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its commercially reasonable efforts to cause such amendment to be declared effective and the Shelf Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter.

          (ii) Notwithstanding Section 5(b)(i) hereof, the Company may suspend the effectiveness of the Shelf Registration Statement (each such period, a “Suspension Period”):

               (x) if the representative of the underwriters of an underwritten offering of primary shares by the Company has advised the Company that the sale of shares of Common Stock under the Shelf Registration Statement would have a material adverse effect on the Company’s initial public offering;

11

               (y) if a majority of the Company’s board of directors, in good faith, determines that (1) the offer or sale of any shares of Common Stock would materially impede, delay or interfere with any proposed financing, offer or sale of securities, acquisition, merger, tender offer, business combination, corporate reorganization, consolidation or other significant transaction involving the Company; (2) after the advice of counsel, the sale of the shares of Common Stock covered by the Shelf Registration Statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law; or (3) either (A) the Company has a bona fide business purpose for preserving the confidentiality of the proposed transaction, (B) disclosure would have a material adverse effect on the Company or the Company’s ability to consummate the proposed transaction, or (C) the proposed transaction renders the Company unable to comply with requirements of the Commission; or

               (z) if a majority of the Company’s board of directors, in good faith, determines that the Company is required by law, rule or regulation to supplement the Shelf Registration Statement or file a post-effective amendment to the Shelf Registration Statement in order to incorporate information into the Shelf Registration Statement for the purpose of (1) including in the Shelf Registration Statement any Prospectus required under Section 10(a)(3) of the Securities Act; (2) reflecting in the Prospectus included in the Shelf Registration Statement any facts or events arising after the Effective Date of the Shelf Registration Statement (or the most recent post-effective amendment) that, individually or in the aggregate, represents a fundamental change in the information set forth in the Prospectus; or (3) including in the Prospectus included in the Shelf Registration Statement any material information with respect to the plan of distribution not disclosed in the Shelf Registration Statement or any material change to such information.

Upon the occurrence of any event described in clauses (x), (y) and (z) of this Section 5(b)(ii), the Company shall give notice to the Holders that the availability of the Shelf Registration is suspended and, upon actual receipt of any such notice, each Holder agrees not to sell any Transfer Restricted Securities pursuant to the Shelf Registration until such Holder’s receipt of copies of the supplemented or amended Prospectus provided for in Section 5(b) hereof. The period during which the availability of the Shelf Registration and any Prospectus is suspended (the “Suspension Period”) shall not exceed 60 days in any ninety-day period (except as a result of a review of any post-effective amendment by the Commission prior to

12

declaring any post-effective amendment to the Shelf Registration Statement effective provided the Company has used all commercially reasonable efforts to cause such post-effective amendment to be declared effective); provided, that Suspension Periods shall not exceed an aggregate of 90 days in any 360-day period. The Company shall not be required to specify in the written notice to the Holders the nature of the event giving rise to the Suspension Period.

          (iii) Prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective during the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all Common Stock covered by the Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in the Shelf Registration Statement or supplement to the Prospectus.

          (iv) Advise the selling Holders and any Initial Purchaser that has provided in writing to the Company a telephone or facsimile number and address for notices, promptly and, if requested by such selling Holders, to confirm such advice in writing (which notice pursuant to clauses (B) through (D) below shall be accompanied by an instruction to suspend the use of the Prospectus until the Company shall have remedied the basis for such suspension):

     (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective,

     (B) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto,

     (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the

13

Transfer Restricted Securities for offering or sale in any jurisdiction, or the threatening or initiation of any proceeding for any of the preceding purposes, or

     (D) of the existence of any fact or the happening of any event, during the Effectiveness Period, that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading.

          (v) If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time and will provide to each Holder who is named in the Shelf Registration Statement prompt notice of the withdrawal of any such order.

          (vi) Make available at reasonable times for inspection by one or more representatives of the selling Holders, designated in writing by a Majority of Holders whose Transfer Restricted Securities are included in the Shelf Registration Statement, and any attorney or accountant retained by such selling Holders and any Initial Purchaser participating in any disposition pursuant to the Shelf Registration Statement, all financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act, and cause the Company’s officers, directors, managers and employees to supply all information reasonably requested by any such representative or representatives of the selling Holders, attorney or accountant in connection therewith.

          (vii) If requested by any selling Holders or the Representative, promptly incorporate in the Shelf Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders may reasonably request to have included therein,

14

including, without limitation, information relating to the “Plan of Distribution” of the Transfer Restricted Securities.

          (viii) Deliver to each selling Holder, without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Company in accordance with this Section 5(b) of the existence of any fact or event of the kind described in Section 5(b)(iii)(D), the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto.

          (ix) Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions in the United States as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required (A) to register or qualify as a foreign corporation or a dealer of securities where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject, other than service of process for suits arising out of the Initial Placement or any offering pursuant to the Shelf Registration Statement, or (B) to subject itself to general or unlimited service of process or to taxation in any such jurisdiction if they are not now so subject.

          (x) Unless any Transfer Restricted Securities shall be in book-entry form only, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may request at least two Business Days before any sale of Transfer Restricted Securities.

          (xi) Use its commercially reasonable efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to

15

enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities.

          (xii) Subject to Section 5(b)(ii) hereof, if any fact or event contemplated by Section 5(b)(iv)(B) through (D) hereof shall exist or have occurred, use its commercially reasonable efforts to prepare a supplement or post-effective amendment to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading.

          (xiii) Provide CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the Transfer Agent with certificates for Common Stock that are in a form eligible for deposit with The Depository Trust Company.

          (xiv) Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter that is required to be undertaken in accordance with the rules and regulations of the NASD.

          (xv) Otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the rules and regulations of the Exchange Act.

          (xvi) Make generally available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act as soon as practicable after the effective date of the Shelf Registration Statement and in any event no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the Shelf Registration Statement.

          (xvii) Use its commercially reasonable efforts to satisfy the criteria for listing and list or include (if the Company meets the criteria for listing on such exchange or market) the Common Stock on the New York Stock Exchange, American Stock Exchange or The Nasdaq National Market (as soon as practicable, including seeking to cure in its listing or inclusion application any

16

deficiencies cited by the exchange or market), and thereafter maintain the listing on such exchange.

          (xviii) Provide to each Holder upon written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act after the effective date of the Shelf Registration Statement, unless such document is available through the Commission’s EDGAR system.

          (xix) In connection with any underwritten offering conducted pursuant to Section 9 hereof, make such representations and warranties to the Holders of Securities registered thereunder and the underwriters, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement;

          (xx) In connection with any underwritten offering conducted pursuant to Section 9 hereof, obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters;

          (xxi) In connection with any underwritten offering conducted pursuant to Section 9, hereof, obtain “comfort” letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each selling Holder of Securities registered thereunder and the underwriters, in customary form and covering matters of the type customarily covered in “comfort” letters in connection with primary underwritten offerings; and

          (xxii) In connection with any underwritten offering conducted pursuant to Section 9 hereof, deliver such documents and certificates as may be reasonably requested by the Majority Holders and the Managing Underwriters, including those to evidence compliance with Section 5(b)(ii) and 5(b)(xii) hereof and with any customary conditions contained in the Purchase Agreement or other agreement entered into by the Company.

17

          (xxiii) In connection with underwritten offering conducted pursuant to Section 9 hereof, the Company shall, if requested, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Shelf Registration Statement such information as the Managing Underwriters reasonably agree should be included therein and to which the Company does not reasonably object and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment.

          (xxiv) Use its commercially reasonable efforts to take all other steps necessary to effect the registration of the Common Stock covered by the Shelf Registration Statement.

          (xxv) Enter into customary agreements (including, if requested, an underwriting agreement in customary form) and take all other appropriate actions in order to expedite or facilitate the registration or the disposition of the Common Stock, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof.

          The actions set forth in clauses (xx), (xxi), (xxii) and (xxiii) of this Section 5(b) shall be performed at (A) the effectiveness of the Shelf Registration Statement and each post-effective amendment thereto; and (b) each closing under any underwriting or similar agreement as and to the extent required thereunder.

          (c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a “Suspension Notice”) from the Company of the existence of any fact of the kind described in Section 5(b)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until:

          (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 5(b)(xi) hereof; or

          (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus.

If so directed by the Company, each Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice of suspension.

18

          (d) Each Holder agrees by acquisition of a Transfer Restricted Security, that no Holder shall be entitled to sell any of such Transfer Restricted Securities pursuant to a Shelf Registration Statement, or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(e) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. The Company may require each Notice Holder of Common Stock to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Common Stock as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably request in writing. Any sale of any Transfer Restricted Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made not misleading. The Company may exclude from such Shelf Registration Statement the Common Stock of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request.

6. Registration Expenses.

          All expenses incident to the Company’s performance of or compliance with this Agreement shall be borne by the Company regardless of whether a Shelf Registration Statement becomes effective, including, without limitation:

          (a) all registration and filing fees and expenses (including filings made with the NASD);

          (b) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws;

19

          (c) all expenses of printing (including printing of Prospectuses and, if applicable, certificates for the Common Stock) and the Company’s expenses for messenger and delivery services and telephone;

          (d) all fees and disbursements of counsel to the Company;

          (e) all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof; and

          (f) all fees and disbursements of independent certified public accountants of the Company.

          The Company shall bear its internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. The Company shall pay all expenses customarily borne by issuers in an underwritten offering as set forth in Section 9(c) hereof.

7. Indemnification And Contribution.

          (a) The Company agrees to indemnify and hold harmless each Holder of Transfer Restricted Securities (including each Initial Purchaser), its directors, officers, and employees, Affiliates and agents and each person, if any, who controls any such Holder within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Holder”), against any loss, claim, damage, liability or expense, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities), to which such Indemnified Holder may become subject, insofar as any such loss, claim, damage, liability or action arises out of, or is based upon:

          (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Shelf Registration Statement as originally filed or in any amendment thereof, in any Prospectus, or in any amendment or supplement thereto, or (B) any blue sky application or other document or any amendment or supplement thereto prepared or executed by the Company (or based upon written information furnished by or on behalf of the Company expressly for use in such blue sky application or other document or amendment or supplement) filed in any jurisdiction specifically for the purpose of qualifying any or all of the Transfer Restricted Securities under the securities law of any state or other jurisdiction (such application or document being hereinafter called a “Blue Sky Application”); or

20

          (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading,

and agrees to reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have.

          The Company also agrees to indemnify as provided in this Section 7(a) or contribute as provided in Section 7(e) hereof to Losses (as defined below) of each underwriter, if any, of Common Stock registered under a Shelf Registration Statement, their directors, officers, employees, Affiliates or agents and each person who controls such underwriter on substantially the same basis as that of the indemnification of the Initial Purchasers and the selling Holders provided in this Section 7(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 5(b)(xxiv) hereof.

          (b) Each Holder, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, officers and employees and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement set forth in this Section shall be in addition to any liabilities which any such Holder may otherwise have. In no event shall any Holder, its directors, officers or any person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Shelf Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

          (c) Promptly after receipt by an indemnified party under this Section 7 of notice of any claim or the commencement of any action, the

21

indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party (i) shall not relieve it from any liability which it may have under paragraphs (a) or (b) of this Section unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses, and (ii) shall not, in any event, relieve it from any liability which it may have to an indemnified party otherwise than under paragraphs (a) or (b) of this Section 7. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Holders shall have the right to employ a single counsel to represent jointly the Holders and their officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Holders against the Company under this Section 7 if the Holders seeking indemnification shall have been advised by legal counsel that there may be one or more legal defenses available to such Holders and their respective officers, employees and controlling persons that are different from or additional to those available to the Company, and in that event, the fees and expenses of such separate counsel shall be paid by the Company.

          (d) The indemnifying party under this Section shall not be liable for any settlement of any proceeding effected without its written consent, which shall not be withheld unreasonably, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 7(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party

22

shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent (x) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

          (e) If the indemnification provided for in this Section 7 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 7(a) or 7(b) in respect of any loss, claim, damage or liability (or action in respect thereof) referred to therein, each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the aggregate amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability (including legal or other expenses reasonably incurred in connection with investigating or defending any loss, claim, liability, damage or action) (collectively “Losses”) (or action in respect thereof):

          (i) in such proportion as is appropriate to reflect the relative benefits received by the Company from the offering and sale of the Transfer Restricted Securities on the one hand and a Holder with respect to the sale by such Holder of the Transfer Restricted Securities on the other, or

          (ii) if the allocation provided by Section 7(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in Section 7(d)(i) but also the relative fault of the Company on the one hand and the Holders on the other in connection with the statements or omissions or alleged statements or alleged omissions that resulted in such loss, claim, damage or liability (or action in respect thereof), as well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Common Stock purchased under the Purchase Agreement (before deducting expenses) received by the Company, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities on the other. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Holders on the other, the intent of the parties and their relative

23

knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 7(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (e).

          The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim.

          No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute as provided in this Section 7(d) are several and not joint.

          (f) The provisions of this Section 7 shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the officers, directors or controlling persons referred to in Section 7 hereof, and will survive the sale by a Holder of Transfer Restricted Securities.

          8. Rule 144A and Rule 144. The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144.

9. Underwritten Registrations.

          (a) Any Holder of Transfer Restricted Securities who desires to do so may sell Transfer Restricted Securities (in whole or in part) in an underwritten offering; provided that (i) the Electing Holders of at least 33-1/3% in aggregate amount of the Transfer Restricted Securities then covered by the Shelf Registration Statement shall request such an offering and (ii) at least such aggregate amount of such Transfer Restricted Securities shall be included in such offering; and provided further that the Company shall not be obligated to participate in more than one

24

underwritten offering during the Effectiveness Period. Upon receipt of such a request, the Company shall provide all Holders of Transfer Restricted Securities written notice of the request, which notice shall inform such Holders that they have the opportunity to participate in the offering. If any of the Transfer Restricted Securities covered by the Shelf Registration Statement are to be sold in an underwritten offering, the Managing Underwriters shall be selected by the Majority Holders.

          (b) No person may participate in any underwritten offering pursuant to the Shelf Registration Statement unless such person (i) agrees to sell such person’s Common Stock on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements; (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; and (iii) if such Holder is not then a Notice Holder, such Holder returns a completed and signed Notice and Questionnaire to the Company in accordance with Section 2(f) hereof within a reasonable amount of time before such underwritten offering.

          (c) The Holders participating in any underwritten offering shall be responsible for any underwriting discounts and commissions and fees and, subject to Section 6 hereof, expenses of their own counsel. The Company shall pay all expenses customarily borne by issuers in an underwritten offering, including but not limited to filing fees, the fees and disbursements of its counsel and independent public accountants and any printing expenses incurred in connection with such underwritten offering. Notwithstanding the foregoing or the provisions of Section 5(b)(xxii) hereof, upon receipt of a request from the Managing Underwriter or a representative of holders of a majority of the Transfer Restricted Securities to be included in an underwritten offering to prepare and file an amendment or supplement to the Shelf Registration Statement and Prospectus in connection with an underwritten offering, the Company may delay the filing of any such amendment or supplement for up to 90 days if the Board of Directors of the Company shall have determined in good faith that the Company has a bona fide business reason for such delay.

10. Miscellaneous.

          (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely, and that, in the event of any such failure, in addition to being entitled to exercise all rights provided to it herein, in the Indenture or in the Purchase Agreement or granted by law, including recovery of liquidated or other damages, the

25

Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company’s obligations under Section 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

          (b) Actions Affecting Transfer Restricted Securities. The Company shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement.

          (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Company shall not grant to any of its securityholders (other than the Holders of Transfer Restricted Securities in such capacity) (i) the right to include any of its securities in the Shelf Registration Statement or the Piggyback Registration Statement, if any, provided for in this Agreement other than the Transfer Restricted Securities, unless pursuant to such grant, such holder may include such securities on the Holders Shelf Registration Statement or such Piggyback Registration Statement only to the extent that the inclusion of such securities will not reduce the amount of Transfer Restricted Securities of the Holders that is included on the Shelf Registration Statement or such Piggyback Registration Statement or (ii) the right to have its Common Stock registered on a registration statement that could be declared effective within one hundred eighty (180) days of the effective date of any Shelf Registration Statement or Piggyback Registration Statement filed pursuant to this Agreement.

          (d) Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a Majority of Holders; provided, however, that with respect to any matter that directly or indirectly adversely affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Shelf Registration Statement and does not directly or indirectly adversely affect the rights of other Holders, may be given by the Majority Holders,

26

determined on the basis of Common Stock being sold rather than registered under such Shelf Registration Statement.

          (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first class mail (registered or certified, return receipt requested), facsimile transmission, or air courier guaranteeing overnight delivery:

          (i) if to a Holder, at the address set forth on the records of the transfer agent of the Common Stock; and

          (ii) if to the Company, initially at its address set forth in the Purchase Agreement,

With a copy to:

Vinson & Elkins LLP

First City Tower

1001 Fannin Street, Suite 2300

Houston, TX 77002

Facsimile: 713-615-5531

Attention: T. Mark Kelly

          All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery.

          Any party hereto may change the address for receipt of communications by giving written notice to the others.

          (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities. The Company hereby agrees to extend the benefit of this Agreement to any Holder and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto.

          (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

          (h) Jurisdiction. The Company agrees that any suit, action or proceeding against the Company brought by any Holder or Initial Purchaser, the directors, officers, employees, Affiliates and agents of any

27

Holder or Initial Purchaser, or by any person who controls any Holder or Initial Purchaser, arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in any State or U.S. federal court in The City of New York and County of New York, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The Company hereby appoints CT Corporation as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated herein which may be instituted in any State or U.S. federal court in The City of New York and County of New York, by any Holder or Initial Purchaser, the directors, officers, employees, Affiliates and agents of any Holder or Initial Purchaser, or by any person who controls any Holder or Initial Purchaser, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Company hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Company. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment in full force and effect so long as any of the Securities shall be outstanding. To the extent that the Company may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of this Agreement, to the fullest extent permitted by law. Notwithstanding the foregoing, any action arising out of or based upon this Agreement may be instituted by any Holder or Initial Purchaser, the directors, officers, employees, Affiliates and agents of any Holder or Initial Purchaser, or by any person who controls any Holder or Initial Purchaser, in any court of competent jurisdiction.

          (i) Common Stock Held by the Company or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or its Affiliates (other than subsequent Holders if such subsequent Holders are deemed to be Affiliates solely by reason of their holding of such Common Stock) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

28

          (j) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

          (k) Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York.

          (l) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

          (m) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

29

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

RIATA ENERGY, INC.
By:	/s/ Malone Mitchell, 3rd
	Name: Malone Mitchell, 3rd
	Title:
BANC OF AMERICA SECURITIES LLC
Acting severally on behalf of themselves and the several Initial Purchasers
By:	/s/ M. Scott Van Bergh
	Name: M. Scott Van Bergh
	Title: Managing Director

EX-4.3

Exhibit 4.3

REGISTRATION RIGHTS AGREEMENT

by and among

RIATA ENERGY, INC.

d/b/a SANDRIDGE ENERGY, INC.

and

THE PURCHASERS SET FORTH ON
SCHEDULE I HERETO

     REGISTRATION RIGHTS AGREEMENT, dated as of November 21, 2006, among Riata Energy, Inc., a Texas corporation (together with any successor entity, herein referred to as the “Company”), and the several purchasers (the “Purchasers”) under the Purchase Agreement (as defined below).

     Pursuant to the Securities Purchase Agreement, dated as of November 16, 2006, among the Company and the Purchasers (the “Purchase Agreement”), relating to the purchase of the Preferred Stock and Common Units (each, as defined below), the Purchasers have agreed to purchase from the Company (a) an aggregate of 2,136,669 shares of Series A Convertible Preferred Stock, par value $0.001 per share, of the Company (the “Preferred Stock”) and (b) units (“Common Units”) consisting of shares of Common Stock and a Preferred Stock Purchase Warrant to purchase shares of Preferred Stock (“Warrant”) (collectively, the Preferred Stock and Common Units to be purchased pursuant to the Purchase Agreement are herein referred to as the “Purchased Securities”). To induce the Purchasers to purchase the Purchased Securities, the Company has agreed to provide the registration rights set forth in this Agreement pursuant to Section 2.03(e) of the Purchase Agreement.

     The parties hereby agree as follows:

     1. Definitions. Capitalized terms used in this Agreement without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings:

     “Affiliate” of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

     “Agreement”: This Registration Rights Agreement, as amended from time to time.

     “Amendment Effectiveness Deadline Date”: has the meaning set forth in Section 2(f)(i) hereof.

     “Applicable Period”: As defined in Section 5(b).

     “BD Holder”: As defined in Section 5(b)(vi) hereof.

     “Blue Sky Application”: As defined in Section 7(a)(i) hereof.

     “Business Day”: A day, other than a Saturday or Sunday, that in the City of New York, is not a day on which banking institutions are authorized or required by law, regulation or executive order to close.

     “Closing Date”: The date of the first issuance of the Purchased Securities.

     “Commission”: Securities and Exchange Commission.

     “Common Stock”: The common stock, par value $0.001, of the Company, (i) issuable upon conversion of Preferred Stock that constitutes Purchased Securities, (ii) issuable as a result of conversion of Preferred Stock that may be issued upon exercise of a Warrant issued as part of the Common Units that constitute Purchased Securities or (b) issued as part of the Common Units that constitute Purchased Securities.

     “Common Units”: As defined in the preamble hereto.

     “Company”: As defined in the preamble hereto.

     “Effectiveness Period”: As defined in Section 2(a)(iii) hereof.

     “Effectiveness Target Date”: As defined in Section 2(a)(ii) hereof.

     “Exchange Act”: Securities Exchange Act of 1934, as amended.

     “Holder”: A Person who owns, beneficially or otherwise, Transfer Restricted Securities.

     “Indemnified Holder”: As defined in Section 7(a) hereof.

     “Liquidated Damages”: As defined in Section 4(a) hereof.

     “Liquidated Damages Payment Date”: The date on which a Registration Default occurs and then each March 31, June 30, September 30 and December 31 until all Registration Defaults have been cured.

     “Losses”: As defined in Section 7(e) hereof.

     “Majority of Holders”: Holders holding over 50% of the Transfer Restricted Securities outstanding (on an as-exercised and as-converted basis).

     “Managing Underwriter”: The investment banker or investment bankers and manager or managers that administer an underwritten offering, if any, conducted pursuant to Section 9 hereof.

     “NASD”: National Association of Securities Dealers, Inc.

     “Notice and Questionnaire”: A written notice executed by the respective Holder and delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex A hereto.

     “Notice Holder”: On any date, any Holder of Transfer Restricted Securities that has delivered a Notice and Questionnaire to the Company on or prior to such date.

     “Person”: An individual, partnership, corporation, company, unincorporated organization, trust, joint venture or a government or agency or political subdivision thereof.

     “Piggyback Registration Statement”: As defined in Section 3(a) hereof.

2

     “Plan of Distribution”: As defined in Section 5(b).

     “Preferred Stock”: As defined in the preamble hereto.

     “Prior Holder”: A Person who owns, beneficially or otherwise, Transfer Restricted Securities (as such term is defined in the Prior Registration Rights Agreement).

     “Prior Registration Rights Agreement”: The Resale Registration Rights Agreement, dated December 21, 2005, between the Company and Banc of America Securities LLC.

     “Prospectus”: The prospectus included in a Shelf Registration Statement or Subsequent Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such prospectus.

     “Purchase Agreement”: As defined in the preamble hereto.

     “Purchased Securities”: As defined in the preamble hereto.

     “Purchasers”: As defined in the preamble hereto.

     “Record Holder”: With respect to any Liquidated Damages Payment Date, each Person who is a Holder on the 15^th day preceding the relevant Liquidated Damages Payment Date.

     “Registration Default”: As defined in Section 4(a) hereof.

     “Securities Act”: Securities Act of 1933, as amended.

     “Shareholders Agreement” shall mean that certain Shareholders Agreement dated November 21, 2006 by and among the Company and certain shareholders of the Company named therein as in effect on the date hereof.

     “Shelf Filing Deadline”: As defined in Section 2(a)(i) hereof.

     “Shelf Registration Statement”: As defined in Section 2(a)(i) hereof.

     “Subsequent Shelf Registration Statement” has the meaning set forth in Section 2(c) hereof.

     “Suspension Notice”: As defined in Section 5(c) hereof.

     “Suspension Period”: As defined in Section 5(b)(ii) hereof.

     “Transfer Agent”: American Stock Transfer & Trust Company.

     “Transfer Restricted Securities”: Each share of Common Stock until the earlier of:

     (a) the date on which such share of Common Stock has been resold pursuant to the Shelf Registration Statement or Subsequent Shelf Registration Statement;

3

     (b) other than for the purposes of Sections 3 and 9 (and to the extent applicable thereto, Sections 5 and 7), the date on which such share of Common Stock is transferred in compliance with Rule 144 under the Securities Act or may be sold or transferred by a person who is not an affiliate of the Company pursuant to Rule 144 under the Securities Act (or any other similar provision then in force) without any volume or manner of sale restrictions thereunder; or

     (c) the date on which such share of Common Stock ceases to be outstanding (whether as a result of repurchase and cancellation or otherwise).

     “Underwriter”: Any Underwriter of Common Stock in connection with an offering thereof under the Shelf Registration Statement.

     “Underwritten Registration”: A registration in which Common Stock of the Company is sold to an Underwriter or Underwriters for reoffering to the public.

     “Warrant”: As defined in the preamble hereto.

     Unless the context otherwise requires, the singular includes the plural, and words in the plural include the singular.

     2. Shelf Registration.

     (a) The Company shall:

     (i) as promptly as practicable but in no event later than August 31, 2007 (the “Shelf Filing Deadline"), cause to be filed a registration statement pursuant to Rule 415 under the Securities Act or any similar rule that may be adopted by the Commission (the “Shelf Registration Statement”), which Shelf Registration Statement shall provide for the registration and resales, on a continuous or delayed basis, of all Transfer Restricted Securities (except to the extent registration of the Common Stock issuable pursuant to the conversion of Preferred Stock issuable upon the exercise of a Warrant is prohibited by the rules and regulations of the Commission), plus any additional             shares of Common Stock issued in respect thereof whether by stock dividend, stock split or otherwise, held by Holders that have provided the information required pursuant to the terms of Section 2(b) hereof);

     (ii) use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act by the Commission not later than the earlier of (x) the date which is 181 days from the date that the first registration statement that is a Shelf Registration Statement or, in the case of an initial public offering of the Company, a Piggyback Registration Statement under the Prior Registration Rights Agreement, is declared effective by the Commission and (y) December 31, 2007 (such earlier date being referred to as the “Effectiveness Target Date”); and

     (iii) use its reasonable best efforts to keep the Shelf Registration Statement or any Subsequent Shelf Registration Statement continuously effective,

4

supplemented and amended as required by the Securities Act and by the provisions of Section 5(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities and (B) conforms with the requirements of this Agreement and the Securities Act and the rules and regulations of the Commission promulgated thereunder as announced from time to time, for a period (the “Effectiveness Period”) from the date the Shelf Registration Statement is declared effective by the Commission until the date on which no Transfer Restricted Securities remain outstanding.

     (b) At the time the Shelf Registration Statement or any Subsequent Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date five (5) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Transfer Restricted Securities in accordance with applicable law. None of the Company’s securityholders (other than the Holders of Transfer Restricted Securities) shall have the right to include any of the Company’s securities in the Shelf Registration Statement or any Subsequent Shelf Registration Statement.

     (c) If the Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Transfer Restricted Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Transfer Restricted Securities), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Transfer Restricted Securities (a “Subsequent Shelf Registration Statement”). If a Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable, subject to any prohibitions in the Prior Registration Rights Agreement, after such filing and to keep such Registration Statement (or Subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period.

     (d) The Company shall supplement and amend the Shelf Registration Statement or Subsequent Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or Subsequent Shelf Registration Statement, if required by the Securities Act or as reasonably requested by any Holder of Transfer Restricted Securities covered by such Shelf Registration Statement.

     (e) The Company shall cause the Shelf Registration Statement and each Subsequent Shelf Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement and each Subsequent Shelf Registration Statement and any such amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act, and (ii) not to contain any untrue statement of a material fact or omit to state a

5

material fact required to be stated therein or necessary in order to make the statements therein not misleading.

     (f) Each Holder agrees that if such Holder wishes to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement or a Subsequent Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(f) and Section 5(b). Each Holder wishing to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement or a Subsequent Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least ten (10) Business Days prior to any intended distribution of Transfer Restricted Securities under the Shelf Registration Statement or a Subsequent Shelf Registration Statement. From and after the date the Shelf Registration Statement or a Subsequent Shelf Registration Statement is declared effective the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered to it, and in any event upon the later of (x) ten (10) Business Days after such date (but no earlier than tenth Business Days after effectiveness) or (y) ten (10) Business Days after the expiration of any Suspension Period in effect when the Notice and Questionnaire is delivered or put into effect within five Business Days of such delivery date:

     (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Transfer Restricted Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its reasonable best efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the “Amendment Effectiveness Deadline Date”) that is forty-five (45) days after the date such post-effective amendment is required by this clause to be filed;

     (ii) provide such Holder copies of the any documents filed pursuant to Section 2(f)(i); and

     (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(f)(i);

provided that if such Notice and Questionnaire is delivered during a Suspension Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Suspension Period in accordance with Section 5(b). Notwithstanding anything contained herein to the contrary, (i) the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Shelf Registration Statement or related Prospectus and (ii) the Amendment

6

Effectiveness Deadline Date shall be extended by up to five Business Days from the Expiration of a Suspension Period (and the Company shall incur no obligation to pay Liquidated Damages during such extension) if such Suspension Period shall be in effect on the Amendment Effectiveness Deadline Date.

     3. Piggyback Registration.

     (a) If, after the date hereof, (x) the Company proposes to file a registration statement under the Securities Act providing for a public offering of the Company’s securities, other than the Shelf Registration Statement, any shelf registration statement under the Prior Registration Rights Agreement or the Shareholders Agreement, or a registration statement on Form S-8 or Form S-4 or any similar form hereafter adopted by the Commission as a replacement therefor (including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement, the “Piggyback Registration Statement”) and (y) in the case of an initial public offering of the Company, the Prior Registration Rights Agreement does not prohibit the inclusion of Transfer Restricted Securities from being included in such offering, the Company will notify each Holder of the proposed filing if clause (i) or (ii) of the following sentence applies, or only those affected Holders if clause (iii) of the following sentence applies. If (i) the Piggyback Registration Statement relates to an Underwritten Registration, (ii) the Shelf Registration Statement is not then effective or (iii) Transfer Restricted Securities not included in an effective Shelf Registration Statement or Subsequent Shelf Registration Statement, then each Holder in the case of clause (i) and (ii), and each such affected Holder in the case of clause (iii), shall be given an opportunity to include in such Piggyback Registration Statement all or any part of such Holder’s Transfer Restricted Securities. Each such Holder desiring to include in any such Piggyback Registration Statement all or part of such Holder’s Transfer Restricted Securities shall, within ten (10) days after delivery of the above-described notice by the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Transfer Restricted Securities such Holder wishes to include in such Piggyback Registration Statement and provide, as a condition to such inclusion, such information regarding itself, its Transfer Restricted Securities and the intended method of disposition of such securities as is required pursuant to Regulation S-K promulgated under the Securities Act to effect the registration of the Transfer Restricted Securities. Any election by any Holder to include any Transfer Restricted Securities in such Piggyback Registration Statement will not affect the inclusion of such Transfer Restricted Securities in the Shelf Registration Statement or Subsequent Shelf Registration Statement until such Transfer Restricted Securities have been sold under the Piggyback Registration Statement or Subsequent Shelf Registration Statement; provided, however, that at such time, the Company may remove from the Shelf Registration Statement or Subsequent Shelf Registration Statement the Transfer Restricted Securities sold pursuant to the Piggyback Registration Statement.

     (b) At any time, the Company may terminate or withdraw any Piggyback Registration Statement referred to in this Section 3, and without any obligation to any

7

such Holder whether or not any Holder has elected to include Transfer Restricted Securities in such registration. The Company may suspend the effectiveness and use of any Piggyback Registration Statement at any time for an unlimited amount of time whether or not any Holder has elected to include Transfer Restricted Securities in such registration.

     (c) The Company shall advise the Holders of the Managing Underwriters participating in any Underwritten Registration proposed under the Piggyback Registration Statement. The right of any such Holder’s Transfer Restricted Securities to be included in any such Piggyback Registration Statement pursuant to this Section 3 shall be conditioned upon such Holder’s participation in such Underwritten Registration and the inclusion of such Holder’s Transfer Restricted Securities in the Underwritten Registration to the extent provided herein. All Holders proposing to distribute their Transfer Restricted Securities through such Underwritten Registration or an underwritten offering pursuant to Section 9 shall enter into an underwriting agreement in customary form with the Managing Underwriters selected for such underwriting and complete and execute any questionnaires, powers of attorney, indemnities, securities escrow agreements and other documents reasonably required under the terms of such underwriting, and furnish to the Company such information in writing as the Company may reasonably request for inclusion in the Piggyback Registration Statement; provided, however, that no Holder shall be required to make any representations or warranties to or regarding, or agreements with, the Company or the Underwriters other than representations, warranties or agreements that are customary and reasonably requested by the Underwriters, provided, that such representations and warranties shall not relate to Company or its business or operations. Notwithstanding any other provision of this Agreement, if the Managing Underwriters determine in good faith that marketing factors require a limitation on the number of securities to be included, then the Managing Underwriters may exclude securities (including Transfer Restricted Securities) from the Piggyback Registration Statement and the Underwritten Registration, and any securities included in the Piggyback Registration Statement and the Underwritten Registration shall be allocated: first, to the Company (if the registration statement is filed on behalf of the Company for an offering of newly issued shares by the Company) or to AREP O&G Holdings LLC or its permitted assigns (collectively, “AREP”) (if such Piggyback Registration Statement is being filed pursuant to a demand by AREP pursuant to Section 2 of the Shareholders Agreement); and second, to each of the Prior Holders requesting inclusion of their securities in such registration statement, but only to the extent such Prior Holders are entitled to priority over Holders of Transferred Restricted Securities under the Prior Registration Rights Agreement; and third, each of the Holders requesting inclusion of their Transfer Restricted Securities in such Piggyback Registration Statement together with all holders requesting inclusion of their securities in such registration statement in accordance with the Shareholder Agreement, on a pro rata basis based on the total number of such securities requested to be included, provided that if the Piggyback Registration Statement is filed pursuant to a demand registration right effected by AREP pursuant to the Shareholders Agreement, the inclusion of securities of AREP in such registration statement shall take priority over any Transfer Restricted Securities of any Holders or other shareholders who are party to the Shareholders Agreement. If any Holder disapproves of the terms of any Underwritten Registration,

8

such Holder may elect to withdraw therefrom by written notice to the Company and the Managing Underwriters, delivered at least five (5) Business Days prior to the effective date of the Piggyback Registration Statement. Any Transfer Restricted Securities excluded or withdrawn from such Underwritten Registration shall be excluded and withdrawn from the Piggyback Registration Statement.

     (d) By electing to include Transfer Restricted Securities in the Piggyback Registration Statement, if any, the Holder shall be deemed to have agreed not to effect any sale or distribution of securities of the Company of the same or similar class or classes of the securities included in the Piggyback Registration Statement or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act, during such periods as reasonably requested (but in no event for a period longer than sixty (60) days following the effective date of the Piggyback Registration Statement, provided each of the executive officers and directors of the Company that hold shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company are subject to the same restriction for the entire time period required of the Holders hereunder) by the representatives of the Underwriters, if an Underwritten Registration.

     (e) Upon an initial underwritten public offering of the Company’s equity securities consummated pursuant to a Piggyback Registration Statement, Holders that hold Transfer Restricted Securities representing 5% or more of the outstanding shares of Common Stock of the Company, whether or not they sell in the initial public offering, will not be able to sell any remaining Transfer Restricted Securities not included in such Piggyback Registration Statement for a period reasonably requested by the Underwriters not to exceed one hundred eighty (180) days following the effective date of such Piggyback Registration Statement, provided each of the executive officers and directors of the Company that hold             shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company and AREP and each holder of more than 5% of the outstanding shares of Common Stock of the Company are subject to the same restriction for the entire time.

     (f) Upon any underwritten offering consummated pursuant to an Underwritten Registration, Holders that sell Transfer Restricted Securities pursuant to such Underwritten Registration will not be able to sell any remaining Transfer Restricted Securities not included in such Underwritten Registration for a period reasonably requested by the Underwriters not to exceed ninety (90) days (one hundred eighty (180) days in the case of an initial public offering) following the effective date of such Underwritten Registration, provided that if (i) each of the executive officers and directors of the Company that hold             shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company, and (ii) each of AREP and any holder of more than 5% of the outstanding shares of Common Stock of the Company that are selling in the offering are subject to a shorter or no restrictive period or exceptions from such restrictive period, the Holders of Transfer Restricted Securities shall be subject to such shorter or no restrictive period and be entitled to any such exception for the entire time.

9

     (g) The Company’s obligation to file the Shelf Registration Statement shall not be affected by the filing or effectiveness of the Piggyback Registration Statement.

     4. Liquidated Damages.

     (a) If:

     (i) the Shelf Registration Statement is not filed with the Commission prior to or on the Shelf Filing Deadline; or

     (ii) the Shelf Registration Statement has not been declared effective by the Commission prior to or on the Effectiveness Target Date or a post-effective amendment required to be filed by Section 2(f) is not tendered effective by the applicable Amendment Effectiveness Deadline Date; or

     (iii) after the Shelf Registration Statement has been declared effective, Transfer Restricted Securities may not be disposed of by a Holder as a result of the delivery of a Suspension Notice or the Shelf Registration Statement shall cease for any reason (except as provided in Section 5(b)(ii) hereof) to remain continuously effective, supplemented and amended as required by the Securities Act and by the provisions hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities and (B) conforms with the requirements of this Agreement and the Securities Act and the rules and regulations of the Commission promulgated thereunder as announced; or

     (iv) the Company fails to comply with Section 5(b)(xvii) at any time during the Effectiveness Period;

(each such event referred to in foregoing clauses (i) through (iv), a (“Registration Default”)), the Company hereby agrees to pay damages (“Liquidated Damages”) with respect to the Transfer Restricted Securities for a Registration Default:

     (i) at a per month rate of 0.25% of the purchase price of the Purchased Securities under the Purchase Agreement to which such Transfer Restricted Securities relates, which shall accrue daily from the date of such Registration Default with respect to the first month or ratable portion of a month following the incurrence of a Registration Default, and such rate will increase by an additional 0.25% per month with respect to each subsequent month to a maximum rate of 0.75% per month with respect to all Registration Defaults until the earlier of (A) all Registration Defaults have been cured, and (B) the date on which 6.0% of the purchase price of the Purchased Securities under the Purchase Agreement to which the Transfer Restricted Securities relates has been paid with respect to the Registration Defaults, at which time the Liquidated Damages shall be calculated pursuant to clause (ii) below; and

     (ii) at a per annum rate of 2.0% of the purchase price of the Purchased Securities under the Purchase Agreement to which such Transfer Restricted

10

Securities relates, which shall accrue daily until all Registration Defaults have been cured.

     (b) All accrued Liquidated Damages shall be paid in cash in arrears to Record Holders by the Company on each Liquidated Damages Payment Date. Upon the cure of all Registration Defaults relating to any particular share of Common Stock, the accrual of Liquidated Damages with respect to such share of Common Stock will cease.

     All obligations of the Company set forth in this Section 4 that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Transfer Restricted Security shall have been satisfied in full.

     The Liquidated Damages set forth above shall be the exclusive monetary remedy available to the Holders of Transfer Restricted Securities for each Registration Default.

     5. Registration Procedures.

     (a) In connection with the Shelf Registration Statement or Subsequent Shelf Registration Statement or any registration statement pursuant to Section 3 or 9, the Company shall comply with all the provisions of Section 5(b) hereof and shall use its reasonable best efforts to effect such registration in accordance with the terms hereof to permit the sale of the Transfer Restricted Securities.

     (b) In connection with the Shelf Registration Statement or Subsequent Shelf Registration Statement or any registration statement pursuant to Section 3 or 9 and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Company shall:

     (i) Subject to any notice by the Company in accordance with this Section 5(b) of the existence of any fact or event of the kind described in Section 5(b)(iv)(D), use its reasonable best efforts to keep the registration statement continuously effective during the Effectiveness Period (in the case of a Shelf Registration Statement of Subsequent Shelf Registration Statement) or until all securities to be sold thereunder have been sold pursuant to such registration statement (in the case of a registration statement pursuant to Section 3 or 9) (as applicable, the “Applicable Period”); upon the occurrence of any event that would cause the registration statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, the Company shall file promptly an appropriate amendment to the registration statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its reasonable best efforts to cause such amendment to be declared effective and the registration statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter.

11

     (ii) Notwithstanding Section 5(b)(i) hereof, the Company may suspend the effectiveness of the Shelf Registration Statement or any Subsequent Shelf Registration (each such period, a “Suspension Period”). Upon such suspension, the Company shall give notice to the Holders that the availability of the registration statement is suspended and, upon actual receipt of any such notice, each Holder agrees not to sell any Transfer Restricted Securities pursuant to the registration statement until such Holder’s receipt of copies of the supplemented or amended Prospectus provided for in Section 5(b) hereof. The Suspension Period shall not exceed an aggregate of 90 days in any 360-day period. The Company shall not be required to specify in the written notice to the Holders the nature of the event giving rise to the Suspension Period.

     (iii) Prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement, the Subsequent Shelf Registration Statement and any registration statement pursuant to Section 3 or Section 3 or 9 as may be necessary to keep the registration statement effective during the Applicable Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all Common Stock covered by the registration statement during the Applicable Period in accordance with the intended method or methods of distribution by the selling Holders thereof set forth in the registration statement or supplement to the Prospectus.

     (iv) Advise any selling Holder that has provided in writing to the Company a telephone or facsimile number and address for notice, promptly and, if requested by such selling Holder, to confirm such advice in writing (which notice pursuant to clauses (B) through (D) below shall be accompanied by an instruction to suspend the use of the Prospectus until the Company shall have remedied the basis for such suspension):

     (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective,

     (B) of any request by the Commission for amendments to the registration statement or amendments or supplements to the Prospectus or for additional information relating thereto,

     (C) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction,

12

or the threatening or initiation of any proceeding for any of the preceding purposes, or

     (D) of the existence of any fact or the happening of any event, during the Effectiveness Period, that makes any statement of a material fact made in the registration statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the registration statement or the Prospectus in order to make the statements therein not misleading.

     (v) If at any time the Commission shall issue any stop order suspending the effectiveness of the registration statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time and will provide to each Holder who is named in the registration statement prompt notice of the withdrawal of any such order.

     (vi) Make available at reasonable times for inspection by one or more representatives of the selling Holders, designated in writing by a Majority of Holders whose Transfer Restricted Securities are included in the registration statement and any Holder that is a registered broker dealer under the Exchange Act (a “BD Holder”), and any attorney or accountant retained by such selling Holders, all financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act, and cause the Company’s officers, directors, managers and employees to supply all information reasonably requested by any such representative or representatives of the selling Holders, attorney or accountant in connection therewith.

     (vii) If requested by any selling Holders, promptly incorporate in the registration statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders may reasonably request to have included therein, including, without limitation, information relating to the “Plan of Distribution” of the Transfer Restricted Securities.

     (viii) Deliver to each selling Holder, without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Company in accordance with this Section 5(b) of the existence of any fact or event of the kind described in Section 5(b)(iv)(D), the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto.

13

     (ix) Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or blue sky laws of such jurisdictions in the United States as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the registration statement; provided, however, that the Company shall not be required (A) to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject, other than service of process for suits arising out of any offering pursuant to the registration statement, or (B) to subject itself to general or unlimited service of process or to taxation in any such jurisdiction if they are not now so subject.

     (x) Unless any Transfer Restricted Securities shall be in book-entry form only, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may request at least two Business Days before any sale of Transfer Restricted Securities.

     (xi) Use its reasonable best efforts to cause the Transfer Restricted Securities covered by the registration statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the selling Holders thereof to consummate the disposition of such Transfer Restricted Securities.

     (xii) Subject to Section 5(b)(ii) hereof, if any fact or event contemplated by Section 5(b)(iv)(B) through (D) hereof shall exist or have occurred, use its reasonable best efforts to prepare a supplement or post-effective amendment to the registration statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

     (xiii) Provide CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the registration statement and provide the Transfer Agent with certificates for Common Stock that are in a form eligible for deposit with The Depository Trust Company.

     (xiv) Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any Underwriter that is required to be undertaken in accordance with the rules and regulations of the NASD.

14

     (xv) Otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the rules and regulations of the Exchange Act.

     (xvi) Make generally available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act as soon as practicable after the effective date of the registration statement and in any event no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the registration statement.

     (xvii) Use its reasonable best efforts to satisfy the criteria for listing and list or include (if the Company meets the criteria for listing on such exchange or market) the Common Stock on the New York Stock Exchange, American Stock Exchange, The Nasdaq Global Market or the Nasdaq Global Select Market (as soon as practicable) including seeking to cure in its listing or inclusion application any deficiencies cited by the exchange or market), and thereafter maintain the listing on such exchange.

     (xviii) Provide to each Holder upon written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act after the effective date of the Shelf Registration Statement, unless such document is available through the Commission’s EDGAR system.

     (xix) In connection with any underwritten offering conducted pursuant to Section 3 or 9 hereof, make such representations and warranties to the selling Holders and the Underwriters, in form, substance and scope as are customarily made by issuers to selling Holders and Underwriters in primary underwritten offerings.

     (xx) In connection with any underwritten offering conducted pursuant to Section 3 or 9 hereof and in connection with the effectiveness of any Shelf Registration Statement or Subsequent Shelf Registration Statement, obtain opinions and negative assurances of counsel to the Company and updates thereof (which counsel and opinions and negative assurances (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters) addressed to each selling Holder and the Underwriters, if any, covering such matters as are customarily covered in opinions and negative assurances requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and Underwriters.

     (xxi) In connection with any underwritten offering conducted pursuant to Section 3 or 9 hereof and in connection with the effectiveness of any Shelf Registration Statement or any Subsequent Shelf Registration Statement, obtain “comfort” letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary or predecessor of the Company or of any

15

business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Shelf Registration Statement or Subsequent Shelf Registration Statement), addressed to each selling Holder of securities registered thereunder and the Underwriters, in customary form and covering matters of the type customarily covered in “comfort” letters in connection with primary underwritten offerings.

(xxii) In connection with any underwritten offering conducted pursuant to Section 3 or 9 hereof, deliver such documents and certificates as may be reasonably requested by a Majority of Holders and the Managing Underwriters or any BD Holder, including those to evidence compliance with Section 5(b)(iii) and 5(b)(xii) hereof and with any customary conditions contained in the Purchase Agreement or other agreement entered into by the Company.

(xxiii) In connection with underwritten offering conducted pursuant to Section 3 or 9 hereof, the Company shall, if requested, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Managing Underwriters reasonably agree should be included therein and to which the Company does not reasonably object and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment.

(xxiv) Enter into customary agreements (including, if requested, an underwriting agreement in customary form) and take all other appropriate actions in order to expedite or facilitate the registration or the disposition of the Common Stock, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof.

     (c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a “Suspension Notice”) from the Company of the existence of any fact of the kind described in Section 5(b)(ii) or (iv) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until:

     (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 5(b)(xii) hereof; or

     (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus.

If so directed by the Company, each Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the

16

Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such Suspension Notice.

     (d) Each Holder agrees by acquisition of a Transfer Restricted Security, that no Holder shall be entitled to sell any of such Transfer Restricted Securities pursuant to a Shelf Registration Statement or Subsequent Shelf Registration Statement, or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(e) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. The Company may require each Notice Holder of Common Stock to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Common Stock as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably request in writing. Any sale of any Transfer Restricted Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its Plan of Distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its Plan of Distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its Plan of Distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made not misleading. The Company may exclude from such Shelf Registration Statement or Subsequent Shelf Registration Statement the Common Stock of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. The Company shall not include in any registration statement any information regarding, relating to, or referring to any Holder or its Plan of Distribution without the approval of such Holder in writing (not to be unreasonably withheld).

6. Registration Expenses.

     All expenses incident to the Company’s performance of or compliance with this Agreement shall be borne by the Company regardless of whether a registration statement becomes effective, including, without limitation:

     (a) all registration and filing fees and expenses (including filings made with the NASD);

     (b) all fees and expenses of compliance with federal securities and state blue sky or securities laws;

17

     (c) all expenses of printing (including printing of Prospectuses and, if applicable, certificates for the Common Stock) and the Company’s expenses for messenger and delivery services and telephone;

     (d) all fees and disbursements of counsel to the Company;

     (e) all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof; and

     (f) all fees and disbursements of independent certified public accountants of the Company.

     The Company shall bear its internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. The Company shall pay all expenses customarily borne by issuers in an underwritten offering as set forth in Section 9(c) hereof.

     7. Indemnification And Contribution.

     (a) The Company agrees to indemnify and hold harmless each Holder of Transfer Restricted Securities, its directors, officers, and employees, Affiliates and agents and each Person, if any, who controls any such Holder within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Holder”), against any loss, claim, damage, liability or expense, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities), to which such Indemnified Holder may become subject, insofar as any such loss, claim, damage, liability or action arises out of, or is based upon:

     (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Shelf Registration Statement, any Subsequent Shelf Registration Statement or any registration statement pursuant to Section 3 or 9 as originally filed or in any amendment thereof, in any Prospectus, or in any amendment or supplement thereto, or (B) any blue sky application or other document or any amendment or supplement thereto prepared or executed by the Company (or based upon written information furnished by or on behalf of the Company expressly for use in such blue sky application or other document or amendment or supplement) filed in any jurisdiction specifically for the purpose of qualifying any or all of the Transfer Restricted Securities under the securities law of any state or other jurisdiction (such application or document being hereinafter called a “Blue Sky Application”); or

     (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein not misleading,

18

and agrees to reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company relating to a Holder by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein.

     The Company also agrees to indemnify as provided in this Section 7(a) or contribute as provided in Section 7(e) hereof to Losses (as defined below) of each Underwriter, if any, of Common Stock registered under a Shelf Registration Statement, any Subsequent Shelf Registration Statement or any registration statement pursuant to Section 3 or 9, their directors, officers, employees, Affiliates or agents and each person who controls such Underwriter on substantially the same basis as that of the indemnification of the selling Holders provided in this Section 7(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 5(b)(xxiv) hereof.

     (b) Each Holder, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, officers and employees, Affiliates and agents and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion a registration statement. In no event shall any Holder, its directors, officers and employees, Affiliates and agents or any person who controls such Holder be liable or responsible for any amount in excess of net proceeds received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Shelf Registration Statement, Subsequent Shelf Registration Statement or registration statement pursuant to Section 3 exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers and employees, Affiliates and agents or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

     (c) Promptly after receipt by an indemnified party under this Section 7 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party (i) shall not relieve it from any liability which it may have under paragraphs (a) or (b) of this Section 7 unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses, and (ii) shall not, in any event, relieve it from any liability which it may have to an indemnified party otherwise than under paragraphs (a) or (b) of this Section 7. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the

19

defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Holders shall have the right to employ a single counsel to represent jointly the Holders and their officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Holders against the Company under this Section 7 if the Holders seeking indemnification shall have been advised by legal counsel that there may be one or more legal defenses available to such Holders and their respective officers, employees and controlling persons that are different from or additional to those available to the Company, and in that event, the fees and expenses of such separate counsel shall be paid by the Company.

     (d) The indemnifying party under this Section 7 shall not be liable for any settlement of any proceeding effected without its written consent, which shall not be withheld unreasonably, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 7(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent (x) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

     (e) If the indemnification provided for in this Section 7 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 7(a) or 7(b) in respect of any loss, claim, damage or liability (or action in respect thereof) referred to therein, each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the aggregate amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability (including legal or other expenses reasonably incurred in connection with investigating or defending any loss, claim, liability, damage or action) (collectively “Losses”) (or action in respect thereof):

20

     (i) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Holders on the other in connection with the statements or omissions or alleged statements or alleged omissions that resulted in such loss, claim, damage or liability (or action in respect, or

     (ii) if the allocation provided by Section 7(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative faults referred to in Section 7(d)(i) but also the relative benefits received by the Company from the offering and sale of the Transfer Restricted Securities on the one hand and a Holder with respect to the sale by such Holder of the Transfer Restricted Securities on the other), as well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the net proceeds from the offering of the Purchased Securities purchased under the Purchase Agreement (before deducting expenses) received by the Company, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities on the other. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or written information furnished to the Company by or on behalf of the Holders specifically for use in a registration statement on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 7(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (e).

     The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim.

     No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute as provided in this Section 7(d) are several and not joint.

     (f) The provisions of this Section 7 shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the officers, directors or controlling persons referred to in Section 7 hereof, and will survive the sale by a Holder of Transfer Restricted Securities.

     8. Rule 144A and Rule 144. The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the

21

Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. From and after the time a registration statement covering the Common Stock of Company is declared effective until such time as there are no longer any Transfer Related Securities, the Company shall cause its Common Stock to be registered under Section 12 of the Exchange Act.

     9. Underwritten Registrations.

     (a) Any Holder of Transfer Restricted Securities who desires to do so may sell Transfer Restricted Securities (in whole or in part) in an underwritten offering; provided that (i) Holders of at least 15.0% in aggregate amount of the Transfer Restricted Securities (on an as-exercised and as-converted basis) shall request such an offering and (ii) at least such aggregate amount of such Transfer Restricted Securities or Transfer Related Securities with an aggregate value of at least $50 million shall be included in such offering; and provided further that the Company shall not be obligated to participate in more than two underwritten offerings during the Effectiveness Period. Upon receipt of such a request, the Company shall provide all Holders of Transfer Restricted Securities written notice of the request, which notice shall inform such Holders that they have the opportunity to participate in the offering. If any of the Transfer Restricted Securities covered by the Shelf Registration Statement are to be sold in an underwritten offering, the Managing Underwriters shall be selected by Holders of a majority of Transfer Restricted Securities requesting such underwritten offering. The Company shall make all such filings with the Commission, including filing all necessary post effective amendments and supplements, as necessary to effect the offer and sale of Transfer Restricted Securities sought to be sold in such underwritten effort.

     (b) No person may participate in any underwritten offering unless such person (i) agrees to sell such person’s Common Stock on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements; (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; and (iii) if such Holder is not then a Notice Holder, such Holder returns a completed and signed Notice and Questionnaire to the Company in accordance with Section 2(f) hereof within a reasonable amount of time before such underwritten offering. No securities other than Transfer Restricted Securities shall be offered in such underwriting.

     (c) The Holders participating in any underwritten offering shall be responsible for any underwriting discounts and commissions subject to Section 6 and Section 7 and fees and expenses of their own counsel. The Company shall pay all expenses customarily borne by issuers in an underwritten offering, including but not limited to filing fees, the

22

fees and disbursements of its counsel and independent public accountants and any printing expenses incurred in connection with such underwritten offering. Notwithstanding the foregoing or the provisions of Section 5(b)(xxii) hereof, upon receipt of a request from the Managing Underwriter or a representative of holders of a majority of the Transfer Restricted Securities to be included in an underwritten offering to prepare and file an amendment or supplement to the Shelf Registration Statement and Prospectus in connection with an underwritten offering, the Company shall be entitled to suspend the effectiveness of the Shelf Registration statement pursuant to Section 5(b)(ii).

     (d) The Company shall take all such other actions as the Holders or the Managing Underwriters participating in an underwritten offering pursuant to this Section 9 may reasonably request in order to expedite or facilitate such offering of senior management of the Company to provide customary due diligence assistance in connection with any offering and to participate in customary “road show” presentations in connection with any underwritten offerings in substantially the same manner as they would in an underwritten primary registered public offering by the Company of its Common Stock. Each Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such Underwriters also be made to and for such Holder’s benefit and that any or all of the conditions precedent to the obligations of such Underwriters under such underwriting agreement also be conditions precedent to its obligations. No Holder shall be required to make any representations or warranties to or agreements with the Company or the Underwriters other than representations, warranties or agreements that are customary and reasonably requested by the Underwriters, provided, that such representations and warranties shall not relate to Company or its business or operations. If any Holder disapproves of the terms of an underwriting, such Holder may elect to withdraw therefrom by notice to the Company and the Managing Underwriters.

     10. Miscellaneous.

     (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations hereunder may result in material irreparable injury to the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely, and that, in the event of any such failure, in addition to being entitled to exercise all rights provided to it herein or in the Purchase Agreement or granted by law, including recovery of liquidated or other damages, any Holder may obtain such relief as may be required to specifically enforce the Company’s obligations hereunder. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

     (b) Actions Affecting Transfer Restricted Securities. The Company shall not, directly or indirectly, take any action that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement.

     (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with

23

respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Company shall not after the date hereof grant to any of its securityholders (other than the Holders of Transfer Restricted Securities in such capacity) the right to include any of its securities in the Shelf Registration Statement, Subsequent Shelf Registration Statement or the Piggyback Registration Statement or other registration statement, if any, provided for in this Agreement other than the Transfer Restricted Securities, unless pursuant to such grant, such holder may include such securities on the Holders’ Shelf Registration Statement, Subsequent Shelf Registration Statement or any Piggyback Registration Statement or other registration statement only to the extent that the inclusion of such securities will not reduce the amount of Transfer Restricted Securities of the Holders that is included on the Shelf Registration Statement or such Piggyback Registration Statement.

     (d) Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a Majority of Holders; provided however that with respect to any matter that directly or indirectly adversely affects the rights of a Holder or Holders in a manner different that a manner in which it affects the rights of other holders, the Company shall obtain the written consent of such adversely affected Holders. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Shelf Registration Statement and does not directly or indirectly adversely affect the rights of other Holders, may be given by a Majority of Holders, determined on the basis of Common Stock being sold rather than registered under such Shelf Registration Statement.

     (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first class mail (registered or certified, return receipt requested), facsimile transmission, or air courier guaranteeing overnight delivery:

24

     (i) if to a Holder, at the address set forth on the records of the transfer agent of the Common Stock:

With a copy (which shall not constitute notice) to:

Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Facsimile: 212-751-4864
Attention: Joshua Tinkelman; and

     (ii) if to the Company, initially at its address set forth in the Purchase Agreement,

With a copy (which shall not constitute notice) to:

Vinson & Elkins LLP
First City Tower
1001 Fannin Street, Suite 2300
Houston, Texas 77002
Facsimile: 713-615-5531
Attention: T. Mark Kelly

     All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery.

     Any party hereto may change the address for receipt of communications by giving written notice to the others.

     (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities. The Company hereby agrees to extend the benefit of this Agreement to any Holder and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto.

     (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     (h) Jurisdiction. The Company agrees that any suit, action or proceeding against the Company brought by any Holder, the directors, officers, employees, Affiliates and agents of any Holder, or by any person who controls any Holder, arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in any State or U.S. federal court in The City of New York and County of New York, and

25

waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The Company hereby appoints CT Corporation as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated herein which may be instituted in any State or U.S. federal court in The City of New York and County of New York, by any Holder, the directors, officers, employees, Affiliates and agents of any Holder, or by any person who controls any Holder, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Company hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Company. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment in full force and effect so long as any of the securities remain Transfer Restricted Securities. To the extent that the Company may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of this Agreement, to the fullest extent permitted by law. Notwithstanding the foregoing, any action arising out of or based upon this Agreement may be instituted by any Holder, the directors, officers, employees, Affiliates and agents of any Holder, or by any Person who controls any Holder, in any court of competent jurisdiction.

     (i) Common Stock Held by the Company or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or its Affiliates (other than subsequent Holders if such subsequent Holders are deemed to be Affiliates solely by reason of their holding of such Common Stock) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

     (j) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

     (k) Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York.

     (l) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

26

     (m) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

27

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

COMPANY: RIATA ENERGY, INC.
By:	/s/  Tom L. Ward
	Name:	Tom L. Ward
	Title:	Chairman and Chief Executive Officer

[Signature Page to Registration Rights Agreement]

THE PURCHASERS: BLUE RIDGE INVESTMENTS, L.L.C.
By:	/s/  Ray Cubero
	Name:	Ray Cubero
	Title:	Authorized Signatory

[Signature Page to Registration Rights Agreement]

CENTAURUS CAPITAL, LLC
By:	/s/  John D. Arnold
	Name:	John D. Arnold
	Title: Managing Member

[Signature Page to Registration Rights Agreement]

CREDIT SUISSE SECURITIES (USA), LLC
By:	CREDIT SUISSE SECURITIES (USA), LLC
By:	/s/ Todd Sandoz
	Name: Todd Sandoz
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

DALEA PARTNERS
By:	/s/ N. Malone Mitchell
	Name:	N. Malone Mitchell
	Title:	Partner

[Signature Page to Registration Rights Agreement]

FARALLON CAPITAL PARTNERS, L.P.
By:	FARALLON PARTNERS, L.L.C.,
	their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

[Signature Page to Registration Rights Agreement]

FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P.
By:	FARALLON PARTNERS, L.L.C.,
	their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

[Signature Page to Registration Rights Agreement]

FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P.
By:	FARALLON PARTNERS, L.L.C.,
	their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

[Signature Page to Registration Rights Agreement]

FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P.
By:	FARALLON PARTNERS, L.L.C.,
	their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

[Signature Page to Registration Rights Agreement]

TINICUM PARTNERS, L.P.
By:	FARALLON PARTNERS, L.L.C.,
	their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

[Signature Page to Registration Rights Agreement]

GOLDMAN, SACHS & CO.,
on behalf of its Principal Strategies Group
By:	/s/ Ken Eberts
	Name: Ken Eberts
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

HBK FUND L.P.
By:	HBK INVESTMENTS L.P.,
	Investment Advisor
By:	/s/ J. Baker Gentry, Jr.
	Name: J. Baker Gentry, Jr.
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

HIGHBRIDGE INTERNATIONAL LLC
By:	HIGHBRIDGE CAPITAL MANAGEMENT, LLC
By:	/s/  Adam J. Chill
	Name: Adam J. Chill
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

INVESTMENT PARTNERS (C) LTD.
By:	QUELLOS CAPITAL MANAGEMENT, L.P., its Investment Manager
By:	/s/  Marie M. Bender
	Name: Marie M. Bender
	Title: General Counsel
By:	/s/  Paul Bonde
	Name: Paul Bonde
	Title: Principal, Investment Operations

[Signature Page to Registration Rights Agreement]

KINGS ROAD INVESTMENTS LTD.
By:	POLYGON INVESTMENT PARTNERS L.P., its Investment Manager
By:	/s/ Brandon L. Jones
	Name: Brandon L. Jones
	Title: Co-Head, Private Investments

[Signature Page to Registration Rights Agreement]

LB I GROUP INC.
By:	/s/ Paul H. Tice
	Name: Paul H. Tice
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

LEONARDO, L.P.
By:	LEONARDO CAPITAL MANAGEMENT, INC., its General Partner
By:	ANGELO, GORDON & CO., L.P., its Director
By:	/s/ Joseph R. Wekselblatt
	Name: Joseph R. Wekselblatt
	Title: Chief Financial Officer

[Signature Page to Registration Rights Agreement]

MAGNETAR CAPITAL FUND, LP
By:	MAGNETAR FINANCIAL LLC,
	its General Partner
By:	/s/ Paul Smith
	Name: Paul Smith
	Title: General Counsel

[Signature Page to Registration Rights Agreement]

MAGNETAR CAPITAL FUND, LTD
By:	MAGNETAR FINANCIAL LLC,
	its Investment Manager
By:	/s/ Paul Smith
	Name: Paul Smith
	Title: General Counsel

[Signature Page to Registration Rights Agreement]

MOORE MACRO FUND, LP
By:	MOORE CAPITAL MANAGEMENT, LLC
	Trading Manager
By:	/s/ Anthony Gallagher
	Name: Anthony Gallagher
	Title: Director of Operations

[Signature Page to Registration Rights Agreement]

OSPRAIE SANDRIDGE HOLDINGS LLC
By:	THE OSPRAIE FUND, LP,
	its Managing Member
By:	OSPRAIE GROUP, LLC
	its General Partner
By:	/s/ Richard Puma
	Name: Richard Puma
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

OSPRAIE SPECIAL OPPORTUNITIES MASTER ALTERNATIVE HOLDINGS LLC
By:	OSPRAIE ASSOCIATES, LLC,
	its Manager
By:	OSPRAIE ASSOCIATES HOLDINGS, LLC,
	its Managing Member
By:	OSPRAIE GROUP, LLC,
	its Managing Member
By:	/s/ Richard Puma
	Name: Richard Puma
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

 

PORTSIDE GROWTH AND OPPORTUNITY FUND
By:	/s/ Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

 

QRA SR, LTD.
By:	QUELLOS PRIVATE CAPITAL MARKETS, L.P., its Investment Manager
By:	QUELLOS CAPITAL MANAGEMENT, L.P.,
	its General Partner
By:	/s/  Marie M. Bender
	Name: Marie M. Bender
	Title: General Counsel
By:	/s/  Paul Bonde
	Name: Paul Bonde
	Title: Principal, Investment Operations

[Signature Page to Registration Rights Agreement]

 

RCG BALDWIN, LP
By:	RAMIUS CAPITAL GROUP, L.L.C.,
	its General Partner
By:	C4S & CO., L.L.C.,
	its Managing Member
By:	/s/  Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

 

RCG CARPATHIA MASTER FUND, LTD.
By:	/s/  Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

 

RCG ENERGY, LLC
By:	RAMIUS CAPITAL GROUP, L.L.C.,
	its Managing Member
By:	C4S & CO., L.L.C.,
	its Managing Member
By:	/s/  Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

 

SILVER OAK CAPITAL, L.L.C.
By:	/s/  Joseph R. Wekselblatt
	Name: Joseph R. Wekselblatt
	Title: Manager

[Signature Page to Registration Rights Agreement]

 

STANFIELD OFFSHORE LEVERAGED ASSETS, LTD.
By:	STANFIELD CAPITAL PARTNERS, LLC
	its Investment Advisor
By:	/s/ Chris Pucillo
	Name: Chris Pucillo
	Title: Portfolio Manager

[Signature Page to Registration Rights Agreement]

 

TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of December 3, 2003 among Ensign Peak Advisors, Inc., TCW Asset Management Company and Trust Company of the West, a California trust company, as Sub-Custodian
By:	/s/ Kurt Talbot
	Name: Kurt Talbot
	Title: Managing Director
By:	/s/ Patrick Hickey
	Name: Patrick Hickey
	Title: Senior Vice President

[Signature Page to Registration Rights Agreement]

 

TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of March 18, 2004 among ING Life Insurance and Annuity Company, TCW Asset Management Company and Trust Company of the West, a California trust company, as Sub-Custodian
By:	/s/ Kurt Talbot
	Name: Kurt Talbot
	Title: Managing Director
By:	/s/ Patrick Hickey
	Name: Patrick Hickey
	Title: Senior Vice President

[Signature Page to Registration Rights Agreement]

 

TCW ENERGY FUND XB — NL, L.P.,
a California limited partnership
By:	TCW (ENERGY X) LLC,
	its General Partner
By:	TCW ASSET MANAGEMENT
	COMPANY, its Managing Member
By:	/s/ Kurt Talbot
Name:	Kurt Talbot
Title:	Managing Director
By:	/s/ Patrick Hickey
Name:	Patrick Hickey
Title:	Senior Vice President

[Signature Page to Registration Rights Agreement]

 

TCW ENERGY FUND XD — NL, L.P.,
a California limited partnership
By:	TCW (ENERGY X) LLC,
	its General Partner
By:	TCW ASSET MANAGEMENT
	COMPANY, its Managing Member
By:	/s/ Kurt Talbot
Name:	Kurt Talbot
Title:	Managing Director
By:	/s/ Patrick Hickey
Name:	Patrick Hickey
Title:	Senior Vice President

[Signature Page to Registration Rights Agreement]

 

TEMPO MASTER FUND LP
By:	JD CAPITAL MANAGEMENT LLC
	(its Investment Advisor)
By:	/s/ Donald McCarthy
	Name: Donald McCarthy
	Title: Chief Financial Officer

[Signature Page to Registration Rights Agreement]

 

TLW PROPERTIES, L.L.C.
By:	/s/ Tom L. Ward
	Name: Tom L. Ward
	Title: Manager

[Signature Page to Registration Rights Agreement]

 

UBS O’CONNOR LLC fbo O’CONNOR GLOBAL CONVERTIBLE ARBITRAGE MASTER LIMITED
By:	/s/ George Locasto
	Name: George Locasto
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

 

UBS O’CONNOR LLC fbo O’CONNOR GLOBAL CONVERTIBLE ARBITRAGE II MASTER LIMITED
By:	/s/ George Locasto
	Name: George Locasto
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

 

UBS O’CONNOR LLC fbo O’CONNOR PIPES CORPORATE STRATEGIES MASTER LIMITED
By:	/s/ George Locasto
	Name: George Locasto
	Title: Managing Director

[Signature Page to Registration Rights Agreement]

Annex A

RIATA ENERGY, INC.

FORM OF SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE

     The undersigned beneficial holder of securities of Riata Energy, Inc. (the “Company”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Shelf Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Transfer Restricted Securities, in accordance with the terms of the registration rights agreement, to be dated as of November 21, 2006 (the “Registration Rights Agreement”), between the Company and the Purchasers named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement.

     Each beneficial holder of Transfer Restricted Securities (each a “beneficial owner”), is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Transfer Restricted Securities pursuant to the Shelf Registration Statement or any Subsequent Shelf Registration Statement, a beneficial owner of Transfer Restricted Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers of Transfer Restricted Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions as described below). Beneficial owners that do not complete this Notice and Questionnaire and deliver it to the Company as provided below will not be named as selling securityholders in the prospectus and therefore will not be permitted to sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement or any Subsequent Shelf Registration Statement. Beneficial owners are encouraged to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement or any Subsequent Shelf Registration Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement or any Subsequent Shelf Registration Statement, the Company will, within ten (10) business days after such receipt, file such amendments to the Shelf Registration Statement or any Subsequent Shelf Registration Statement or supplements to the related prospectus as are necessary to permit such holder to deliver such prospectus to purchasers of Transfer Restricted Securities. The Company has agreed to pay liquidated damages pursuant to the Registration Rights Agreement under certain circumstances set forth therein.

     Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement or any Subsequent Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Transfer Restricted Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement or any Subsequent Shelf Registration Statement and the related prospectus.

Annex A - 1

NOTICE

     The undersigned beneficial owner (the “Selling Securityholder”) of Transfer Restricted Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Transfer Restricted Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) pursuant to the Shelf Registration Statement or any Subsequent Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement.

     Pursuant to the Registration Rights Agreement, the undersigned has agreed to indemnify and hold harmless the Company’s directors and officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), from and against certain losses arising in connection with statements concerning the undersigned made, with the approval of the undersigned, not to be unreasonably withheld, in the Company’s Shelf Registration Statement or any Subsequent Shelf Registration Statement or the related prospectus in reliance upon the information provided in this Notice and Questionnaire.

     If the Selling Securityholder transfers all or any portion of the Transfer Restricted Securities listed in Item 3 below after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement.

Annex A - - 2

QUESTIONNAIRE

     Please respond to every item, even if your response is “none.” If you need more space for any response, please attach additional sheets of paper. Please be sure to indicate your name and the number of the item being responded to on each such additional sheet of paper, and to sign each such additional sheet of paper before attaching it to this Questionnaire. Please note that you may be asked to answer additional questions depending on your responses to the following questions.

     If you have any questions about the contents of this Questionnaire or as to who should complete this Questionnaire, please contact the General Counsel of the Company at telephone number:

(405) 753-5600

     The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete:

1. Your Identity and Background as the Beneficial Owner of the Transfer Restricted Securities.

(a) Your full legal name:

(b) Your business address (including street address) (or residence if no business address), telephone number and facsimile number:

Address:

Telephone No.:

Fax No.:

(c) Are you a broker-dealer registered pursuant to Section 15 of the Exchange Act?

Yes.

No.

(d) If your response to Item 1(c) above is no, are you an “affiliate” of a broker-dealer registered pursuant to Section 15 of the Exchange Act?

Yes.

No.

Annex A - - 3

For the purposes of this Item 1(d), an “affiliate” of a registered broker-dealer includes any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such broker-dealer, and does not include any individuals employed by such broker-dealer or its affiliates.

(e) Full legal name of person through which you hold the Transfer Restricted Securities — (i.e., name of your broker or the DTC participant, if applicable, through which your Transfer Restricted Securities are held):

Name of Broker:

DTC No.:

Contact person:

Telephone No.:

2. Your Relationship with the Company.

(a) Have you or any of your affiliates, officers, directors or principal equity holders (owners of 5% or more of the equity securities of the undersigned) held any position or office or have you had any other material relationship with the Company (or its predecessors or affiliates) within the past three years?

Yes.

No.

(b) If your response to Item 2(a) above is yes, please state the nature and duration of your relationship with the Company:

3. Your Interest in the Transfer Restricted Securities.

(a) State the type and amount of Transfer Restricted Securities beneficially owned by you:

State the CUSIP No(s). of such Transfer Restricted Securities beneficially owned by you:

Annex A - 4

(b) Other than as set forth in your response to Item 3(a) above, do you beneficially own any other securities of the Company?

Yes.

No.

(c) If your answer to Item 3(b) above is yes, state the type, the aggregate amount and CUSIP No. of such other securities of the Company beneficially owned by you:

Type:

Aggregate amount:

CUSIP No.:

(d) Did you acquire the securities listed in Item 3(a) above in the ordinary course of business

Yes.

No.

(e) At the time of your purchase of the securities listed in Item 3(a) above, did you have any agreements or understandings, direct or indirect, with any person to distribute the securities

Yes.

No.

(f) If your response to Item 3(e) above is yes, please describe such agreements or understandings:

4. Nature of your Beneficial Ownership.

(a) Check if the beneficial owner set forth in your response to Item 1(a) is any of the below:

(i) A reporting company under the Exchange Act.

(ii) A majority owned subsidiary of a reporting company under the Exchange Act.

(iii) A registered investment fund under the 1940 Act.

Annex A - 5

(b) If the beneficial owner of the Transfer Restricted Securities set forth in your response to Item 1(a) above is a limited partnership, state the names of the general partners of such limited partnership:

     (i) With respect to each general partner listed in Item 4(b) above who is not a natural person and is not publicly-held, name each shareholder (or holder of partnership interests, if applicable) of such general partner. If any of these named shareholders are not natural persons or publicly-held entities, please provide the same information. This process should be repeated until you reach natural persons or a publicly-held entity.

(c) Name your controlling shareholder(s) (the “Controlling Entity”). If the Controlling Entity is not a natural person and is not a publicly-held entity, name each shareholder of such Controlling Entity. If any of these named shareholders are not natural persons or publicly-held entities, please provide the same information. This process should be repeated until you reach natural persons or a publicly-held entity.

     (i) (A) Full legal name of Controlling Entity(ies) or natural person(s) who have sole or shared voting or dispositive power over the Transfer Restricted Securities:

     (B) Business address (including street address) (or residence if no business address), telephone number and facsimile number of such person(s):

Address:

Telephone No.:

Fax No.:

(C) Name of shareholders:

(ii) (A) Full legal name of Controlling Entity(ies):

Annex A - 6

     (B) Business address (including street address) (or residence if no business address), telephone number and facsimile number of such person(s):

Address:

Telephone No.:

Fax No.:

(iii) Name of shareholders:

5. Plan of Distribution.

Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Transfer Restricted Securities listed above in Item 3 pursuant to the Shelf Registration Statement or Subsequent Shelf Registration Statement only as follows (if at all): Such Transfer Restricted Securities may be sold from time to time directly by the undersigned or, alternatively, through Underwriters, broker-dealers or agents. If the Transfer Restricted Securities are sold through Underwriters, broker-dealers or agents, the Selling Securityholder will be responsible for underwriting discounts or commissions or agents’ commissions in accordance with the Registration Rights Agreement. Such Transfer Restricted Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. Such sales may be effected in transactions (which may involve block transactions) (i) on any national securities exchange or quotation service on which the Transfer Restricted Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market. The Selling Securityholder may pledge or grant a security interest in some or all of the Transfer Restricted Securities owned by it and, if it defaults in the performance of its securited obligations, the pledgees or secured parties may offer and sell the Transfer Restricted Securities from time to time pursuant to the prospectus. The Selling Securityholder also may transfer and donate the Transfer Restricted Securities in other

Annex A - 7

circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling securityholder for purposes of this prospectus.

State any exceptions here:

Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Transfer Restricted Securities without the prior written agreement of the Company.

          The undersigned acknowledges its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Transfer Restricted Securities pursuant to the Registration Rights Agreement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions.

          The undersigned beneficial owner and selling securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the undersigned beneficial owner and selling securityholder against certain liabilities.

          In accordance with the undersigned’s obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement or Subsequent Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Shelf Registration Statement or Subsequent Shelf Registration Statement remains effective.

          All notices to the beneficial owner hereunder and pursuant to the Registration Rights Agreement shall be made in writing to the undersigned at the address set forth in Item 1(b) of this Notice and Questionnaire.

          By signing below, the undersigned acknowledges that it is the beneficial owner of the Transfer Restricted Securities set forth herein, consents to the disclosure of the information contained in this Notice and Questionnaire and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus.

          Once this Notice and Questionnaire is executed by the undersigned beneficial owner and received by the Company, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives and assigns of the Company and the undersigned beneficial owner. This Notice and Questionnaire shall be

Annex A - 8

governed in all respects by the laws of the State of New York, without giving effect to rules governing the conflict of laws.

Annex A - 9

     IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

NAME OF BENEFICIAL OWNER:
	(Please Print)
Signature:
Date:

PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE TO RIATA ENERGY, INC. AS FOLLOWS:

Riata Energy, Inc.
1601 NW Expressway, Suite 350
Oklahoma City, OK 73118
Attention: Matthew McCann
Fax: (405) 753-5975

Annex A-10

EX-4.4

Exhibit 4.4

SECURITIES PURCHASE AGREEMENT

by and among

RIATA ENERGY, INC.

d/b/a SANDRIDGE ENERGY, INC.

and

THE PURCHASERS SET FORTH ON

SCHEDULE I HERETO

Table of Contents

	ARTICLE I
	DEFINITIONS
Section 1.01	Definitions	1
	ARTICLE II
	SALE AND PURCHASE
Section 2.01	Sale and Purchase	7
Section 2.02	Closing	7
Section 2.03	The Company’s Deliveries	7
Section 2.04	Purchasers’ Deliveries	8
Section 2.05	Independent Nature of Purchasers’ Obligations and Rights	8
	ARTICLE III
	REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01	No Registration	9
Section 3.02	No Integration	9
Section 3.03	Disclosure	9
Section 3.04	Authorization of the Purchase Agreement	9
Section 3.05	Authorization of the Purchased Securities	9
Section 3.06	Authorization and Enforceability of Operative Documents	10
Section 3.07	No Material Adverse Change	10
Section 3.08	Independent Accountants	10
Section 3.09	Financial Statements	10
Section 3.10	Incorporation and Good Standing of the Company and its Subsidiaries	11
Section 3.11	Capitalization and Other Capital Stock Matters	11
Section 3.12	Non-Contravention of Existing Instruments; No Further Authorizations or
	Approvals Required.	12
Section 3.13	No Material Actions or Proceedings	13
Section 3.14	All Necessary Permits, etc	13
Section 3.15	Title to Properties	13
Section 3.16	Condition of Properties	14
Section 3.17	Company Not an “Investment Company”	14
Section 3.18	Insurance	14
Section 3.19	No Restriction on Distributions	15
Section 3.20	Related Party Transactions	15
Section 3.21	No General Solicitation	15
Section 3.22	Compliance with Environmental Laws	15
Section 3.23	Brokers	16
Section 3.24	Subsidiaries	16
Section 3.25	Acquisition Agreement, Credit Agreement and Bridge Credit Agreement.	16
Section 3.26	Taxes	17
Section 3.27	ERISA Matters	17

	ARTICLE IV
	REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
Section 4.01	Authorization	17
Section 4.02	Unregistered Offering and Sale of Securities	18
Section 4.03	No Other Representations or Warranties	20
	ARTICLE V
	ADDITIONAL AGREEMENTS
Section 5.01	Limited Preemptive Right	20
Section 5.02	Tag-Along Rights	21
Section 5.03	Information Rights	22
	ARTICLE VI
	MISCELLANEOUS
Section 6.01	Use of Proceeds	23
Section 6.02	Interpretation; Severability	23
Section 6.03	Survival of Representations and Warranties	23
Section 6.04	Waivers; Remedies; Amendments	23
Section 6.05	Binding Effect; Assignment	24
Section 6.06	Non-Disclosure	24
Section 6.07	Communications	24
Section 6.08	Entire Agreement	25
Section 6.09	Governing Law	25
Section 6.10	Execution in Counterparts	25
Section 6.11	Finder’s Fee	25
Section 6.12	Fees and Expenses	25
Section 6.13	Exculpation Among Purchasers	26
Section 6.14	Waiver of Conflicts	26

Schedules and Exhibits

Schedule 2.01	Purchasers
Schedule 2.04	Wiring Instructions
Schedule 3.24	Subsidiaries of the Company
Exhibit A	Form of Registration Rights Agreement
Exhibit B	Form of Warrant
Exhibit C	Opinion of Vinson & Elkins L.L.P.
Exhibit D	Opinion of In-House Counsel

ii

SECURITIES PURCHASE AGREEMENT

     This SECURITIES PURCHASE AGREEMENT, dated as of November 21, 2006 (this “Agreement”), is by and among RIATA ENERGY, INC., a Texas corporation d/b/a SANDRIDGE ENERGY, INC. (the “Company”) and each of the investors signatory hereto and listed for convenience on Schedule I hereto (each a “Purchaser” and collectively, the “Purchasers”).

     NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.01 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings specified in this Section 1.01.

     “Acquisition Agreement” means the Purchase and Sale Agreement, dated as of November 21, 2006, by and among American Real Estate Partners, L.P., American Real Estate Holdings Limited Partnership, AREP Oil & Gas Holdings LLC, AREP O & G Holdings LLC, NEG Oil & Gas, LLC, and the Company providing for the acquisition by the Company of 100% of the membership or other equity interests of NEG Oil & Gas, LLC.

     “Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by,” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

     “Available Remaining Taggable Shares Number” means at any time, (a) the Remaining Taggable Shares Number, less (b)(i) a percentage determined by dividing (x) the number of Shares beneficially owned by the applicable Company Principal and its Related Parties (but such number shall not be greater than the number of Shares beneficially owned by the applicable Company Principal and its Related Parties on the date hereof), by (y) such number of Shares beneficially owned by the applicable Company Principal and its Related Parties) and his Permitted Transferees (as defined in the Shareholders Agreement) plus the number of Shares beneficially owned by the Purchasers, multiplied by (ii) the Remaining Taggable Shares Number.

     “Bridge Credit Agreement” means the Credit Agreement, dated as of November 21, 2006, among the Company, each Lender from time to time party hereto and Bank of America, N.A.

     “Business Day” means any day other than a Saturday, Sunday, or a legal holiday for commercial banks in New York, New York.

     “Closing” has the meaning specified in Section 2.02.

     “Closing Date” has the meaning specified in Section 2.02.

     “Code” means the Internal Revenue Code of 1986.

     “Commission” means the United States Securities and Exchange Commission.

     “Common Stock” means the common stock, par value $0.001 per share, of the Company.

     “Common Unit” means a purchase unit consisting of a number of shares of Common Stock purchased as Purchased Securities and a Warrant that can be exercised by the surrender of a corresponding number of shares of Common Stock.

     “Company” has the meaning specified in the introductory paragraph of this Agreement.

     “Company Equity Securities” means (i) Common Stock and (ii) Equity Interest Equivalents of the Company.

     “Company Principals” means Tom Ward, N. Malone Mitchell 3^rd or their respective Affiliates; provided however, that in no event shall a “Company Principals” include the Company or any of its Subsidiaries.

     “Confidentiality Agreements” means the confidentiality agreements executed by the Company and any of the Purchasers or their affiliates in connection with or in contemplation of the offering of the Purchased Securities.

     “Credit Agreement” means the Credit Agreement, dated as of November 21, 2006, among the Company, each Lender from time to time party hereto and Bank of America, N.A., as Administrative Agent and L/C Issuer.

     “Environmental Claims” has the meaning specified in Section 3.22.

     “Environmental Laws” has the meaning specified in Section 3.22.

     “Equity Interest” means (i) the equity ownership rights in a business entity, whether a corporation, company, joint stock company, limited liability company, general or limited partnership, joint venture, bank, association, trust, trust company, land trust, business trust, sole proprietorship or other business entity or organization, and whether in the form of capital stock, ownership unit, limited liability company interest, membership interest, limited or general partnership interest or any other form of ownership, and (ii) also includes all Equity Interest Equivalents.

     “Equity Interest Equivalents” means all rights, warrants, options, convertible securities (including the Preferred Stock) or indebtedness, exchangeable securities or other instruments, or other rights that are outstanding and exercisable for or convertible or exchangeable into, directly or indirectly, any Shares of Common Stock; provided that the Common Units and related

2

Warrants shall be treated as Equity Interest Equivalents only to the extent of Common Stock issued on the date of this Agreement as part of a Common Unit.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

     “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate; provided, however, that an item described in any of items (a) through (f) shall not constitute an ERISA Event unless it could reasonably be expected to result in a Material Adverse Effect or it relates to an event which could reasonably be related to result in a Material Adverse Effect.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

     “Existing Instrument” has the meaning set forth in Section 3.12(a).

     “GAAP” means generally accepted accounting principles in the United States in effect from time to time.

     “Governmental Authority” means, with respect to a particular Person, the country, state, county, city and political subdivisions in which such Person or such Person’s Property is located or that exercises valid jurisdiction over any such Person or such Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them that exercises valid jurisdiction over any such Person or such Person’s Property.

     “Investment Company Act” means the Investment Company Act of 1940, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

     “IPO” shall have the meaning set forth in the Certificate of Designation for the Preferred Stock.

     “Law” means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, statute, law, rule or regulation or common law.

3

     “Lien” means any lien, encumbrance, security interest, equity, charge or other interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based in Law or contract or other instrument, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purpose of this Agreement, a Person shall be deemed to be the owner of any Property that it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in connection with a financing.

     “Material Adverse Change” has the meaning specified in Section 3.07.

     “Material Adverse Effect” has the meaning specified in Section 3.10.

     “Materials of Environmental Concern” has the meaning specified in Section 3.22.

     “Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

     “Operative Documents” means this Agreement, the Registration Rights Agreement, the Warrant, the Acquisition Agreement, the Credit Agreement and the Bridge Credit Agreement.

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Company or any ERISA Affiliate or to which the Company or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

     “Permits” means, with respect to the Company or any of the Subsidiaries, any licenses, permits, variances, consents, authorizations, waivers, grants, franchises, concessions, exemptions, orders, registrations and approvals of Governmental Authorities or other Persons necessary for the ownership, leasing, operation, occupancy and use of its Properties and the conduct of its businesses as currently conducted.

     “Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

     “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Company or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

4

     “Preferred Stock” means the shares of Series A Convertible Preferred Stock issued by the Company pursuant to this Agreement and the shares of Series A Convertible Preferred Stock of the Company issued by the Company upon the exercise of the warrants issued by the Company pursuant to this Agreement.

     “Private Placement Memorandum” means the private placement memorandum dated November 20, 2006 provided to each Purchaser.

     “Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

     “Purchase Price” means, with respect to a particular Purchaser, the amount set forth opposite such Purchaser’s name under the column entitled “Total Purchase Price” on Schedule 2.01 hereto.

     “Purchased Securities” means, with respect to a particular Purchaser, the number of shares of Class A Convertible Preferred Stock or number of Common Units, as applicable, set forth opposite such Purchaser’s name under the column entitled “Securities Purchased” on Schedule 2.01 hereto.

     “Purchaser” and “Purchasers” have the respective meanings specified in the introductory paragraph.

     “Purchaser Common Stock” means the shares of Common Stock issued by the Company pursuant to this Agreement and the shares of Common Stock issued upon conversion of shares of Preferred Stock, provided that a share of Common Stock shall cease to constitute Purchaser Common Stock when such share is resold pursuant to a registration statement effective under the Securities Act or in compliance with Rule 144 under the Securities Act.

     “Purchaser Material Adverse Effect” means, with respect to a particular Purchaser, any material and adverse effect on the ability of such Purchaser to meet its obligations and to consummate the transactions under this Agreement.

     “Registration Rights Agreement” means the Resale Registration Rights Agreement by and between the Company and the Purchasers in the form attached hereto as Exhibit A.

     “Regulation D” has the meaning specified in Section 3.21.

     “Related Parties” shall mean (i) with respect to any of Tom Ward and N. Malone Mitchell 3rd, his wife, children and grandchildren and any entities, trusts and other Affiliates, whether or not controlled, the sole beneficiaries or beneficial owners of which are Tom Ward or Malone, as applicable, his children and/or grandchildren (and/or such entities, trusts or Affiliates of which Tom Ward or N. Malone Mitchell 3rd, as applicable, his children and/or grandchildren their wives, children and grandchildren are the sole direct or indirect beneficiaries or beneficial owners); provided, however, that in no event shall the Company or any of its Subsidiaries be deemed to be a “Related Party”.

5

     “Remaining Taggable Shares Number” means, in connection with any proposed Sale by a Company Party or its Related Parties, (a) the number of the Taggable Shares in such Sale, less (b) the number of Shares, if any, sought to be sold by the Tagging Shareholder (as defined in the Shareholders Agreement) pursuant to its exercise of its tag-along rights under Section 2.2 of the Shareholders Agreement in connection with such Sale.

     “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

     “Representatives” of any Person means the officers, directors, employees, agents, counsel, accountants, investment bankers and other representatives of such Person.

     “Sale” (and “Sell” shall have a correlative meaning) means, with respect to any shares, the sale, transfer, assignment or similar disposition (excluding pledge, encumbrance or hypothecation) of such shares in which cash, securities or other property is received as consideration.

     “Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

     “Shareholders Agreement” means the Shareholder Agreement, dated November 21, 2006, among the Company, the Company Principals and the other parties thereto as in effect on such date.

     “Shares” means, as of any date, (i) with respect to the Company Principals and their Related Parties, the shares of Common Stock held by such Persons as of such date, and (ii) with respect to the Purchasers, the shares of Purchaser Common Stock held by such Purchasers and the Shares of Purchaser Common Stock issuable upon the conversion of the shares of Preferred Stock; provided, that with respect to any provisions of this Agreement which requires the calculation of the number or percentage of Shares, any shares of Preferred Stock shall be deemed to be fully converted into Common Stock.

     “Subsidiaries” means those entities listed on Schedule 3.24.

     “Taggable Percentage” means, with respect to each Purchaser, the percentage derived by dividing the maximum number of Shares sought to be sold by such Purchaser in connection with a proposed Sale as reflected in the Purchaser Tag-along Notice delivered to the Selling Shareholder during the Response Period, by the aggregate of the maximum numbers of Shares sought to be sold by all Purchaser in connection with such proposed Sale as reflected in all Purchaser Tag-along Notices delivered to the Selling Shareholder during the Response Period.

     “Transfer” (and “Transferee” shall have a correlative meaning) means, directly or indirectly, to Sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the Sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Shares beneficially owned by a Person or any interest in any Shares beneficially owned by a Person

6

     “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

     “Warrant” means a Preferred Stock Purchase Warrant entitling the holder to surrender the number of shares of Common Stock purchased as Purchased Securities in exchange for shares of Preferred Stock, on the terms and conditions set forth therein, in the form attached hereto as Exhibit B.

ARTICLE II

SALE AND PURCHASE

     Section 2.01 Sale and Purchase. Upon the terms hereof, the Company hereby issues and sells to each Purchaser, and each Purchaser, severally and not jointly hereby purchases from the Company, the Purchased Securities for the Purchase Price set forth opposite such Purchaser’s name under the column entitled “Purchase Price” on Schedule 2.01 hereto.

     Section 2.02 Closing. Upon the terms hereof, the consummation of the sale and purchase of the Purchased Securities hereunder (the “Closing”) shall take place on the date of this Agreement (the “Closing Date”), at the offices of Vinson & Elkins L.L.P., 1001 Fannin, Suite 2500, Houston, Texas 77002.

     Section 2.03 The Company’s Deliveries. At the Closing, the Company will deliver, or cause to be delivered, to each Purchaser, as applicable:

     (a) A certificate or certificates or other instruments representing the Purchased Securities of such Purchaser;

     (b) A cross-receipt executed by the Company certifying that it has received a wire transfer as of the Closing Date in an amount equal to the Purchase Price of such Purchaser;

     (c) An Opinion of Vinson & Elkins L.L.P., as counsel to the Company, addressed to each Purchaser in the form attached hereto as Exhibit C;

     (d) An Opinion of Matthew McCann, as in-house counsel to the Company, addressed to each Purchaser in the form attached hereto as Exhibit D;

     (e) A copy of the Registration Rights Agreement, dated as of the Closing Date and executed by the Company;

     (f) A certificate of Secretary of the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Purchasers, certifying as to (i) the amended and restated articles of incorporation of the Company, including the Certificate of Designation relating to the Preferred Stock; (ii) the by-laws of the Company; (iii) the resolutions of the board of directors of the Company authorizing the execution and performance of this Agreement, the Registration Rights Agreement and the Warrant and

7

the Certificate of Designation relating to the Preferred Stock; and (iv) incumbency and signatures of the officers of the Company executing this Agreement, the Registration Rights Agreement and the Warrant and the Certificate of Designation relating to the Preferred Stock and this certificate.

     (g) A certificate of the Chief Executive Officer and Chief Financial Officer, dated as of the Closing Date, in form and substance reasonably satisfactory to the Purchasers, certifying to such matters as reasonably requested by the Purchasers.

     Section 2.04 Purchasers’ Deliveries. At the Closing, each Purchaser will deliver, or cause to be delivered, to the Company:

     (a) Payment to the Company of the Purchase Price of such Purchaser by wire transfer of immediately available funds to the account designated by the Company on Schedule 2.04;

     (b) A cross-receipt executed by such Purchaser and delivered to the Company certifying that it has received the Purchased Securities of such Purchaser as of the Closing Date, as evidenced by the certificate and/or instruments referenced in Section 2.03(a); and

     (c) A copy of the Registration Rights Agreement, dated as of the Closing Date and executed by such Purchaser.

     Section 2.05 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under this Agreement are several and not joint with the obligations of the other Purchasers, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement. The representations and warranties of each Purchaser under this Agreement are several and not joint with the representations and warranties of the other Purchasers, and no Purchaser shall be deemed to have made any representations and warranties with respect to any other Purchasers under this Agreement. Nothing contained herein, and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement, and it shall not be necessary for the other Purchasers to be joined as additional parties in any proceeding for such purpose. Notwithstanding the foregoing, each Purchaser’s obligation to purchase its Purchased Securities is conditioned on the contemporaneous closing of the purchase of Purchased Securities by the other Purchasers and, if, for any reason, any Purchaser shall refuse to enter into this Agreement or shall fail to consummate its obligations hereunder, all obligations of the other Purchasers hereunder shall be null and void.

8

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to the Purchasers:

     Section 3.01 No Registration. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4.02, it is not necessary, in connection with the issuance and sale of the Purchased Securities to the Purchasers in the manner contemplated by this Agreement or in connection with the issuance of Preferred Stock upon exercise of any Warrant or the issuance of Common Stock upon conversion of the Preferred Stock pursuant to its terms, to register the Purchased Securities (or any such Common Stock) under the Securities Act or any other securities Laws.

     Section 3.02 No Integration. None of the Company or any of its Subsidiaries has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any “security” (as defined in the Securities Act) that is or will be integrated with the sale of the Purchased Securities in a manner that would require registration under the Securities Act of the Purchased Securities.

     Section 3.03 Disclosure. The Private Placement Memorandum and other information provided by the Company to the Purchasers for the purpose of deciding whether to acquire the Purchased Securities (other than the Company’s financial and other projections describing its proposed business), as of the date of such information and the date hereof, when read together did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial and other projections prepared by management were prepared in good faith; however, the Company does not warrant that it will achieve such projections nor has it assumed any obligation to update such projections.

     Section 3.04 Authorization of the Purchase Agreement. Each Operative Document has been duly authorized, executed and delivered by the Company and constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles and except as to rights to indemnification thereunder may be limited by applicable Law.

     Section 3.05 Authorization of the Purchased Securities. The Purchased Securities have been duly authorized for issuance and sale by the Company and pursuant to this Agreement and, when issued and delivered by the Company to the Purchasers pursuant to this Agreement on the Closing Date, the Preferred Stock and the Common Stock constituting Purchased Securities will be validly issued, fully paid and non-assessable, and the issuance of the Purchased Securities will not be subject to any preemptive or similar rights. The shares of Common Stock or Preferred Stock issuable upon conversion or exchange of Purchased Securities have been duly authorized for issuance by the Company and, when issued and delivered by the Company, will be validly issued, fully paid and non-assessable, and such shares will not be subject to any preemptive or similar rights.

9

     Section 3.06 Authorization and Enforceability of Operative Documents. Each of the Operative Documents has been duly authorized by the Company and, when executed and delivered by the Company, will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles and except as to rights to indemnification thereunder may be limited by applicable Law. The Company is in compliance with the terms of the Credit Agreement and Bridge Credit Agreement, and each representation and warranty contained in the Credit Agreement or the Bridge Credit Agreement is true and correct.

     Section 3.07 No Material Adverse Change. Except as otherwise disclosed in the Private Placement Memorandum, subsequent to the respective dates as of which information is given in the Private Placement Memorandum: (i) there has been no material adverse change, effect or event or development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, properties, assets or results of operations (other than as a result of developments affecting the oil and gas industry generally that do not have a disproportionate effect on the Company and its Subsidiaries), whether or not arising from transactions in the ordinary course of business, of the Company and its Subsidiaries, taken as a whole (a “Material Adverse Change”); (ii) the Company and its Subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, nor entered into any material transaction or agreement; and (iii) there has been no cash dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company or any wholly-owned Subsidiary of the Company, any of its Subsidiaries on any class of capital stock or other security or repurchase or redemption by the Company or any of its Subsidiaries of any class of capital stock or other security.

     Section 3.08 Independent Accountants. PricewaterhouseCoopers LLP and Grant Thornton LLP, who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules included in the Private Placement Memorandum, are independent registered public accountants with respect to the Company as required by the Securities Act and the Exchange Act and the applicable published rules and regulations thereunder.

     Section 3.09 Financial Statements. The financial statements of the Company included in Private Placement Memorandum present fairly the consolidated financial position of the Company and its consolidated Subsidiaries as of and at the dates indicated and present fairly the results of operations and cash flow of the Company and its consolidated subsidiaries of and at the dates indicated. The financial statements of NEG Oil & Gas, LLC included in the Private Placement Memorandum present fairly the consolidated financial position of NEG Oil & Gas, LLC and its consolidated subsidiaries as of and at the dates indicated and present fairly the results of operations and cash flow of NEG Oil & Gas, LLC and its consolidated subsidiaries of and at the dates indicated. Such financial statements of the Company and NEG Oil & Gas, LLC comply as to form with the applicable accounting requirements of Regulation S-X and have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. The financial data set

10

forth in the Private Placement Memorandum under the captions “Summary—Summary SandRidge Consolidated Historical Financial Data”, “Summary— Summary NEG Oil & Gas Consolidated Historical Financial Data”, “Capitalization”, “SandRidge Energy Selected Historical Financial Data” and “NEG Selected Historical Financial Data” fairly present the information set forth therein on a basis consistent with that of the audited financial statements contained in the Private Placement Memorandum. The pro forma condensed consolidated financial statements of the Company and its subsidiaries and the related notes thereto and the other pro forma financial data included in the Private Placement Memorandum have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly presented on the basis described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein.

     Section 3.10 Incorporation and Good Standing of the Company and its Subsidiaries. Each of the Company and its Subsidiaries has been duly incorporated or otherwise formed and is validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, as the case may be, and has power and authority (corporate or otherwise) to own or lease, as the case may be, and operate its properties and to conduct its business as presently conducted and, in the case of the Company, to enter into and perform its obligations under each Operative Document. Each of the Company and each Subsidiary is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result or reasonably be expected to result in a material adverse effect on the condition, financial or otherwise, or on the earnings, business, properties, assets or results of operations, whether or not arising from transactions in the ordinary course of business, of the Company and its Subsidiaries, taken as a whole (a “Material Adverse Effect”). All of the issued and outstanding shares of capital stock, or similar equity interest, of each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company, directly or through Subsidiaries, free and clear of any Lien, except that the Company’s revolving credit facility is secured by a negative pledge on any of the Company’s non-mortgage properties.

     Section 3.11 Capitalization and Other Capital Stock Matters. The authorized capital of the Company consists of: (i) 50,000,000 shares of preferred stock, par value of $0.001 per share, of which 2,625,000 shares are designated as Preferred Stock, 2,136,669 of which will be issued as of the date hereof pursuant to this Agreement, and (ii) 400,000,000 shares of Common Stock, 91,703,134 of which will be issued and outstanding as of the date hereof after giving effect to the issuance of Common Units pursuant to this Agreement and the issuance of 12,842,000 shares of Common Stock pursuant to the Acquisition Agreement. Except for an aggregate of 7,074,252 shares of Common Stock issuable upon exercise of outstanding stock options or warrants, shares of Preferred Stock issuable upon the exchange of the Common Units issued hereunder and the shares of Common Stock issuable upon conversion of the Company such shares of Preferred Stock and the shares of Preferred Stock issued hereunder, the Company has not issued any other options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or entered into any agreement giving any Person any right to subscribe for or acquire, any shares

11

of its capital stock or other security. Except for pursuant to the terms of the Purchased Securities and other customary adjustments as a result of stock dividends, stock splits, combinations of shares, reorganizations, recapitalizations, reclassifications or other similar events, there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders), and the issuance and sale of the shares of Preferred Stock and Common Units hereunder and the conversion and exchange thereof will not obligate the Company to issue shares of Common Stock or other securities to any Person or result in a right of any holder of securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws. None of the outstanding shares of Common Stock were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its Subsidiaries other than those described in the Private Placement Memorandum. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Private Placement Memorandum accurately presents and summarizes such plans, arrangements, options and rights.

          Section 3.12 Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required.

          (a) Neither the execution nor the delivery of any Operative Document by the Company or any of its Subsidiaries, nor the performance of its obligations thereunder, (i) will result in a violation or breach of its charter or bylaws (or other applicable organizational document), (ii) with or without the giving of notice or the passage of time, or both, violate, or be in conflict with, breach of, or constitute a default under, or cause or permit the termination or the acceleration of the maturity of, any material indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject (each, an “Existing Instrument”), (iii) require notice to or the consent of any party to any agreement or commitment, including, without limitation, any lease or license to which the Company is a party, or by which it or its properties is bound or subject other than those notices or consents that have been given or received; (iv) result in the creation or imposition of any security interest, lien, or other encumbrance upon any property or assets of the Company under any agreement or commitment to which it is a party, or by which it or its properties is bound or subject; or (v) violate or breach any material statute or Law or any judgment, decree, order, regulation or rule of any court or Governmental Authority to which the Company, its Subsidiaries or their properties is bound or subject.

          (b) The Company’s execution, delivery and performance of the Operative Documents and consummation of the transactions contemplated thereby and by the Private Placement Memorandum (i) have been duly authorized by all necessary corporate action and will not result in any violation of the charter or bylaws (or other applicable organizational document) of the Company or any Subsidiary, (ii) will not conflict with or constitute a breach of, or default

12

under, or result in the termination (or a right of termination) under, the acceleration of any obligations under or the creation or imposition of any Lien upon any property or assets of the Company or any of its Subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument or contract or other agreement or instrument to which the Company or any of its Subsidiaries is a party and (iii) will not result in any violation of any material Law, regulation, judgment, order or decree applicable to the Company or any of its Subsidiaries of any Governmental Authority having jurisdiction over the Company or any of its Subsidiaries or any of its or their properties.

          (c) No consent, approval, authorization or other order of, or registration or filing with, any court or other Governmental Authority or agency is required for the Company’s execution, delivery and performance of the Operative Documents and consummation of the transactions contemplated thereby and by the Private Placement Memorandum and by this Agreement, except (i) with respect to the transactions contemplated by the Registration Rights Agreement, as may be required under the Securities Act and the rules and regulations promulgated thereunder and (ii) such as have been obtained or made by the Company and are in full force and effect under the Securities Act, applicable state securities or blue sky laws.

     Section 3.13 No Material Actions or Proceedings. Except as otherwise disclosed in the Private Placement Memorandum, there are no legal or governmental actions, suits, hearings or investigations or proceedings pending or, to the Company’s knowledge, threatened (i) against or affecting the Company or any of its Subsidiaries, (ii) which has as the subject thereof any officer or director of, or property owned or leased by, the Company or any of its Subsidiaries or (iii) relating to environmental or discrimination matters, where in any such case (A) it is reasonable likely that such action, suit or proceeding would be determined adversely to the Company or such subsidiary and (B) any such action, suit or proceeding, if so determined adversely, would reasonably be expected to have a Material Adverse Effect or adversely affect the consummation of the transactions contemplated by this Agreement.

     Section 3.14 All Necessary Permits, etc. The Company and each Subsidiary possess such valid and current licenses, certificates, authorizations or permits issued by the appropriate local, state, federal or foreign regulatory agencies or Governmental Authority necessary to conduct their respective businesses except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice of revocation or modification of, non-compliance with or proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, singly or in the aggregate, and in the case of a notice or proceedings, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect.

     Section 3.15 Title to Properties. Each of the Company and its Subsidiaries has (i) generally satisfactory title to its oil and gas properties, title investigations having been carried out by the Company or its Subsidiaries in accordance with the practice in the oil and gas industry in the areas in which the Company and its Subsidiaries operate, (ii) good and marketable title to all other real property owned by it (including pipeline and other easement rights) to the extent necessary to carry on its business, and (iii) good and marketable title to all personal property owned by it, in each case free and clear of all Liens and defects except such as are described in

13

the Private Placement Memorandum or such as do not materially affect the value of the such properties of the Company and its Subsidiaries, taken as a whole, and do not interfere with the use made and proposed to be made of such properties, by the Company and its Subsidiaries, taken as a whole; and all of the easements, leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds or uses properties described in the Private Placement Memorandum, are in full force and effect, and neither the Company nor any of its Subsidiaries has any notice of any claim that has been asserted by anyone adverse to the rights of the Company or its Subsidiaries under any of the easements, leases or subleases mentioned above, or affecting or questioning the rights of the Company or any Subsidiary thereof to the continued possession or use of the easement or leased or subleased premises that would reasonably be expected to have a Material Adverse Effect.

     Section 3.16 Condition of Properties. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, the plants, buildings, structures and equipment owned by the Company and its Subsidiaries are in good operating condition and repair and have been reasonably maintained consistent with standards generally followed in the industry in which the Company and its Subsidiaries operates (giving due account to the age and length of use of same, ordinary wear and tear excepted), are adequate and suitable for their present uses and, in the case of plants, buildings and other structures, are structurally sound.

     Section 3.17 Company Not an “Investment Company”. The Company is not, and, after receipt of payment for the Purchased Securities and application of the proceeds as described under “Use of Proceeds” in the Private Placement Memorandum will not be, required to register as an “investment company” within the meaning of the Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act.

     Section 3.18 Insurance. Each of the Company and its Subsidiaries are insured by recognized and, to the knowledge of the Company, financially sound and reputable institutions with policies in such amounts and with such deductibles and covering such risks as are generally deemed adequate and customary for their businesses including, but not limited to, policies covering real and personal property owned or leased by the Company and its Subsidiaries against theft, damage, destruction, acts of terrorism or vandalism and earthquakes. All policies of insurance and fidelity or surety bonds insuring the Company or any of its Subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its Subsidiaries are in compliance, in all material respects, with the terms of such policies and instruments; and there are no material claims by the Company or any of its Subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; and neither the Company nor any such Subsidiary has, in the past three years, been refused any insurance coverage sought or applied for. The Company has no reason to believe that it or any Subsidiary will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not have a Material Adverse Effect.

14

     Section 3.19 No Restriction on Distributions. No Subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as described in or contemplated by the Private Placement Memorandum.

     Section 3.20 Related Party Transactions. There are no business relationships or related-party transactions involving the Company or any Subsidiary or any other person, which would be required to be disclosed pursuant to Item 404 of Regulation S-K under the Securities Act and are not disclosed and described in Private Placement Memorandum.

     Section 3.21 No General Solicitation. None of the Company or any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”)), has, directly or through an agent, engaged in any form of general solicitation or general advertising in connection with the offering of the Purchased Securities (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; the Company has not entered into any contractual arrangement with respect to the distribution of the Purchased Securities except for this Agreement, and the Company will not enter into any such arrangement except for the Registration Rights Agreement and as may be contemplated thereby.

     Section 3.22 Compliance with Environmental Laws. Except as otherwise disclosed in the Private Placement Memorandum (i) neither the Company nor any of its Subsidiaries is in violation of Law, order, permit or other requirement relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products (collectively, “Materials of Environmental Concern”), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (collectively, “Environmental Laws”), which violation includes, but is not limited to, noncompliance with any permits or other governmental authorizations required for the operation of the business of the Company or its Subsidiaries under applicable Environmental Laws, or noncompliance with the terms and conditions thereof, nor has the Company or any of its Subsidiaries received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its Subsidiaries is in violation of any Environmental Law, except, in each case, as would not, individually or in the aggregate, have a Material Adverse Effect; (ii) there is no claim, action or cause of action filed with a court or Governmental Authority, no investigation with respect to which the Company has received written notice, and no written notice by any person or entity alleging potential liability for investigatory costs, cleanup costs, governmental responses costs, natural resources damages, property damages, personal injuries, attorneys’ fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any of its Subsidiaries, now or in the past (collectively, “Environmental Claims”), pending or, to the Company’s

15

knowledge, threatened against the Company or any of its Subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law, except as would not, individually or in the aggregate, have a Material Adverse Effect; (iii) to the Company’s knowledge, there are no past, present or anticipated future actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that reasonably could result in a violation of any Environmental Law, require expenditures to be incurred pursuant to Environmental Law, except as would not, individually or in the aggregate, have a Material Adverse Effect; and (iv) neither the Company nor any of its Subsidiaries is subject to any pending or, to the Company’s knowledge, threatened proceeding under Environmental Law to which a governmental authority is a party and which is reasonably likely to result in monetary sanctions of $100,000 or more.

     Section 3.23 Brokers. Except as otherwise disclosed in the Private Placement Memorandum, there is no broker, finder or other party that is entitled to receive from the Company any brokerage or finder’s fee or other fee or commission as a result of any transactions contemplated by this Agreement.

     Section 3.24 Subsidiaries. The Subsidiaries listed on Schedule 3.24 attached hereto are the only “significant subsidiaries” of the Company as defined by Rule 405 under the Securities Act.

     Section 3.25 Acquisition Agreement, Credit Agreement and Bridge Credit Agreement.

          (a) The Company has provided to the Purchasers a true and complete copy of the Acquisition Agreement and all agreements and documents ancillary thereto. The Acquisition Agreement and each of the agreements and documents ancillary thereto is valid and binding and in full force and effect. There have been no amendments to the terms of the Acquisition Agreement or any of the agreements and documents ancillary thereto other than those provided to the Purchasers prior to the date of this Agreement. Simultaneously with the Closing the Company is consummating the transactions contemplated by the Acquisition Agreement, and acquiring 100% of the membership or other equity interests of NEG Oil & Gas, LLC, pursuant to the terms and conditions of the Acquisition Agreement and the agreements and documents ancillary thereto, with the waiver by the Company of any of the terms or conditions thereof (other than waivers that, in the aggregate are immaterial).

          (b) The Company has provided to the Purchasers true and complete copies of the Credit Agreement and the Bridge Credit Agreement and all agreements and documents ancillary thereto. Each of the Credit Agreement and the Bridge Credit Agreement and each of the agreements and documents ancillary thereto is valid and binding and in full force and effect. There have been no amendments to the terms of the Credit Agreement and the Bridge Credit Agreement or any of the agreements and documents ancillary thereto other than those provided to the Purchasers prior to the date of this Agreement. Simultaneously with the Closing, the Company is borrowing not more than $150 million under the Credit Agreement and not more than $850 under the Bridge Credit Agreement.

16

     Section 3.26 Taxes. The Company and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect.

     Section 3.27 ERISA Matters.

          (a) Each Plan is in compliance with the applicable provisions of ERISA, the Code and other Federal or state Laws except for such events of noncompliance which could not, in the aggregate, reasonably be expected to result in a Material Adverse Effect.

          (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

          (c) With respect to each Plan, (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; in each case, which could not reasonably be expected to result in a Material Adverse Effect.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER

     Each Purchaser, severally and not jointly, represents and warrants to the Company, as to itself only, that:

     Section 4.01 Authorization. Each Purchaser has full power and authority to enter into this Agreement. This Agreement, when executed and delivered by such Purchaser, will constitute valid and legally binding obligation of such Purchaser, enforceable in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies.

17

     Section 4.02 Unregistered Offering and Sale of Securities.

          (a) Investment. The Purchased Securities are being acquired for such Purchaser’s own account and with no intention of distributing the Purchased Securities or any part thereof other than in accordance with the Securities Act and other applicable securities and blue sky laws, and such Purchaser has no present intention of selling or granting any participation in or otherwise distributing the same in any transaction in violation of the Securities Act or the securities or blue sky laws of any other jurisdiction. If such Purchaser should in the future decide to dispose of any of the Purchased Securities, such Purchaser understands and hereby agrees that it may do so only in compliance with the Securities Act and applicable securities and blue sky laws of any other jurisdiction, as then in effect, which may include a sale contemplated by any registration statement pursuant to which the Purchased Securities are then being offered.

          (b) Such Purchaser understands that (i) the Purchased Securities (A) have not been registered under the Securities Act or any state securities Laws, (B) will be issued in reliance upon an exemption from the registration and prospectus delivery requirements of the Securities Act pursuant to Regulation D thereof and (C) will be issued in reliance upon exemptions from the registration and prospectus delivery requirements of state securities laws which relate to private offerings, and (ii) the Purchaser must therefore bear the economic risk of such investment indefinitely unless a subsequent disposition thereof is registered or exempted under the Securities Act and applicable state securities laws or is exempt therefrom.

          (c) Nature of Purchasers. Such Purchaser represents and warrants to the Company that it is one of the following as indicated on such Purchaser’s signature page hereto:

               (i) (A) an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act and a “qualified institutional buyer” as defined in Rule 144A promulgated by the Commission pursuant to the Securities Act and (B) by reason of its business and financial experience it has such knowledge, sophistication and experience in making similar investments and in business and financial matters generally so as to be capable of evaluating the merits and risks of the prospective investment in the Purchased Securities, is able to bear the economic risk of such investment and, at the present time, would be able to afford a complete loss of such investment;

               (ii) (A) not a U.S. Person (as defined in Regulation S under the Securities Act, which definition includes, but is not limited to, an individual resident in the United States, an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. Person and any partnership or corporation organized or incorporated under the laws of the United States) and is not purchasing the Purchased Securities on behalf of, or for the account or benefit of, a person in the United States or a U.S. Person; (B) the Purchased Securities have not been offered to such Purchaser in the United States, and the individuals making the order to purchase the Purchased Securities and executing and delivering this Agreement on behalf of such Purchaser were not in the United States when the order was placed and this Agreement was executed and delivered; (C) it undertakes and agrees that it will not offer, sell or otherwise transfer the Purchased Securities except: (1) to the Company, (2) outside the United States in accordance with

18

Rule 903 or 904 of Regulation S under the Securities Act, and in compliance with applicable local laws and regulations, (3) inside or outside the United States after one year pursuant to the exemption from registration under the Securities Act provided by Rule 144 thereunder, (4) to a person it reasonably believes is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act) purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (5) inside the United States, in any other transaction exempt from registration under the Securities Act and, in any event, in compliance with any applicable state securities laws of the United States, provided that prior to any transfer pursuant to this clause (5), the Company may require a legal opinion reasonably satisfactory to the Company that such transfer is exempt from registration under the Securities Act and any applicable state securities laws or (6) pursuant to a registration statement effective under the Securities Act and covering such offer, sale or transfer; and (D) it agrees not to engage in hedging transactions involving the Purchased Securities unless in compliance with the Securities Act.

               (iii) (A) an institutional “accredited investor” as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities Act and (B) by reason of its business and financial experience it has such knowledge, sophistication and experience in making similar investments and in business and financial matters generally so as to be capable of evaluating the merits and risks of the prospective investment in the Purchased Securities, is able to bear the economic risk of such investment and, at the present time, would be able to afford a complete loss of such investment.

          (d) Receipt of Information; Authorization. Such Purchaser acknowledges that it has (a) had access to the Private Placement Memorandum and (b) been provided a reasonable opportunity to ask questions of and receive answers from Representatives of the Company, and to be furnished requested information, regarding such matters sufficient to enable such Purchaser to evaluate the risks and merits of purchasing the Purchased Securities and consummating the transactions contemplated by this Agreement.

          (e) Legend. It is understood that any certificates evidencing the Purchased Securities will bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS (I) REGISTERED UNDER THE APPLICABLE SECURITIES LAWS, (II) SUCH TRANSACTION IS PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (III) AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY, HAS BEEN DELIVERED TO THE COMPANY AND SUCH OPINION

19

          STATES THAT THE SHARES MAY BE TRANSFERRED WITHOUT SUCH REGISTRATION.”

     Certificates evidencing the Purchased Securities and the certificates representing the securities issued upon conversion or exchange of the Purchased Securities (or any securities issued upon conversion or exchange of the Purchased Securities) shall not be required to contain such legend or any other legend after (A) such securities are registered for resale under the Securities Act, (B) following any sale of such securities pursuant to and in accordance with Rule 144, (C) if such securities are eligible for sale under Rule 144(k), or (D) if such legend is not required under applicable requirements of the Securities Act (including controlling judicial interpretations and pronouncements issued by the Staff of the SEC).

     Section 4.03 No Other Representations or Warranties. Such Purchaser acknowledges and agrees that the Company is not making and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Agreement.

ARTICLE V

ADDITIONAL AGREEMENTS

     Section 5.01 Limited Preemptive Right.

          (a) If at any time prior to the earlier of completion of an IPO, the Company proposes to Sell, issue or otherwise Transfer any Company Equity Security (but, in the event such sale, issuance or transfer is pursuant to a public offering or occurs concurrently with a public offering, less the underwriters’ discount or commissions for such public offering), then each Purchaser shall have the right to purchase the Preemptive Right Proportionate Number of Company Equity Securities being offered at the same price and terms as those offered by the Company provided, that the preemptive right provided under this Section 5.01 shall not be applicable to sales or issuances of Excluded Stock (as defined in the Series A Convertible Preferred Stock Certificate of Designation). The “Preemptive Right Proportionate Number” shall be, at any given time, a number equal to (i) the number of Shares beneficially owned by such Purchaser at such time multiplied by (ii) a fraction, the numerator of which is the total number of shares of Common Stock or other Company Equity Securities proposed to be issued or sold by the Company at such time and the denominator of which is the total number of Shares beneficially owned by the Company Principals and their Related Parties and the Purchasers; provided, such fraction shall not exceed 3/10. For the avoidance of doubt, this Section 5.01 shall not be applicable to (i) the conversion or exercise of any convertible securities, warrants, options or similar securities so long as the sale or issuance of such securities was made in accordance with this Section 5.01 or (ii) the financing of the transactions contemplated by the Acquisition Agreement.

          (b) In the event the Company proposes to undertake a sale or issuance of Company Equity Securities to which this Section 5.01 applies, it shall provide each Purchaser written notice (the “Preemptive Notice”) of its intention to do so (attaching copies of the most current drafts of any term sheets, agreements or other documents relating thereto), specifying the proposed price (it being understood that the form of consideration shall be cash or tangible assets

20

only), the identity of the purchaser and the material terms upon which the Company proposes to Sell, issue or otherwise Transfer the same. The Purchaser shall have five (5) Business Days from the delivery date of any Preemptive Notice to agree to purchase (if the form of consideration is tangible assets, at such Purchaser’s option, for cash and/or the same type of tangible assets of equal value), on the same closing date as the Company an amount of Company Equity Securities up to the Preemptive Right Proportionate Number (in each case calculated prior to the issuance) for the price and upon the terms specified in the Preemptive Notice by giving written notice to the Company and stating therein the amount of Company Equity Securities to be purchased. If a definitive agreement for the purchase of such Company Equity Securities is not provided along with the Preemptive Notice, Purchaser’s election to purchase Company Equity Securities pursuant to such Preemptive Notice shall not be binding until a definitive agreement is executed (but, subject to Section 5.01(c), an election to not purchase shall be binding).

          (c) In the event Purchasers do not purchase all of the Preemptive Right Proportionate Number of Company Equity Securities pursuant to this Section 5.01, the Company shall have 180 days after the date of the Preemptive Notice to consummate the sale or issuance of the Company Equity Securities with respect to which Purchasers’ preemptive rights were not exercised to any Person at or above the price and upon terms not more favorable in any material respect (it being understood and agreed that any increase in the number of Company Equity Securities or any decrease in the price thereof shall be deemed material for this purpose) than the terms specified in the initial Preemptive Notice given in connection with such sale or issuance.

     Section 5.02 Tag-Along Rights.

          (a) In the event that, in connection with a proposed Sale of Shares by a Company Principal or any of his Related Parties prior to an IPO, (i) the Tagging Shareholder (as defined in the Shareholders Agreement) does not elect, or no longer has the right to elect, to exercise its tag-along rights provided under Section 2.2 of the Shareholders Agreement (or waives or is deemed to have waived such rights) or (ii) the Tagging Shareholder elects to exercise its tag-along rights provided under Section 2.2 of the Shareholders Agreement, but the number of Shares sought to be sold by the Tagging Shareholder is less than the number of the Taggable Shares (as defined in the Shareholders Agreement) (any such proposed Sale by a Company Principal or any of his Related Parties, an "Investor Tag-along Sale”), than the Company Principal shall deliver to each of the Purchasers a written notice (an “Purchaser Sale Notice”), which notice shall state (i) the name of the proposed Transferee, (ii) the number of Taggable Shares and the Remaining Taggable Shares Number, (iii) the proposed purchase price therefor, including a description of any non-cash consideration (along with any reports and other material documents (and summaries of any other material oral information) relevant to the valuation of such non-cash consideration which the Company Principal or its Related Parties has, so long as the Purchaser agrees to keep such reports, documents and information confidential), and (iv) the other material terms and conditions of the proposed Sale, including the proposed closing date (which date may not be less than fifteen (15) Business Days after delivery of the Purchaser Sale Notice). Each Purchaser desiring to participate in any such Sale shall deliver to the Company Principal, within fifteen (15) Business Days after the delivery to all Purchasers of the Purchaser Sale Notice (the “Response Period”), a written notice (an “Purchaser Tag-along Notice”), which notice shall state that such Purchaser elects to exercise its tag-along rights under this Section 5.02 and shall state the maximum number of Shares sought to be sold by such

21

Purchaser. No Company Principal shall, or shall permits any of his Related Party to, consummate any Purchaser Tag-along Sale unless each Purchaser has been provided the right from the proposed Transferee to sell to the proposed Transferee identified in the Purchaser Sale Notice, on the terms and conditions set forth in the Purchaser Sale Notice, that number of Shares that is equal to (a) if the aggregate number of Shares that the Purchasers seek to sell as reflected in the Purchaser Tag-along Notices delivered within the Response Period exceeds the Available Remaining Taggable Shares Number, such Purchaser’s Taggable Percentage of the Available Remaining Taggable Shares Number (rounded down to the nearest whole number) or (b) if the aggregate number of Shares that the Purchasers seek to sell as reflected in the Purchaser Tag-along Notices delivered during the Response Period is equal to or less than the Available Remaining Taggable Shares Number, the maximum number of Shares sought to be sold by such Purchaser in connection with a proposed Sale as reflected in the Purchaser Tag-along Notice.

          (b) Each Purchaser, if it has elected to exercise its tag-along rights provided under this Section 5.02, shall participate in the Sale by delivering to the applicable Company Principal at the closing of the Sale of the Shares of the Company Principal or his Related Party’ to the Transferee the Shares to be sold by the Tagging Shareholder, duly endorsed for transfer, against payment of the aggregate purchase price therefor.

          (c) Transfers by a Company Principal to his Related Parties or by one of his Related Parties to him or another of his Related Parties shall not be subject to the tag-along rights provided under this Section 5.02.

          (d) Notwithstanding the other provisions of this Section 5.02, with respect to any Block Trade of a Substantial Block (both as defined in the Shareholders Agreement) under a registration statement pursuant to Article IV of the Shareholders Agreement, (i) the fifteen (15) Business Day period referred to in Section 5.02(a) shall be reduced to a three (3) Business Day period and (ii) the Purchaser Sale Notice may omit the name of the proposed Transferee and may specify the proposed minimum purchase price (in lieu of the purchase price).

          (e) Each of the Purchasers and any subsequent holders of Preferred Stock and Purchased Common Stock shall be an express third-party beneficiary of the provisions of Section 5.01 and this Section 5.02 applicable to the Purchasers and Section 5.01 and this Section 5.02 shall not be amended in a manner adverse to the Purchasers or eliminated, including by means of a termination of this Agreement, without the prior written consent of holders of a majority of the Shares held by the Purchasers and such subsequent holders.

     Section 5.03 Information Rights. The Company shall provide each Purchaser access to the materials provided to the lenders pursuant to Section 6.01 of the Credit Agreement, provided, each Purchaser shall enter into an agreement substantially similar to the Confidentiality Agreement with respect to non-public information contained in materials prior to the granting of such access.

22

ARTICLE VI

MISCELLANEOUS

     Section 6.01 Use of Proceeds. The Company shall use the net proceeds it receives from the sale of the Purchased Securities as described under “Use of Proceeds” in the Private Placement Memorandum.

     Section 6.02 Interpretation; Severability. Article, Section, Schedule, and Exhibit references are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to.” Whenever any party has an obligation under this Agreement, the expense of complying with that obligation shall be an expense of such party unless otherwise specified. If any provision of this Agreement is held to be illegal, invalid, not binding, or unenforceable, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, not binding, or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions shall remain in full force and effect.

     Section 6.03 Survival of Representations and Warranties. The representations and warranties set forth in Section 3.05 hereunder shall survive the execution and delivery of this Agreement indefinitely. The remainder of the representations or warranties set forth in this Agreement shall survive the execution and delivery of this Agreement until the earlier of (i) ten (10) Business Days following the delivery of audited financial statements of the Company for the year ended December 31, 2007 and (ii) an IPO (as defined in the Certificate of Designations). The covenants made in this Agreement shall survive the Closing and remain operative and in full force and effect regardless of acceptance of any of the Purchased Securities by the Purchasers and payment therefor and repayment, conversion, exercise or repurchase thereof. The Company shall indemnify, defend, protect and hold harmless each Purchaser and the officers, directors, partners, members, agents, employees and Affiliates of each of them from and against any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, costs of preparation and reasonable attorneys’ fees of one counsel to the Purchasers, promptly as incurred, arising out of or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Credit Agreement or any certificate, instrument or document contemplated hereby or thereby to the extent such losses, claims, damages, liabilities, settlement costs and expenses exceed $100 million in the aggregate, or (ii) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or any certificate, instrument or document contemplated hereby.

     Section 6.04 Waivers; Remedies; Amendments.

          (a) No Waiver; Remedies Cumulative. No failure or delay on the part of any party in exercising any right, power, or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any right, power, or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a party at law or in equity or otherwise.

23

          (b) Amendments and Modifications. Except as otherwise provided herein, no amendment, waiver, consent, modification, or termination of any provision of this Agreement shall be effective unless signed by each of the parties hereto affected by such amendment, waiver, consent, modification, or termination. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by any party hereto from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on any party hereto in any case shall entitle any party hereto to any other or further notice or demand in similar or other circumstances.

     Section 6.05 Binding Effect; Assignment. This Agreement shall be binding upon the Company, the Purchasers, and their respective successors and permitted assigns. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and permitted assigns.

     Section 6.06 Non-Disclosure. Notwithstanding anything herein to the contrary, each Confidentiality Agreement shall remain in full force and effect according to its terms regardless of any termination of this Agreement.

     Section 6.07 Communications. All notices and demands provided for hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, telecopy, air courier guaranteeing overnight delivery or personal delivery to the following addresses:

     (a) If to a Purchaser, to the contact information set forth on such Purchaser’s signature page hereto.

with a copy (which shall not constitute notice) to:

Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Attention: Joshua Tinkelman
Facsimile: 212-751-4864

     (b) If to the Company:

1601 NW Expressway, Suite 1600
Oklahoma City, Oklahoma 73118
Attention: Matthew McCann
Facsimile: (405) 753-5975

24

with a copy (which shall not constitute notice) to:

Vinson & Elkins L.L.P.
First City Tower
1001 Fannin, Suite 2500
Houston, Texas 77002
Attention: T. Mark Kelly
Facsimile: (713) 615-5531

or to such other address as the Company or such Purchaser may designate in writing. All notices and communications shall be deemed to have been duly given at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified mail, return receipt requested, or regular mail, if mailed; when receipt acknowledged, if sent via facsimile; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

     Section 6.08 Entire Agreement. This Agreement and the other agreements and documents referred to herein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those set forth or referred to herein or therein with respect to the rights granted by the Company or any of its Affiliates or each of the Purchasers or any of their Affiliates set forth herein or therein. This Agreement and the other agreements and documents referred to herein supersede all prior agreements and understandings between the parties with respect to such subject matter.

     Section 6.09 Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of New York without regard to principles of conflicts of laws.

     Section 6.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.

     Section 6.11 Finder’s Fee. Each party represents that it neither is nor will be obligated for any finder’s fee or commission or other similar fee or commission in connection with the purchase of Purchased Securities hereunder, other than placement agent fees paid by the Company to Banc of America Securities, LLC. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a such a fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

     Section 6.12 Fees and Expenses. The Company and the Purchasers shall bear their own expenses and legal fees incurred on their behalf with respect to this Agreement and the transactions contemplated hereby; provided, however, that the Company shall bear up to an amount previously agreed for the fees and expenses of Latham & Watkins LLP incurred with

25

respect to this Agreement and the transactions contemplated hereby upon receipt of proper documentation therefor.

     Section 6.13 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person or entity, other than the Company and its representatives, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, members, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Purchased Securities.

     Section 6.14 Waiver of Conflicts. Each party to this Agreement acknowledges that Latham & Watkins LLP, counsel for certain of the Purchasers, has in the past performed and may continue to perform legal services for certain of the Purchasers in matters unrelated to the transactions described in this Agreement, including the representation of such Purchasers in capital financings and other matters. Accordingly, each party to this Agreement hereby (a) acknowledges that Latham & Watkins LLP has represented only the Purchasers that have engaged it in connection with the transactions contemplated herein and not any of the other Purchasers or the Company with respect to the transactions contemplated herein; (b) acknowledges that they have had an opportunity to ask for information relevant to such representation; and (c) gives its informed consent to Latham & Watkins LLP’s representation of certain of such Purchasers in such unrelated matters and to Latham & Watkins LLP’s representation of such Purchasers in connection with this Agreement and the transactions contemplated hereby.

[SIGNATURE PAGE FOLLOWS]

26

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth.

RIATA ENERGY, INC.
By:	/s/ Tom L. Ward
	Name:	Tom L. Ward
	Title:	Chairman and Chief Executive Officer
Solely for the purposes of Section 5.02 hereof:
TOM L. WARD
/s/ Tom L. Ward
Tom L. Ward
N. MALONE MITCHELL, 3rd
/s/ N. Malone Mitchell
N. Malone Mitchell, 3rd

[Signature Page to Purchase Agreement]

THE PURCHASERS:
BLUE RIDGE INVESTMENTS, L.L.C.
By:	/s/  Ray Cubero
	Name:	Ray Cubero
	Title:	Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:    76,190
	Number of Common Units: ___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$15,999,900.00
Address for Notice	Daven Patel
	214 N. Tryon St
	Charlotte, NC 28255
	704-386-4161
	Facsimile:	(704) 387-3621

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

CENTAURUS CAPITAL, LLC
By:	/s/ John D. Arnold
	Name: John D. Arnold
	Title: Managing Member

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 47,619
	Number of Common Units:  -0-
Purchase Price ($210/Preferred Share; $19/Common Unit	$9,999,990.00
Address for Notice
	2629 Yorktown Place
	Houston, TX 77056
	Facsimile:	(713) 554-1350

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

CREDIT SUISSE SECURITIES (USA), LLC
By:	CREDIT SUISSE SECURITIES (USA), LLC
By:	/s/ Todd Sandoz
	Name: Todd Sandoz
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:   19,048
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$4,080,000
Address for Notice	Credit Suisse Securities (USA) LLC
	Attn: Jeffrey B. Andreski
	11 Madison Avenue, 3rd Floor
	New York NY 10010
	Facsimile:	(212) 325-1150

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

x an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

DALEA PARTNERS
By:	/s/ Malone Mitchell
	Name: N. Malone Mitchell
	Title: Partner

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:		47,619
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$ 9,999,990.00
Address for Notice	701 S. Taylor, Suite 500
	Amarillo, TX 79101
	Facsimile:	(806)-373-3454

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

FARALLON CAPITAL PARTNERS, L.P.
By:	FARALLON PARTNERS, L.L.C., their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:		61,471
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$12,900,910
Address for Notice	Farallon Capital Management, LLC
	One Maritime Plaza, Suite 1325
	San Francisco, CA 94111
	Facsimile:	(415) 421-2133

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P.
By:	FARALLON PARTNERS, L.L.C., their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:		49,019
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$10,293,900
Address for Notice	c/o Farallon Capital Management LLC
	One Maritime Plaza, Suite 1325
	San Francisco, CA 94111
	Facsimile:	(415) 421-2133

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P.
By:	FARALLON PARTNERS, L.L.C., their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  3,890
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$816,900
Address for Notice	c/o Farallon Capital Management LLC
	One Maritime Plaza, Suite 1325
	San Francisco, CA 94111
	Facsimile:	(415)-421-2133

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P.
By:	FARALLON PARTNERS, L.L.C., their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  2,333
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$ 489,930
Address for Notice	c/o Farallon Capital Management LLC
	One Maritime Plaza, Suite 1325
	San Francisco, CA 94111
	Facsimile:	(415) 421-2133

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TINICUM PARTNERS, L.P.
By:	FARALLON PARTNERS, L.L.C., their General Partner
By:	/s/ Monica R. Landry
	Name: Monica R. Landry
	Title: Managing Member

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  2,333
	Number of Common Units:___________
Purchase Price ($210/Preferred Share; $19/Common Unit	$489,930
Address for Notice	c/o Farallon Capital Management LLC
	One Maritime Plaza, Suite 1325
	San Francisco, CA 94111
	Facsimile:	(415) - 421-2133

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

GOLDMAN, SACHS & CO., on behalf of its Principal Strategies Group
By:	/s/ Ken Eberts
	Name: Ken Eberts
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 213,333
	Number of Common Units: 0
Purchase Price ($210/Preferred Share; $19/Common Unit	$44,799,930.00
Address for Notice	Sabrina Liak, Goldman Sachs
	1 New York Plaza, 47th Floor
	New York, NY 10004
	Facsimile:	(212) 256-4869

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

HBK FUND L.P.
By:	HBK INVESTMENTS L.P., Investment Advisor
By:	/s/ J. Baker Gentry
	Name: J. Baker Gentry, Jr.
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 119,048
	Number of Common Units:________
Purchase Price ($210/Preferred Share; $19/Common Unit	$25,000,080
Address for Notice	c/o HBK Investments, L.P.
	300 Crescent Court, Suite 700
	Dallas, TX 75201
	Attn: Legal
	Facsimile:	(214) 758-1207

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

HIGHBRIDGE INTERNATIONAL LLC
By:	HIGHBRIDGE CAPITAL MANAGEMENT, LLC
By:	/s/ Adam J. Chill
	Name: Adam J. Chill
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  -0-
	Number of Common Units:  526,316
Purchase Price ($210/Preferred Share; $19/Common Unit	$10,000,004.00
Address for Notice	c/o Highbridge Capital Management, LLC
	9 West 57th Street, 27th Floor
	New York, NY 10019
	Attn: Adam J. Chill
	Facsimile:	(212) 751-0755

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

INVESTMENT PARTNERS (C) LTD.
By:
	QUELLOS CAPITAL MANAGEMENT, L.P. its Investment Manager
By:	/s/ Marie M. Bender
	Name: Marie M. Bender
	Title: General Counsel
By:	/s/ Paul Bonde
	Name: Paul Bonde
	Title: Principal, Investment Operations

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  43,810
	Number of Common Units:  568,421
Purchase Price ($210/Preferred Share; $19/Common Unit	$20,000,099
Address for Notice	601 Union Street, 56th Floor
	Seattle, WA 98101
	Attn: Robert Ellsworth
	Facsimile:	(206) 613-6714

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

þ a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

KINGS ROAD INVESTMENTS LTD.
By:	POLYGON INVESTMENT PARTNERS LP, its Investment Manager
By:	/s/ Brandon L. Jones
	Name: Brandon L. Jones
	Title: Co-Head, Private Investments

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units:  1,842,105
Purchase Price ($210/Preferred Share; $19/Common Unit	$34,999,995
Address for Notice	598 Madison Avenue
	14th Floor
	New York, NY 10022
	Facsimile:	(212) 359-7303

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

LB I GROUP INC.
By:	/s/ Paul H. Tice
	Name: Paul H. Tice
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  214,286
	Number of Common Units:  0
Purchase Price ($210/Preferred Share; $19/Common Unit	$45,000,060.00
Address for Notice	Lehman Brothers
	745 Seventh Avenue, 8th Floor
	New York, NY 10019
	Attn: Paul Tice
	Facsimile:	(212) 520-9364

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

LEONARDO, L.P.
By:	LEONARDO CAPITAL MANAGEMENT, INC., its General Partner
By:	ANGELO, GORDON & CO., L.P., its Director
By:	/s/ Joseph R. Wekselblatt
	Name: Joseph R. Wekselblatt
	Title: Chief Financial Officer

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units:   289,474
Purchase Price ($210/Preferred Share; $19/Common Unit	$	5,500,006
Address for Notice	245 Park Ave., 26th Floor
	New York, NY 10161
	Attn: Gary Wolf
	Facsimile:		(212)- 867-6395

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

x a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

MAGNETAR CAPITAL FUND, LTD
By:	MAGNETAR FINANCIAL LLC,
	its General Partner
By:	/s/ Paul Smith
	Name: Paul Smith
	Title: General Counsel

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:   -0-
	Number of Common Units:   789,474
Purchase Price ($210/Preferred Share; $19/Common Unit	$	15,000,006.00
Address for Notice	c/o Magnetar Financial LLC
	Attn: General Counsel
	1603 Orrington Ave., 13th Floor
	Evanston, IL 60201
	Facsimile:		(847) 905-5680

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

x a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

MAGNETAR CAPITAL FUND, LTD
By:	MAGNETAR FINANCIAL LLC,
	its Investment Manager
By:	/s/ Paul Smith
	Name: Paul Smith
	Title: General Counsel

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:   95,240
	Number of Common Units:   -0-
Purchase Price ($210/Preferred Share; $19/Common Unit	$	20,000,400.00
Address for Notice	c/o Magnetar Financial LLC
	Attn: General Counsel
	1603 Orrington Ave., 13th Floor
	Evanston, IL 60201
	Facsimile:		(847) 905-5680

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

x an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

MOORE MACRO FUND, LP
By:	MOORE CAPITAL MANAGEMENT, LLC
	Trading Manager
By:	/s/ Anthony Gallagher
	Name: Anthony Gallagher
	Title: Director of Operations

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 238,095
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$49,999,950.00
Address for Notice	1251 Avenue of the Americas, 52nd Floor
	New York, NY 10020
	Facsimile:	(212) 382-9877

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

OSPRAIE SANDRIDGE HOLDINGS LLC
By:	THE OSPRAIE FUND, LP,
	its Managing Member
By:	OSPRAIE GROUP, LLC
	its General Partner
By:	/s/ Richard Puma
	Name: Richard Puma
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 59,523
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$12,499,830.00
Address for Notice	c/o Ospraie Advisors, L.P.
	320 Park Avenue, 27th Floor
	New York, NY 10022
	Facsimile:	(212) 980-3796

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

OSPRAIE SPECIAL OPPORTUNITIES
MASTER ALTERNATIVE HOLDINGS LLC
By:	OSPRAIE ASSOCIATES, LLC,
	its Manager
By:	OSPRAIE ASSOCIATES HOLDINGS,
	LLC, its Managing Member
By:	OSPRAIE GROUP, LLC,
	its Managing Member
By:	/s/ Richard Puma
	Name: Richard Puma
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  59,523
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$12,499,830.00
Address for Notice	c/o Ospraie Advisors, L.P.
	320 Park Avenue, 27th Floor
	New York, NY 10022
	Facsimile:	(212) 980-3796

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

PORTSIDE GROWTH AND OPPORTUNITY FUND
By:	/s/ Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units: 105,263
Purchase Price ($210/Preferred Share; $19/Common Unit		$1,999,997.00
Address for Notice	c/o Ramius Capital Group, LLC
	666 Third Avenue, 26th Floor
	New York, NY 10017
	Facsimile:		(212) 201-4802

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

QRA SR, LTD.
By:	QUELLOS PRIVATE CAPITAL
	MARKETS, L.P., its Investment Manager
By:	QUELLOS CAPITAL MANAGEMENT,
	L.P., its General Partner
By:	/s/ Marie M. Bender
	Name: Marie M. Bender
	Title: General Counsel
By:	/s/ Paul Bonde
	Name: Paul Bonde
	Title: Principal, Investment Operations

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  23,810
	Number of Common Units:   0
Purchase Price ($210/Preferred Share; $19/Common Unit	$5,000,100
Address for Notice	601 Union Street, 56th Floor
	Seattle, WA 98101
	Attn: Robert Ellsworth
	Facsimile:	(206) 613-6714

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

þ a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

RCG BALDWIN, LP
By:	RAMIUS CAPITAL GROUP, L.L.C.,
	its General Partner
By:	C4S & CO., L.L.C.,
	its Managing Member
By:	/s/ Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units:  52,632
Purchase Price ($210/Preferred Share; $19/Common Unit	$1,000,008.00
Address for Notice	c/o Ramius Capital Group LLC
	666 Third Avenue, 26th Floor
	New York, NY 10017
	Facsimile:	(212) 845-7990

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

RCG CARPATHIA MASTER FUND, LTD.
By:	/s/ Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units:  210,526
Purchase Price ($210/Preferred Share; $19/Common Unit	$	3,999,994
Address for Notice	c/o Ramius Capital Group LLC
	666 Third Avenue, 26th Floor
	New York, NY 10017
	Facsimile:		(212) - 845-7990

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

RCG ENERGY, LLC
By:	RAMIUS CAPITAL GROUP, L.L.C.,
	its Managing Member
By:	C4S & CO., L.L.C.,
	its Managing Member
By:	/s/ Jeffrey Solomon
	Name: Jeffrey Solomon
	Title: Authorized Signatory

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units:   157,895
Purchase Price ($210/Preferred Share; $19/Common Unit	$3,000,005
Address for Notice	c/o Ramius Capital Group LLC
	666 Third Avenue, 26th Floor
	New York, NY 10017
	Facsimile:	(212) 845-7990

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

SILVER OAK CAPITAL, L.L.C.
By:	/s/ Joseph R. Wekselblatt
	Name: Joseph R. Wekselblatt
	Title: Manager

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:   69,048
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$14,500,080
Address for Notice	245 Park Avenue, 26th Floor
	New York, NY 10161
	Attn: Gary Wolf
	Facsimile:	(212) 867-6395

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

STANFIELD OFFSHORE LEVERAGED ASSETS, LTD.
By:	STANFIELD CAPITAL PARTNERS, LLC
	its Investment Advisor
By:	/s/ Chris Pucillo
	Name: Chris Pucillo
	Title: Portfolio Manager

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  166,667
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$35,000,070.00
Address for Notice	Stanfield Offshore Leveraged Assets, Ltd.
	430 Park Ave, 11th Floor
	New York, NY 10022
	Facsimile:	(212) - 891-9625

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TCW ASSET MANAGEMENT COMPANY, a California corporation, as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of December 3, 2003 among Ensign Peak Advisors, Inc., TCW Asset Management Company and Trust Company of the West, a California trust company, as Sub-Custodian
By:	/s/ Kurt Talbot
	Name:  Kurt Talbot
	Title:    Managing Director
By:	/s/ Patrick Hickey
	Name:  Patrick Hickey
	Title:    Senior Vice President

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 25,602
	Number of Common Units:    0
Purchase Price ($210/Preferred Share; $19/Common Unit	$	5,376,420.00
Address for Notice	TCW Energy
	865 S. Figueroa Street, 18th Floor
	Los Angeles, CA 90017
	Attn: Phil Abejar
	Facsimile:		(213)-244-0604

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TCW ASSET MANAGEMENT COMPANY, a California corporation, as Investment Manager under the Amended and Restated Investment Management and Custody Agreement dated as of March 18, 2004 among ING Life Insurance and Annuity Company, TCW Asset Management Company and Trust Company of the West, a California trust company, as Sub-Custodian
By:	/s/ Kurt Talbot
	Name: Kurt Talbot
	Title: Managing Director
By:	/s/ Patrick Hickey
	Name: Patrick Hickey
	Title: Senior Vice President

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 25,602
	Number of Common Units:         0
Purchase Price ($210/Preferred Share; $19/Common Unit	$	5,376,420.00
Address for Notice	TCW Energy
	865 S. Figueroa Street, 18th Floor
	Los Angeles, CA 90017
	Attn: Phil Abejar
	Facsimile:		(213) 244-0604

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TCW ENERGY FUND XB – NL, L.P.,
a California limited partnership
By:	TCW (ENERGY X) LLC,
	its General Partner
By:	TCW ASSET MANAGEMENT
	COMPANY, its Managing Member
By:	/s/ Kurt Talbot
	Name: Kurt Talbot
	Title: Managing Director
By:	/s/ Patrick Hickey
	Name: Patrick Hickey
	Title: Senior Vice President

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 107,526
	Number of Common Units:        0
Purchase Price ($210/Preferred Share; $19/Common Unit	$	22,580,460.00
Address for Notice	TCW Energy
	865 S. Figueroa Street, 18th Floor
	Los Angeles, CA 90017
	Attn: Phil Abejar
	Facsimile:		(213) 244-0604

The Purchaser referenced above hereby certifies that it is (check one):

x a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TCW ENERGY FUND XD – NL, L.P.,
a California limited partnership
By:	TCW (ENERGY X) LLC, its General Partner
By:	TCW ASSET MANAGEMENT
	COMPANY, its Managing Member
By:	/s/ Kurt Talbot
	Name: Kurt Talbot
	Title: Managing Director
By:	/s/ Patrick Hickey
	Name: Patrick Hickey
	Title: Senior Vice President

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 79,365
	Number of Common Units: 0
Purchase Price ($210/Preferred Share; $19/Common Unit	$16,666,650.00
Address for Notice	TCW Energy
	865 S. Figueroa Street, 18th Floor
	Los Angeles, CA 90017
	Attn: Phil Abijor
	Facsimile:	(213) 244-0604

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TEMPO MASTER FUND LP
By:	JD CAPITAL MANAGEMENT LLC
	(its Investment Advisor)
By:	/s/ Donald McCarthy
	Name: Donald McCarthy
	Title: Chief Financial Officer

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:
	Number of Common Units: 789,474
Purchase Price ($210/Preferred Share; $19/Common Unit	$15,000,006
Address for Notice	Two Greenwich Plaza, 2nd Floor
	Greenwich, CT 06830
	Attn: Don McCarthy
	Facsimile:	(203) 985-8920

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

TLW PROPERTIES, L.L.C.
By:	/s/ Tom L. Ward
	Name: Tom L. Ward
	Title: Manager

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  262,857
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$ 55,199,970
Address for Notice	P.O. Box 54525
	Oklahoma City, OK 73154-1525
	Facsimile:	(405) 848-5143

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

þ an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

UBS O’CONNOR LLC fbo O’CONNOR GLOBAL CONVERTIBLE ARBITRAGE MASTER LIMITED
By:	/s/ George Locasto
	Name: George Locasto
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock:  7,144
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$1,500,240
Address for Notice	1 North Wacker Dr.
	Chicago, IL 60606
	Facsimile:	(312) 525-6271

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

þ a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

UBS O’CONNOR LLC fbo O’CONNOR GLOBAL CONVERTIBLE ARBITRAGE II MASTER LIMITED
By:	/s/ George Locasto
	Name: George Locasto
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 15,067
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$3,164,070
Address for Notice	1 North Wacker Dr.
	Chicago, IL 60606
	Facsimile:	(312) 525-6271

The Purchaser referenced above hereby certifies that it is (check one):

þ a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

o a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

UBS O’CONNOR LLC fbo O’CONNOR PIPES CORPORATE STRATEGIES MASTER LIMITED
By:	/s/ George Locasto
	Name: George Locasto
	Title: Managing Director

Amount of Purchased Securities	Shares of Series A Convertible Preferred Stock: 1,600
	Number of Common Units:
Purchase Price ($210/Preferred Share; $19/Common Unit	$336,000
Address for Notice	1 North Wacker Dr.
	Chicago, IL 60606
	Facsimile:	(312) 525-6271

The Purchaser referenced above hereby certifies that it is (check one):

o a “Qualified Institutional Buyer” (as defined in Rule 144A under the Securities Act) and an “accredited investor” (as defined in Rule 501(a) under the Securities Act)

þ a non-“U.S. Person” (as defined in Regulation S under the Securities Act)

o an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

[Signature Page to Purchase Agreement]

SCHEDULE 2.01

	Series A
	Convertible
	Preferred		Common		Total Purchase
Purchaser	Stock		Units		Price
Silver Oak Capital, L.L.C		69,048			$	14,500,080.00
Leonardo, L.P.				289,474		5,500,006.00
Blue Ridge Investments, L.L.C		76,190				15,999,900.00
Centaurus Capital, LLC		47,619				9,999,990.00
Credit Suisse Securities (USA), LLC		19,048				4,000,080.00
Farallon Capital Partners, L.P.		61,471				12,908,910.00
Farallon Capital Institutional Partners, L.P.		49,019				10,293,990.00
Farallon Capital Institutional Partners II, L.P.		3,890				816,900.00
Farallon Capital Institutional Partners III, L.P.		2,333				489,930.00
Tinicum Partners, L.P.		2,333				489,930.00
Goldman, Sachs & Co.		213,333				44,799,930.00
HBK Fund L.P.		119,048				25,000,080.00
Highbridge International LLC				526,316		10,000,004.00
Tempo Master Fund				789,474		15,000,006.00
LB I Group Inc.		214,286				45,000,060.00
Magnetar Capital Fund, Ltd.				789,474		15,000,006.00
Magnetar Capital Fund, LP		95,240				20,000,400.00
Dalea Partners		47,619				9,999,990.00
Moore Macro Fund, LP		238,095				49,999,950.00
Ospraie Special Opportunities Master Alternative Holdings LLC		59,523				12,499,830.00
Ospraie Sandridge Holdings LLC		59,523				12,499,830.00
King’s Road Investments Ltd.				1,842,105		34,999,995.00
QRA SR, Ltd.		23,810				5,000,100.00
Investment Partners (C), Ltd.		43,810		568,421		20,000,099.00
Portside Growth and Opportunity Fund				105,263		1,999,997.00
RCG Carpathia Master Fund, Ltd.				157,895		3,000,005.00
RCG Energy, LLC				210,526		3,999,994.00
RCG Baldwin, LP				52,632		1,000,008.00
Stanfield Offshore Leveraged Assets, Ltd.		166,667				35,000,070.00
TCW Asset Management Company – Ensign		25,602				5,376,420.00
TCW Asset Management Company – ING		25,602				5,376,420.00
TCW Energy Fund XB – NL, L.P.		107,527				22,580,670.00
TCW Energy Fund XD – NL, L.P.		79,365				16,666,650.00
TLW Properties, L.L.C		262,857				55,199,970.00
UBS O’Connor LLC fbo O’Connor PIPES Corporate Strategies Master Limited		7,144				1,500,240.00
UBS O’Connor LLC fbo O’Connor Global Convertible Arbitrage Master Limited		15,067				3,164,070.00
UBS O’Connor LLC fbo O’Connor Global Convertible Arbitrage II Master Limited		1,600				336,000.00
Total		2,136,669		5,331,580	$	550,000,510.00

Schedule 2.01

SCHEDULE 2.04

Bank Name:	Bank of America
	701 S. Taylor
	Amarillo, Texas
ABA #:	26009593
Acct #:	000007183925
Acct Name:	Riata Energy, Inc./dba SandRidge Energy

Schedule 2.04

SCHEDULE 3.24

Lariat Services, Inc.	Texas corporation
PetroSource Energy Company, L.P.	Texas limited partnership
ROC Gas Company	Texas corporation

Schedule 3.06

EXHIBIT A

FORM OF REGISTRATION RIGHTS AGREEMENT

[See attached]

 A-1

EXHIBIT B

FORM OF WARRANT

[See attached]

 B-1

EXHIBIT C

OPINION OF VINSON & ELKINS L.L.P.

[See attached]

 C-1

EXHIBIT D

OPINION OF IN-HOUSE COUNSEL

AS

[See attached]

 D-1

EX-4.6

Exhibit 4.6

“Form of Warrant to Purchase Series A Convertible Preferred Stock

THIS WARRANT AND THE UNDERLYING SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS (I) REGISTERED UNDER THE APPLICABLE SECURITIES LAWS, (II) SUCH TRANSACTION IS PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (III) AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY, HAS BEEN DELIVERED TO THE COMPANY AND SUCH OPINION STATES THAT THIS WARRANT OR THE UNDERLYING SECURITIES MAY BE TRANSFERRED WITHOUT SUCH REGISTRATION. THE EXERCISE CONSIDERATION AND THE EXERCISE VALUE (EACH AS DEFINED HEREIN) SET FORTH IN THIS WARRANT MAY BE ADJUSTED PURSUANT TO SECTION 4 OF THIS WARRANT.

RIATA ENERGY, INC.

WARRANT TO PURCHASE
SERIES A CONVERTIBLE PREFERRED STOCK

No. W-[                     ] [Date]

Void After May 15, 2013

     This Certifies That, for value received,                                         , with its principal office at                                         , or its assigns (the “Holder”), is entitled to subscribe for and purchase from Riata Energy, Inc., a corporation organized under the laws of the State of Texas and d/b/a SandRidge Energy, Inc. (together with its successors, the “Company”), a number of shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share (the “Preferred Stock”), determined by dividing (x) the product of (i) the number of shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), tendered as Exercise Consideration (as defined in Section 1) multiplied by (ii) 19.00 (subject to adjustment pursuant to Section 4, the “Exercise Value”) by (y) the Accreted Value (as defined in the Certificate of Designations) per share of Preferred Stock in effect on the date this Warrant is surrendered for exercise, subject to the terms and conditions set forth herein. This Warrant is one of a series of Warrants being issued as a unit consisting of shares of Common Stock and a Warrant issued and sold pursuant to the terms of that certain Securities Purchase Agreement, dated as of November 21, 2006, by and among the Company, the original Holder of this Warrant and the other parties named therein (the “Purchase Agreement”). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement.

1. Definitions. As used herein, the following terms shall have the following respective meanings:

     (a) “Certificate of Designations” shall mean the Certificate of Designations of the Series A Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Texas.

     (b) “Exercise Period” shall mean the period commencing on the date hereof and ending at 5:00 p.m., New York time, on the earlier of (i) May 15, 2013 and (ii) the first day in

which all outstanding shares of Preferred Stock have been fully redeemed, retired or converted (voluntarily or involuntarily) pursuant to the Certificate of Designations.

     (c) “Exercise Consideration” shall mean [                    ] shares of issued and outstanding Common Stock, subject to adjustment pursuant to Section 4.

     (d) “Exercise Shares” shall mean the shares of the Preferred Stock issued upon any exercise of this Warrant.

2. Exercise of Warrant.

     2.1 Method of Exercise. The rights represented by this Warrant may be exercised, in whole or in part, at any time by the Holder during the Exercise Period, by delivery of the following to the Company at its address set forth on the signature page hereto (or at such other address as the Company may designate by notice in writing to the Holder):

     (a) an executed Notice of Exercise in the form attached hereto;

     (b) payment of the Exercise Consideration to the Company, by delivery of a stock certificate issued in the name of the Holder of this Warrant duly endorsed in blank, or other means of valid electronic transfer, representing the shares of Common Stock being surrendered as Exercise Consideration; and

     (c) this Warrant.

     Upon any exercise of the rights represented by this Warrant, Exercise Shares shall be issued to and registered in the name of the Holder or Persons affiliated with the Holder, if the Holder so designates, within three (3) Business Days after the rights represented by this Warrant shall have been so exercised and shall be issued in certificate form and delivered to the Holder, if so requested.

     The Person in whose name any Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and the Exercise Consideration was tendered, irrespective of the date of issuance of Exercise Shares, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such Person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. The stock transfer books of the Company shall be open on any day that is a Business Day, unless required by law.

     2.2 Partial Exercise. If this Warrant is exercised in part through the surrender of a number of shares of Common Stock constituting less than all of the Exercise Consideration, the Company shall also execute and deliver to the exercising Holder, within three (3) Business Days of the date of such exercise, (i) a new Warrant evidencing the rights of the Holder exercisable for the balance of the unexercised Exercise Consideration, and (ii) a new stock certificate evidencing the balance of any shares of Common Stock remaining upon tender of a stock certificate evidencing more than the number of shares tendered as Exercise Consideration for such exercise.

2

3. Covenants of the Company.

     3.1 Covenants as to Exercise Shares and Conversion Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive or similar rights, a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights represented by this Warrant and Common Stock to provide for the conversion of such shares of Preferred Stock in accordance with the Certificate of Designations. If at any time during the Exercise Period the number of authorized but unissued shares of Preferred Stock or Common Stock shall not be sufficient to permit exercise of this Warrant or conversion of the Exercise Shares, respectively, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Preferred Stock and/or Common Stock to such number of shares as shall be sufficient for such purposes.

     3.2 Notices of Certain Events. The Company shall give written notice to the Holder at least 10 days prior to the date on which the Company closes its books or sets a record date for determining rights to vote with respect to any manner set forth in Section 4 or Section 10 of the Certificate of Designations. The Company shall also deliver to the Holder (i) written notice of any determination or election by the Company to not declare and pay any accrued dividend pursuant to Section 3(b) of the Certificate of Designations at least 5 days prior to the applicable Dividend Record Date (as defined in the Certificate of Designations) provided that if such determination or election is not made by the Company until a later date, as promptly as practicable after making such determination or election, (ii) copies of any notice or statement delivered to holders of Preferred Stock pursuant to the Certificate of Designations, applicable law or otherwise sent within such time as such notice is required to be sent to holders of Preferred Stock, (iii) written notice of the occurrence of an “Event of Default” or a “Liquidation Event” under the Certificate of Designations sent within 3 days from the date the Company becomes aware of such an occurrence and (iv) written notice if the total amount of Preferred Stock outstanding at any time shall fall below twenty percent (20%) of the total number of shares of Preferred Stock initially issued pursuant to the Purchase Agreement sent within 3 days from the date the Company becomes aware of such an occurrence. In the case of any such action of which the Company gives any notice to the Holder of this Warrant or is required to give such notice to the Holder, the Holder shall be entitled to give a Notice of Exercise that is contingent on the completion of such action.

4. Adjustments.

     4.1 Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares or at any time combines (by reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the number of shares of Common Stock that constitute Exercise Consideration and the Exercise Value immediately prior to such subdivision or combination shall be adjusted to give the Holder of this Warrant, on exercise for the same aggregate Exercise Consideration, the total

3

number of Exercise Shares as the Holder would have owned had this Warrant been exercised prior to such event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the Common Stock.

     4.2 Reorganization, Mergers, Consolidations, or Sales of Assets. If at any time or from time to time there shall be a capital reorganization of the Common Stock or the Preferred Stock (other than a subdivision, combination, reclassification or exchange of shares, provided for elsewhere in this Section 4), or a merger or consolidation of the Company with or into another entity then, as a part of such reorganization, merger or consolidation, provision shall be made so that the Holder of this Warrant shall, after such reorganization, merger, or consolidation, be entitled to (i) tender a proportionate number of the shares of stock of the Company, or of the successor entity resulting from such merger or consolidation, other securities and/or property to which the holders of the Common Stock are entitled to receive upon such reorganization, merger or consolidation if such shares were Exercise Consideration and/or (ii) receive upon exercise of this Warrant shares of stock of the Company, or of the successor entity resulting from such merger or consolidation, other securities and/or property to which a holder of the Exercise Shares would have been entitled to receive upon such reorganization, merger or consolidation if such shares were then outstanding. If the holders of Preferred Stock have the right to elect the kind and amount of consideration receivable upon consummation of such transaction, then the Holder of this Warrant, in connection with such transaction and at the same time holders of Preferred Stock are allowed to make such election, shall be given the right to make a similar election with respect to the consideration into which this Warrant shall thereafter be exercisable.

5. Fractional Shares. Notwithstanding anything to the contrary herein, no fractional Exercise Shares shall be issued upon any exercise of this Warrant. All Exercise Shares (including fractions thereof) that would otherwise be issuable upon any exercise of this Warrant shall be aggregated for purposes of determining whether an exercise would result in the issuance of any fractional share. If, after such aggregation, an exercise would result in the issuance of a fractional share of Preferred Stock, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the Accreted Value (as determined in the Certificate of Designations) of one share of Preferred Stock on the date of delivery of this Warrant with a Notice of Exercise by such fraction.

6. No Stockholder Rights. Except as set forth herein, this Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company.

7. Transfer of Warrant. This Warrant is issued as part of a common unit consisting of a number of shares of Common Stock issued pursuant to the Purchase Agreement, which initially constitutes the Exercise Consideration. Subject to the foregoing, any applicable laws and compliance with the Purchase Agreement, this Warrant and all rights hereunder shall be transferable, in whole or in part, separately from the shares of Common Stock with which it was issued, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant, a certificate or certificates evidencing the Exercise Consideration and the form of assignment attached hereto to any transferee designated by Holder. If this Warrant is transferred in part, the Company shall, upon surrender of this Warrant and a stock certificate or certificates for the

4

number of shares representing Exercise Consideration also being transferred, execute and deliver, within three (3) Business Days of the date of transfer, (i) a new Warrant evidencing the rights of such transferee to purchase Exercise Shares hereunder for the amount of Exercise Consideration subject to such transfer, (ii) a new stock certificate in the name of such transferee evidencing the Exercise Consideration subject to such transfer; (iii) a new Warrant evidencing the rights of the Holder to purchase Exercise Shares hereunder for the balance of the Exercise Consideration not so transferred and (iv) a new stock certificate in the name of the Holder evidencing the Exercise Consideration not so transferred. Notwithstanding the foregoing or any other provision of this Warrant, this Warrant may be pledged to a “qualified institutional buyer” (as such tem is defined in Rule 144A promulgated under the Securities Act of 1933, as amended) in connection with a bona fide margin account or other loan or financing arrangement secured by this Warrant.

8. Lost, Stolen, Mutilated or Destroyed Warrant or Certificates. If this Warrant or any stock certificates representing Exercise Consideration are lost, stolen, mutilated or destroyed, the Company shall issue a new Warrant or stock certificate, as applicable, of like denomination and tenor as the Warrant or stock certificate, as applicable, so lost, stolen, mutilated or destroyed. If required by the Company, the Holder shall surrender any mutilated Warrant or certificate and furnish an indemnity bond sufficient in the reasonable judgment of the Company to protect the Company from any loss which it may suffer if a Warrant or certificate is replaced. Any such replacement Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

9. Modifications and Waiver. This Warrant and any provision hereof may be modified, amended or waived only by an instrument in writing signed by the Company and (i) Holders representing at least a majority of the number of the aggregate of outstanding number of Exercise Consideration under all Warrants issued pursuant to the Purchase Agreement and upon any transfer of such Warrants, provided, however, that such modification, amendment or waiver is made with respect to all outstanding Warrants issued pursuant to the Purchase Agreement and upon any transfer of such Warrants and does not adversely affect the Holder without adversely affecting all holders of Warrants in a similar manner; or (ii) the Holder.

10. Notices. All communications shall be sent to the Company at the address set forth on the signature page and to the Holders at the addresses on the Company records, or at such other address as the Company or Holder may designate in writing to the Company. All notices and communications shall be deemed to have been duly given at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified mail, return receipt requested, or regular mail, if mailed; when receipt acknowledged, if sent via facsimile; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

11. Acceptance. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

12. Governing Law. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of Texas without regard to the principles of conflict of laws.

5

13. Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

14. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

15. Entire Agreement. This Warrant, the Purchase Agreement and the Registration Rights Agreement (as defined in the Purchase Agreement) constitute the entire agreement between the parties pertaining to the subject matter contained herein and therein and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

[Signature Page Follows]

6

     In Witness Whereof, the Company has caused this Warrant to be executed by its duly authorized officer as of                                         ,                                          .

RIATA ENERGY, INC.

By:

Name:

Title:

Address:

1601 NW Expressway, Suite 1600

Oklahoma City, OK 73118

Attention: General Counsel

Facsimile: (405) 753-5975

NOTICE OF EXERCISE

TO: RIATA ENERGY, INC.

     (1) The undersigned hereby elects to tender:

                                                         shares of the Common Stock of Riata Energy, Inc. as Exercise Consideration pursuant to the terms of the attached Warrant, for the number of Exercise Shares that are issuable under the terms of the attached Warrant, together with all applicable transfer taxes, if any (if the foregoing number of shares is not indicated, the undersigned Holder is tendering the fullest number of shares that may constitute Exercise Consideration under this Warrant that accompany such Notice of Exercise).

     (2) Please issue a certificate or certificates representing said Exercise Shares in the name of the undersigned or in such other name as is specified below:

(Printed Name)

(Address)

U.S. Tax I.D. Number

(Date) (Signature)

(Print name and Title)                                             

     (3) The undersigned represents that (i) the aforesaid shares of Preferred Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the

Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned understands that the shares of Preferred Stock issuable upon exercise of this Warrant (and the shares of any Common Stock issuable upon the conversion of any such Preferred Stock) have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Preferred Stock (and the shares of any Common Stock issuable upon the conversion of any such Preferred Stock) may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to do so; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Preferred Stock (and the shares of any Common Stock issuable upon the conversion of any such Preferred Stock) unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

2

ASSIGNMENT FORM

(To assign the foregoing Warrant, subject to compliance with
the Warrant, execute this form and supply required information. Do
not use this form to exercise the Warrant.)

For Value Received, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Assignee’s Name:
	(Please Print)
Assignee’s Address:
	(Please Print)

Assignee’s U.S. Tax I.D. Number, if applicable:                                                                                    

Dated:                     , 20___

Holder’s Printed Name:                                                                                                                         

Holder’s Authorized Signature and Title:

Holder’s Address:

NOTE: The name of assigning Holder on this Assignment Form must correspond with the name as it appears on the face of the Warrant.

EX-4.7

Exhibit 4.7

AMENDED AND RESTATED

SHAREHOLDERS AGREEMENT

among

SandRidge Energy, Inc.

and

Certain Shareholders of SandRidge Energy, Inc.

Dated as of April 4, 2007

TABLE OF CONTENTS

	Page
RECITALS		1
ARTICLE I DEFINITIONS		1
SECTION 1.1. Certain Defined Terms		1
SECTION 1.2. Other Definitional Provisions		7
ARTICLE II TRANSFERS		8
SECTION 2.1. Transfer Restrictions		8
SECTION 2.2. Tag-Along Rights		9
SECTION 2.3. Rights and Obligations of Transferees.		10
SECTION 2.4. Number of Securities		11
SECTION 2.5. Void Transfers		11
ARTICLE III LIMITED PREEMPTIVE RIGHTS		11
SECTION 3.1. Limited Preemptive Rights		11
ARTICLE IV REGISTRATION RIGHTS		12
SECTION 4.1. [INTENTIONALLY OMITTED]		12
SECTION 4.2. Registration on Request		12
SECTION 4.3. Incidental Registrations		15
SECTION 4.4. Registration Procedures		16
SECTION 4.5. Indemnification		20
SECTION 4.6. Rules 144 and 144A		22
SECTION 4.7. Selection of Counsel		23
SECTION 4.8. Holdback Agreement		23
SECTION 4.9. Existing Agreements		23
ARTICLE V MISCELLANEOUS		24
SECTION 5.1. Amendments and Waivers		24
SECTION 5.2. Successors, Assigns and Transferees		24
SECTION 5.3. Legend		24
SECTION 5.4. Notices		25
SECTION 5.5. Further Assurances		25
SECTION 5.6. Entire Agreement		25
SECTION 5.7. Conflicting Agreements		26
SECTION 5.8. Delays or Omissions		26
SECTION 5.9. Governing Law; Consent to Jurisdiction; Venue		26
SECTION 5.10. Severability		26
SECTION 5.11. Enforcement		26
SECTION 5.12. Agents for Shareholders		27
SECTION 5.13. Titles and Subtitles		27
SECTION 5.14. Counterparts; Facsimile Signatures		27
SECTION 5.15. Capitalization		27
SECTION 5.16. Waiver; Other Agreements		28

-i-

     THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (this “Agreement”) is entered into as of April 4, 2007, among SandRidge Energy, Inc., a Delaware corporation (the “Company”), and the other parties listed on the signature pages hereto.

RECITALS

     WHEREAS, pursuant to the Purchase and Sale Agreement, dated as of November 21, 2006 (the “Purchase Agreement”), by and among the Company, SandRidge Holdings, Inc., American Real Estate Partners, L.P., American Real Estate Holdings Limited Partnership (“AREHLP”), AREP Oil & Gas Holdings LLC, AREP O & G Holdings LLC (“AREH” and together with AREHLP, “AREP”), and NEG Oil & Gas, LLC, AREH received 12,842,000 shares of Common Stock (as defined herein);

     WHEREAS, in connection with the Purchase Agreement, the Company, AREH and the other original parties hereto entered into the Shareholders Agreement dated as of November 21, 2006 (the “Original Shareholders Agreement”);

     WHEREAS, on the date hereof, AREP agreed to sell and transfer all of its rights under the 12,842,000 shares of Common Stock (the “Transaction”) acquired pursuant to the Purchase Agreement to the investors identified on the signature pages hereto as “New Investors” pursuant to the Purchase Agreement, dated as of the date hereof (the “New Purchase Agreement”), by and among AREH and the other parties on the signature pages thereto;

     WHEREAS, the number of shares of Common Stock and any other SandRidge Equity Securities (as defined herein) owned by Tom Ward, Malone Mitchell and their respective Permitted Transferees on the date hereof is identified on Schedule A hereto; and

     WHEREAS, each of the parties hereto desires to continue to promote the interests of the Company and the mutual interests of the parties hereto by reaffirming herein certain terms and conditions upon which the shares of Common Stock and any other SandRidge Equity Securities will be held.

     NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises hereinafter set forth, the parties hereto hereby agree to amend and restate the Original Shareholders Agreement as follows:

ARTICLE I

DEFINITIONS

     SECTION 1.1.   Certain Defined Terms. As used herein, the following terms shall have the following meanings:

     “2006 Securities Purchase Agreement” has the meaning assigned to such term in Section 5.15.

     “Additional Ares Shares” means, as of any date, with respect to Ares, the shares of Common Stock acquired by Ares pursuant to the Stock Purchase Agreement, dated February

12, 2007, by and among the Company, Ares and the other parties listed on the signature pages thereto, and held by Ares as of such date.

     “Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person.

     “Agreement” has the meaning assigned to such term in the Preamble.

     “Applicable Portion” means for the purposes of Section 2.2, at any time with respect to any proposed Transfer of Shares, on the applicable Transfer date, for each Tagging Shareholder the number of shares of Common Stock equal to the product of (i) the total number of Taggable Shares to be Transferred to the proposed Transferee and (ii) the fraction determined by dividing (A) the sum of (1) the total number of Shares beneficially owned at such time by the Tagging Shareholder and its Permitted Transferees which AREP agreed to sell to the New Investors pursuant to the New Purchase Agreement and (2) the total number of Additional Ares Shares beneficially owned at such time by the Tagging Shareholder by (B) the sum of (1) the total number of Shares beneficially owned at such time by the New Investors, (2) the total number of Additional Ares Shares beneficially owned at such time by Ares, and (3) the total number of Shares beneficially owned at such time by Tom Ward and his Permitted Transferees.

     “AREP” has the meaning assigned to such term in the Recitals.

     “Ares” means any or all of Ares Corporate Opportunities Fund II, L.P., Ares SandRidge, L.P., Ares SandRidge 892 Investors, L.P. and Ares SandRidge Co-Invest LLC, as the context may require, and each of their respective Permitted Transferees.

     “Ares Reg Rights Agreement” has the meaning assigned to such term in Section 5.16(b).

     “beneficial owner” or “beneficially own” has the meaning given such term in Rule 13d-3 under the Exchange Act and a Person’s beneficial ownership of Shares or Additional Ares Shares, as the case may be, shall be calculated in accordance with the provisions of such Rule; provided, however, that for purposes of determining beneficial ownership, no Person shall be deemed to beneficially own any security solely as a result of such Person’s execution of this Agreement.

     “Block Trade” means a “block trade” as such term is commonly understood in the securities industry.

     “Board” means the board of directors of the Company.

     “Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York.

     “Certificate of Designation” means the Certificate of Designation of Series A Convertible Preferred Stock of the Company, in the form filed with the Secretary of State of the State of Delaware on December 11, 2006.

2

     “Chosen Courts” has the meaning assigned to such term in Section 5.9.

     “Common Stock” means the common stock of the Company.

     “Company” has the meaning assigned to such term in the Preamble.

     “control” (including the terms “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.

     “Demand Party” means (i) Tom Ward, (ii) Malone Mitchell or (iii) all of the New Investors regardless of which New Investor (including any Transferee of the New Investors’ rights pursuant to Section 2.3(b)) or group of New Investors acting together (subject to Section 2.3(c)) initiates a demand registration request pursuant to Section 4.2(a).

     “Equity Interest” means (i) the equity ownership rights in a business entity, whether a corporation, company, joint stock company, limited liability company, general or limited partnership, joint venture, bank, association, trust, trust company, land trust, business trust, sole proprietorship or other business entity or organization, and whether in the form of capital stock, ownership unit, limited liability company interest, membership interest, limited or general partnership interest or any other form of ownership, and (ii) also includes all Equity Interest Equivalents.

     “Equity Interest Equivalents” means all rights, warrants, options, convertible securities or indebtedness, exchangeable securities or other instruments, or other rights that are outstanding and exercisable for or convertible or exchangeable into, directly or indirectly, any Equity Interest at the time of issuance or upon the passage of time or occurrence of some future event.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Existing Agreements” means (i) the Resale Registration Rights Agreement dated December 21, 2005 between the Company and Banc of America Securities LLC, (ii) the Registration Rights Agreement, dated as of November 21, 2006, among the Company and the holders of preferred stock and common units parties thereto, (iii) the Registration Rights Agreement, dated as of March 20, 2007, between the Company and the purchasers of common stock parties thereto, (iv) the Shareholders Agreement among SandRidge Energy, Inc. and certain common shareholders of SandRidge Energy, Inc., dated as of March 20, 2007, and (v) the Securities Purchase Agreement among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.) and the purchasers set forth on schedule I thereto, dated as of November 21, 2006.

     “Fair Market Value” means, as of any date, (i) with respect to shares of Common Stock from and after the consummation of an initial public offering of Common Stock, the average closing sale price of shares on the stock exchange (including any securities exchange administered by The Nasdaq Stock Market) on which the shares are principally trading for the

3

twenty trading days immediately prior to such date, or (ii) with respect to shares of Common Stock or any other securities prior to the consummation of an initial public offering of Common Stock or any other securities, the average price of the PORTAL trades for such Common Stock or other securities, as the case may be, during the twenty Business Days immediately prior to such date; provided, that in the case of clause (i) or (ii), if the Company consummates a financing on such date involving third party purchasers of Common Stock or such other securities, (x) Fair Market Value as of such date shall be the purchase price paid by such third parties if the Company has received a fairness opinion or valuation or appraisal report from an independent nationally recognized investment bank or valuation or appraisal firm which provides that such purchase price is fair from a financial point of view or within a range of fair market value or (y) Fair Market Value as of such date shall be the initial public offering price if such financing is an initial public offering or the Qualified Public Offering.

     “Holdback Period” has the meaning assigned to such term in Section 4.8(b).

     “Holder” means each of the Shareholders and any other holder of Registrable Securities (including any direct or indirect transferee of a Shareholder who has acquired Registrable Securities from a Shareholder not in violation of this Agreement and agrees in writing to be bound by the provisions of this Agreement); provided, that any registration rights of the New Investors in this Agreement may only be transferred in accordance with Section 2.3.

     “Indemnified Parties” has the meaning assigned such term in Section 4.5(a).

     “IPO” shall have the meaning set forth in the Certificate of Designation.

     “MM Agent” has the meaning assigned to such term in Section 5.12(b).

     “NASD” has the meaning assigned to such term in the definition of Registration Expenses in this Section 1.1.

     “New Investor” means any New Investor and its Permitted Transferees and “New Investors” means, collectively, each of the New Investors and their respective Permitted Transferees.

     “New Purchase Agreement” has the meaning assigned to such term in the Recitals.

     “Original Shareholders Agreement” has the meaning assigned to such term in the Recitals.

     “Permitted Transferee” shall mean (i) with respect to Tom Ward (and his Permitted Transferees), his wife, children and grandchildren and any entities, trusts and other Affiliates, whether or not controlled, the sole beneficiaries or beneficial owners of which are Tom Ward, his wife, children and grandchildren (and such entities, trusts or Affiliates of which Tom Ward, his wife, children and grandchildren are the sole direct or indirect beneficiaries or beneficial owners), (ii) with respect to Malone Mitchell (and his Permitted Transferees), his wife, children and grandchildren and any entities, trusts and other Affiliates, whether or not controlled, the sole beneficiaries or beneficial owners of which is Malone Mitchell, his wife, children and

4

grandchildren (and such entities, trusts or Affiliates of which Malone Mitchell, his wife, children and grandchildren are the sole direct or indirect beneficiaries or beneficial owners), or (iii) with respect to any Shareholder (other than the SandRidge Principals), an Affiliate or Related Fund of such Shareholder; provided, however, that in each case such Transferee shall agree in a writing in the form attached as Exhibit A hereto to be bound by and to comply with all applicable provisions of this Agreement; provided, further, however, that in no event shall a “Permitted Transferee” be the Company or any of its Subsidiaries.

     “Person” means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivisions thereof.

     “Piggyback Ares Shares” has the meaning assigned to such term in Section 4.2(e).

     “Preemptive Notice” has the meaning assigned to such term in Section 3.1(b).

     “Preemptive Right Proportionate Number” has the meaning assigned to such term in Section 3.1(a).

     “Prescribed Time Period” has the meaning assigned to such term in Section 2.2(a).

     “Purchase Agreement” has the meaning assigned to such term in the Recitals.

     “Qualified Public Offering” or “QPO” means an underwritten, broad based public offering in excess of $100 million of Common Stock (which results in gross proceeds to the sellers of at least $100 million) and results in not less than 20 million shares of Common Stock (including Common Stock covered by any Existing Agreement and any other registration rights agreement and any shares sold pursuant to any previous public offerings) being listed for trading on a national securities exchange (including any securities exchange administered by The Nasdaq Stock Market).

     “Registrable Securities” means any Common Stock held as of the date hereof by the Holders (excluding any Common Stock which any Holder is entitled to register under any of the Existing Agreements other than (a) any Additional Ares Shares (except with respect to Section 4.2 if the New Investors are the Demand Party) and (b) for all other purposes of Article IV other than Section 4.2, any Additional Ares Shares excluded from the definition of Registrable Securities by virtue of clause (a)). Any particular Registrable Securities that are issued shall cease to be Registrable Securities hereunder when (i) a registration statement with respect to the sale by the Holder of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) such securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act or (iii) such securities shall have ceased to be outstanding.

     “Registration Expenses” means any and all expenses incident to performance of or compliance with Article IV of this Agreement, including, without limitation, (i) all SEC and stock exchange or National Association of Securities Dealers, Inc. (the “NASD”) registration and

5

filing fees (including, if applicable, the fees and expenses of any “qualified independent underwriter,” as such term is defined in NASD conduct rule 2720, and of its counsel), (ii) all fees and expenses of complying with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any national securities exchange and all rating agency fees, (v) the fees and disbursements of counsel for the Company and of its independent public accountants and independent engineers, including the expenses of any special audits, reserve reports and/or “cold comfort” letters required by or incident to such performance and compliance, (vi) the reasonable fees and disbursements of counsel selected pursuant to Section 4.7 hereof by the Holders of the Registrable Securities being registered to represent such Holders in connection with each such registration, and (vii) any fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, including liability insurance if the Company so desires or if the underwriters so require, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but, in the cases of clauses (i) through (vii), excluding underwriting discounts and commissions and transfer taxes, if any.

     “Related Fund” means, with respect to any New Investor that is an investment fund, any other investment fund that is managed or advised by the same investment advisor as such New Investor or by an Affiliate of such investment advisor.

     “Release Event” has the meaning assigned to such term in Section 4.8(a).

     “SandRidge Equity Securities” means (i) Common Stock and (ii) other Equity Interests and Equity Interest Equivalents of the Company; provided, that with respect to any provisions of this Agreement which requires the calculation of the number or percentage of SandRidge Equity Securities, SandRidge Equity Securities shall be calculated on a fully diluted basis.

     “SandRidge Principals” means Tom Ward, Malone Mitchell and their Permitted Transferees.

     “Sale” (and “Sell” and “Sold” shall have correlative meaning) means the sale, transfer, assignment or similar disposition (excluding pledge, encumbrance or hypothecation) of SandRidge Equity Securities in which cash, securities or other property is received as consideration.

     “Sale Notice” has the meaning assigned to such term in Section 2.2(a).

     “SEC” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act.

     “Second Piggyback Ares Shares” has the meaning assigned to such term in Section 4.2(e).

     “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

6

     “Selling Shareholder” has the meaning assigned to such term in Section 2.2(a).

     “Shares” means, as of any date, (i) with respect to the SandRidge Principals, the shares of Common Stock and any other SandRidge Equity Securities held by such Persons as of such date, and (ii) with respect to any New Investor, the shares of Common Stock which AREP agreed to sell to the New Investors pursuant to the New Purchase Agreement and held by such New Investor and its Permitted Transferees as of such date; provided, that with respect to any provisions of this Agreement which requires the calculation of the number or percentage of Shares, any SandRidge Equity Securities shall be calculated on a fully-diluted basis.

     “Shareholder” means any holder of Common Stock which is a party to this Agreement.

     “Subsidiary” means (i) any corporation of which a majority of the securities entitled to vote generally in the election of directors thereof, at the time as of which any determination is being made, are owned by another entity, either directly or indirectly, and (ii) any joint venture, general or limited partnership, limited liability company or other legal entity in which an entity is the record or beneficial owner, directly or indirectly, of a majority of the voting interests or the general partner.

     “Substantial Block” means, with respect to any Transfer, Shares in excess of 3% of the outstanding Common Stock on a fully diluted basis.

     “Taggable Shares” has the meaning assigned to such term in Section 2.2(a).

     “Tagging Shareholder” has the meaning assigned to such term in Section 2.2(a).

     “Third Party Holder” has the meaning assigned to such term in Section 4.3(a).

     “Transaction” has the meaning assigned to such term in the Recitals.

     “Transfer” (and “Transferor”, “Transferee” and “Transferring” shall have correlative meanings) means, directly or indirectly, to Sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the Sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any SandRidge Equity Securities beneficially owned by a Person or any interest in any SandRidge Equity Securities beneficially owned by a Person.

     “TW Agent” has the meaning assigned to such term in Section 5.12(a).

     SECTION 1.2.   Other Definitional Provisions. (a)  The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to this Agreement unless otherwise specified.

     (b)   The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

7

     (c)   All references in this Agreement to “Common Stock”, “SandRidge Equity Securities” and “Shares” shall include any securities of the Company issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.

     (d)   For the avoidance of doubt, with respect to any provision of this Agreement which requires the calculation of the number or percentage of Common Stock, SandRidge Equity Securities or Shares on a fully diluted basis, such calculation shall assume the conversion or exercise of any convertible securities, options, warrants or similar securities.

ARTICLE II

TRANSFERS

     SECTION 2.1.   Transfer Restrictions. (a)  No Shareholder may Transfer its Shares except (i) Transfers to its Permitted Transferees, (ii) Transfers in compliance with Section 2.2, (iii) Transfers made with the prior written consent of the Company, and (iv) Transfers permitted by Section 2.1(b), 2.1(c) or 2.1(d).

     (b)   After the earlier of (i) the 180th day after the consummation of the QPO (or earlier upon the occurrence of a Release Event under Section 4.8) and (ii) March 1, 2008, each Shareholder may Transfer its Shares.

     (c)   Each New Investor may make Sales of its Shares pursuant to PORTAL or Rule 144A under the Securities Act or pursuant to an exemption from registration under the Securities Act.

     (d)   (1) Each of the New Investors and the SandRidge Principals may make bona fide pledges, hypothecations or encumbrances of their Shares to lenders or other financing sources or other entities generally engaged in the business of making loans or acquiring or investing in debt (which shall include, without limitation, any trustee or other agent acting for the benefit thereof) pursuant to bona fide borrowing arrangements (provided that, if, at the time such pledge or hypothecation is made or encumbrance is incurred, the pledged Shares (including previously pledged Shares) represent more than 25% of the Shares held by any New Investor or any SandRidge Principal, as the case may be, with respect to the Shares in excess of such 25%, such financial institution or such other entity shall agree to be bound by the restrictions set forth in this Agreement upon foreclosing on such Shares unless such financial institution would be so bound by operation of law.

          (2) In addition, each New Investor may directly or indirectly make pledges, hypothecations or encumbrances of the Equity Interests of any Subsidiary which holds the Shares (or that owns, directly or indirectly, through one or more Subsidiaries, Equity Interests of a Subsidiary that holds the Shares) to lenders or other financing sources or other entities generally engaged in the business of making loans or acquiring or investing in debt (which shall include, without limitation, any trustee or other agent acting for the benefit thereof) pursuant to

8

financing arrangements so long as such Subsidiary which holds the Shares continues to be bound by this Agreement; provided, that in connection with making such pledge, hypothecation or encumbrance, such New Investor shall provide to the Company a certificate in the form attached hereto as Exhibit B.

     (e)   Each Shareholder shall as promptly as practicable provide the Company with written notice of any direct Transfer of Shares.

     (f)   For the avoidance of doubt, a merger or consolidation of the Company with any other Person shall not be deemed a violation of this Section 2.1.

     SECTION 2.2.   Tag-Along Rights.

     (a)   In the event of a proposed Sale (including Sales permitted under Section 2.1(a)(iii) and 2.1(b)) of SandRidge Equity Securities by Tom Ward and/or his Permitted Transferees (collectively, the “Selling Shareholder”), each New Investor (each a “Tagging Shareholder” and collectively, the “Tagging Shareholders”) shall have the right to participate in such Sale in the manner set forth in this Section 2.2. Prior to any such Sale, the Selling Shareholder shall deliver to each Tagging Shareholder written notice (the “Sale Notice”), which notice shall state (i) the name of the proposed Transferee, (ii) the number of shares of SandRidge Equity Securities proposed to be sold (the “Taggable Shares”), (iii) the proposed purchase price therefor, including a description of any non-cash consideration (along with any report and other material document (and summary of any other material oral information) relevant to the valuation of such non-cash consideration which the Selling Shareholder has, so long as such Tagging Shareholder agrees to keep such reports, documents and information confidential), and (iv) the other material terms and conditions of the proposed Sale, including the proposed closing date (which date may not be less than fifteen (15) Business Days after delivery of the Sale Notice). The Selling Shareholder shall not consummate the Sale unless each Tagging Shareholder has been provided the right from the proposed Transferee to sell to the proposed Transferee identified in the Sale Notice the Applicable Portion of the Taggable Shares on the terms and conditions set forth in the Sale Notice by giving written notice to the Selling Shareholder within the fifteen (15) Business Day period (the “Prescribed Time Period”) after the delivery of the Sale Notice, which notice shall state that such Tagging Shareholder elects to exercise its tag-along rights under this Section 2.2 and shall state the maximum number of Shares and Additional Ares Shares sought to be sold. The Tagging Shareholder shall be deemed to have waived its tag-along rights under this Section 2.2 if it fails to give notice within the Prescribed Time Period.

     (b)   The Tagging Shareholder, if it has elected to exercise its tag-along rights provided under this Section 2.2, shall participate in the Sale by delivering to the Selling Shareholder at the closing of the Sale of the Selling Shareholder’s SandRidge Equity Securities to the Transferee the Shares and Additional Ares Shares to be sold by the Tagging Shareholder, duly endorsed for transfer, against payment of the aggregate purchase price therefor.

     (c)   The following Transfers by Tom Ward and his Permitted Transferees shall not be subject to the tag-along rights provided under this Section 2.2: (i) Transfers at any time to Permitted Transferees of such Shareholder in compliance with the terms of this Agreement, and

9

(ii) following a QPO, (A) any Transfer by Tom Ward and his Permitted Transferees of less than a Substantial Block (in one transaction or a series of related transactions) and (B) Transfers pursuant to (x) Rule 144 under the Securities Act or (y) pursuant to an effective registration statement under the Securities Act (other than a Block Trade (in one transaction or a series of related transactions) of a Substantial Block), in each case in compliance with Article IV hereof; provided, that each New Investor has the right to register its Registrable Securities under such registration statement (subject to Article IV hereof).

     (d)   Notwithstanding the other provisions of this Section 2.2, with respect to any Block Trade of a Substantial Block under a registration statement pursuant to Article IV, (i) the fifteen (15) Business Day period referred to in Section 2.2(a) shall be reduced to a three (3) Business Day period and (ii) the Sale Notice may omit the name of the proposed Transferee and may specify the proposed minimum purchase price (in lieu of the purchase price).

     (e)   This Section 2.2 and the tag-along rights provided herein shall expire upon the earlier of (i) two (2) years after a Qualified Public Offering and (ii) such time when the New Investors and their Affiliates, taken together, beneficially own in the aggregate less than 20% of the outstanding Shares that AREP agreed to sell to the New Investors pursuant to the New Purchase Agreement.

     SECTION 2.3.   Rights and Obligations of Transferees. (a)   No Transferee of any Shareholder (except a Permitted Transferee) shall be entitled to any rights under this Agreement except as provided in Section 2.3(b). A Permitted Transferee shall be permitted to exercise all rights of the Transferring Shareholder under this Agreement, and shall be required to assume all of the obligations of the Transferring Shareholder under this Agreement, with respect to the Shares and Additional Ares Shares Transferred.

     (b)   Any New Investor may assign its registration rights provided in Article IV in connection with one or more Sales of at least 1,000,000 Registrable Securities (appropriately adjusted for stock splits, dividends, combinations, recapitalizations and other similar events) or, if any New Investor holds less than 1,000,000 Registrable Securities, all outstanding Registrable Securities of such New Investor; provided, that (i) the Transferees of such registration rights do not exceed two Persons per New Investor (excluding for this purpose Permitted Transferees and for this purpose counting any Transferee and its Affiliates and Related Funds as one Person) and (ii) the aggregate rights of the New Investor and such Transferees under Article IV after such Transfer do not exceed the rights of the New Investor under Article IV prior to such Transfer; provided, further, that any simultaneous transfer of Registrable Securities by such New Investor and its Permitted Transferees shall be aggregated for purposes of the Registrable Securities threshold.

     (c)   The New Investors and any Transferees of the New Investors (excluding TLW Properties, L.L.C., Tom Ward and their Permitted Transferees) shall exercise their registration rights under this Agreement, unless otherwise stated herein, acting collectively by a vote of the majority of the Shares (excluding any Shares held by TLW Properties, L.L.C., Tom Ward or their Permitted Transferees) held by them; provided, that if any New Investor or New Investors initiate a demand registration request pursuant to Section 4.2(a), such action may be taken by (i) the affirmative vote of at least thirty percent (30%) of the Shares (excluding any

10

Shares held by TLW Properties, L.L.C., Tom Ward or their Permitted Transferees) then held by the New Investors (excluding TLW Properties, L.L.C., Tom Ward and their Permitted Transferees) or (ii) the written consent of Ares Corporate Opportunities Fund II, L.P. as long as Ares beneficially owns at least 900,000 Shares.

     SECTION 2.4.   Number of Securities. Each SandRidge Principal hereby represents and warrants as of the date hereof that: (i) set forth on Schedule A is the number of Shares and any other SandRidge Equity Securities beneficially owned by such SandRidge Principal and his Permitted Transferees as of the date of this Agreement; and (ii) he, she or it has no registration rights with respect to SandRidge Equity Securities other than as set forth herein and in the Existing Agreements. If any provision of this Agreement which requires the calculation of the number of Shares and any other SandRidge Equity Securities beneficially owned by any Shareholder and its Permitted Transferees becomes applicable after the date hereof, such Shareholder shall provide to the other Shareholders the number of Shares and any other SandRidge Equity Securities beneficially owned by such Shareholder and its Permitted Transferees.

     SECTION 2.5.   Void Transfers. Any Transfer or attempted Transfer of Shares in violation of any provision of this Agreement shall be void.

ARTICLE III

LIMITED PREEMPTIVE RIGHTS

     SECTION 3.1.   Limited Preemptive Rights. (a)   If at any time prior to the completion of an IPO, the Company proposes to Sell, issue or otherwise Transfer any SandRidge Equity Security (but, in the event such Sale, issuance or Transfer is pursuant to a public offering or occurs concurrently with a public offering, less the underwriters’ discount or commissions for such public offering), then each New Investor shall have the right to purchase the Preemptive Right Proportionate Number of SandRidge Equity Securities being offered at the same price and terms as those offered by the Company, provided that the preemptive right provided under this Section 3.1 shall not be applicable to sales or issuances of Excluded Stock (as defined in the Certificate of Designation). The “Preemptive Right Proportionate Number” shall be, at any given time, with respect to each New Investor, a number equal to (i) the number of Shares beneficially owned by such New Investor at such time multiplied by (ii) a fraction, the numerator of which is the total number of SandRidge Equity Securities proposed to be issued, Sold or otherwise Transferred by the Company at such time and the denominator of which is the total number of Shares outstanding immediately prior to the date of the Preemptive Notice. For the avoidance of doubt, this Section 3.1 shall not be applicable to the conversion or exercise of any convertible securities, warrants, options or similar securities so long as the Sale, issuance or Transfer of such securities was made in accordance with this Section 3.1.

     (b) In the event the Company proposes to undertake a Sale, issuance or other Transfer of SandRidge Equity Securities to which this Section 3.1 applies, it shall provide each New Investor written notice (the “Preemptive Notice”) of its intention to do so (attaching copies of the most current drafts of any term sheets, agreements or other documents relating thereto), specifying the proposed price (it being understood that the form of consideration shall be cash or

11

tangible assets only), the identity of the purchaser and the material terms upon which the Company proposes to Sell, issue or otherwise Transfer the same. Each New Investor shall have ten (10) Business Days from the delivery date of any Preemptive Notice to agree to purchase (if the form of consideration is tangible assets, at such New Investor’s option, for cash and/or the same type of tangible assets of equal value), on the same closing date as the Company, an amount of SandRidge Equity Securities up to the Preemptive Right Proportionate Number (in each case calculated prior to the issuance) for the price and upon the terms specified in the Preemptive Notice by giving written notice to the Company and stating therein the amount of SandRidge Equity Securities to be purchased. If a definitive agreement for the purchase of such SandRidge Equity Securities is not provided along with the Preemptive Notice, such New Investor’s election to purchase SandRidge Equity Securities pursuant to such Preemptive Notice shall not be binding until a definitive agreement is executed (but, subject to Section 3.1(c), an election to not purchase shall be binding).

     (c) In the event the New Investors do not purchase all of the Preemptive Right Proportionate Number of SandRidge Equity Securities pursuant to this Section 3.1, the Company shall have 180 days after the date of the Preemptive Notice to consummate the Sale, issuance or Transfer of the SandRidge Equity Securities with respect to which the New Investors’ preemptive rights were not exercised, at or above the price and upon terms not more favorable in any material respect (it being understood and agreed that any increase in the number of SandRidge Equity Securities or any decrease in the price thereof shall be deemed material for this purpose) than the terms specified in the initial Preemptive Notice given in connection with such Sale, issuance or other Transfer.

ARTICLE IV

REGISTRATION RIGHTS

     SECTION 4.1.   [INTENTIONALLY OMITTED].

     SECTION 4.2.   Registration on Request. (a)  Request by the Demand Party. Upon the written request of any Demand Party requesting that the Company effect the registration under the Securities Act of all or part of such Demand Party’s Registrable Securities and specifying the amount and intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all other Holders, and thereupon will, as expeditiously as possible, use its reasonable best efforts to effect the registration under the Securities Act of:

     (i) such Registrable Securities which the Company has been so requested to register by the Demand Party; and

     (ii) all other Registrable Securities which the Company has been requested to register by any other Holder thereof by written request given to the Company within fifteen (15) Business Days after the giving of such written notice by the Company (which request shall specify the amount and intended method of disposition of such Registrable Securities),

12

all to the extent necessary to permit the disposition (in accordance with the intended method thereof as aforesaid) of the Registrable Securities so to be registered (including by means of a shelf registration under Rule 415 under the Securities Act if so requested by the Demand Party and if the Company is then eligible to use such a registration); provided, that the Company shall not be obligated to file a registration statement relating to any registration request under this Section 4.2(a) within a period of 120 days after the effective date of any other registration statement relating to any registration request under this Section 4.2(a) or relating to any registration effected under Section 4.3.

     (b)   Expenses. The Company will pay all Registration Expenses in connection with registrations of Registrable Securities pursuant to this Section 4.2.

     (c)   Effective Registration Statement. A registration requested pursuant to this Section 4.2 will not be deemed to have been effected unless it has become effective and remains effective for the period provided in Section 4.4(ii); provided, that if, within 180 days after it has become effective, the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected.

     (d)   Selection of Underwriters. If a requested registration pursuant to this Section 4.2 involves an underwritten offering, the Company shall have the right to select the investment banker or bankers and managers to administer the offering; provided, however, that such investment banker or bankers and managers shall be reasonably satisfactory to the Demand Party.

     (e)   Priority in Requested Registrations. If a requested registration pursuant to this Section 4.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering, the Company will include in such registration only (i) the Registrable Securities of the Demand Party and other Holders requested to be included in such registration, (ii) if the New Investors are the Demand Party pursuant to a demand exercised under Section 2.3(c)(i), the Additional Ares Shares requested to be included in such registration pursuant to Section 4.3(a) (the “Piggyback Ares Shares”) and (iii) if the New Investors are the Demand Party pursuant to a demand exercised solely under Section 2.3(c)(ii), the Additional Ares Shares requested to be included in such registration pursuant to Section 4.3(a) (the “Second Piggyback Ares Shares”). In the event that the number of Registrable Securities of the Holders requested to be included in such registration exceeds the number which, in the opinion of such managing underwriter, can be sold, the number of such Registrable Securities to be included in such registration shall be allocated (i) first, 100% of the Registrable Securities of the Demand Party (which shall include all of the New Investors if the Demand Party is the New Investors) who requested the registration (and such Demand Party’s Permitted Transferees) propose to sell, (ii) second, pro rata among all such other requesting Holders on the basis of the relative number of shares of Registrable Securities and Piggyback Ares Shares then held by each such Holder (provided that any shares thereby allocated to any such Holder that exceed such Holder’s request shall be reallocated among the remaining requesting Holders in like manner) and (iii) third, the Second Piggyback Ares Shares. For the avoidance of doubt, the

13

Additional Ares Shares shall not, in any case, be included in clause (i) of the preceding sentence. In the event that the number of Registrable Securities, Piggyback Ares Shares and Second Piggyback Ares Shares requested to be included in such registration is less than the number which, in the opinion of the managing underwriter, can be sold, the Company may include in such registration the securities the Company proposes to sell up to the number of securities that, in the opinion of the underwriter, can be sold.

     (f)   Limitation on Registration on Request. Notwithstanding anything in this Section 4.2 to the contrary, the Company shall not be obligated to and shall not take any action to effect any registration pursuant to this Section 4.2,

     (i) (A) in the event the New Investors are the Demanding Party, at any time prior to July 31, 2008 and (B) in the event any SandRidge Principal is the Demanding Party, at any time prior to the date which is 201 days after the consummation of the Qualified Public Offering; or

     (ii) if the Company has previously effected a number of registrations pursuant to this Section 4.2 equaling or exceeding, in accordance with Section 4.2(c) above, (A) in the event Tom Ward is the Demand Party, three (3) previous registrations in the aggregate, in which Tom Ward was the Demand Party, (B) in the event Malone Mitchell is the Demand Party, three (3) previous registrations in the aggregate, in which Malone Mitchell was the Demand Party and (C) in the event any New Investor (or any Transferee of the New Investors’ rights under Section 2.3(b)) is the Demand Party, three (3) previous registrations in the aggregate, in which any of the New Investors (or any Transferee of the New Investors’ rights under Section 2.3(b)) was the Demand Party.

     (g)   Postponements in Requested Registrations. (i) If the Company shall at any time furnish to the Holders a certificate signed by its chairman of the Board, chief executive officer, president or any other of its authorized officers stating that the filing of a registration statement would, in the good faith judgment of the Company, materially impede, delay or interfere with, or require premature disclosure of, any material financing, acquisition, corporate reorganization or other significant transaction involving the Company or require the disclosure of material information the disclosure of which would have a material adverse effect on the business, operations or prospects of the Company, the Company may postpone the filing (but not the preparation) of a registration statement required by this Section 4.2 for up to 60 days in any 90 day period and up to 90 days in any 360 day period and (ii) if the Company determines in its good faith judgment, that the registration and offering otherwise required by this Section 4.2 would have an adverse effect on a then contemplated public offering of the Company’s securities, the Company may postpone the filing (but not the preparation) of a registration statement required by this Section 4.2, during the period starting with the 30th day immediately preceding the date of the anticipated filing of, and ending on a date 90 days (or such shorter period as the managing underwriter may permit) following the effective date of, the registration statement relating to such other public offering; provided, that the Company shall at all times in good faith use its reasonable best efforts to cause any registration statement required by this Section 4.2 to be filed as soon as possible. The Company shall promptly give the Holders requesting registration thereof pursuant to this Section 4.2 written notice of any postponement made in accordance with the preceding sentence. If the Company gives the Holders such a

14

notice, the Holders shall have the right, within 15 Business Days after receipt thereof, to withdraw their request in which case, such request will not be counted for purposes of Section 4.2(f) (provided that, notwithstanding such withdrawal, the Company shall pay the Registration Expenses in connection therewith)

     SECTION 4.3.   Incidental Registrations. (a)  Right to Include Registrable Securities. If the Company at any time proposes to register its Common Stock under the Securities Act (other than a registration statement on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes), whether or not for sale for its own account (including in a registration pursuant to registration rights held by any Person (each a “Third Party Holder”) but excluding any registration under Section 4.2, other than with respect to any Additional Ares Shares that are not considered to be Registrable Securities for purposes of a registration under Section 4.2 by virtue of clause (a) of the definition of Registrable Securities), in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will, at each such time, give prompt written notice to all Holders of Registrable Securities of its intention to do so and of such Holders’ rights under this Section 4.3. Upon the written request of any such Holder made within 15 Business Days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder), the Company will use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; provided, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith) and (ii) if such registration involves an underwritten offering, all Holders of Registrable Securities requesting to be included in the Company’s registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company (with such differences, including any with respect to indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings) or to the Third Party Holder. If a registration requested pursuant to this Section 4.3(a) involves an underwritten public offering, any Holder of Registrable Securities requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration.

     (b)   Expenses. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities pursuant to this Section 4.3.

     (c)   Priority in Incidental Registrations. If a registration pursuant to this Section 4.3 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the securities offered in such offering as

15

contemplated by the Company (other than the Registrable Securities), then the Company will include in such registration (except as otherwise provided in Section 4.2(e)) (i) first, 100% of the securities the Company (or the Third Party Holder) proposes to sell and (ii) second, to the extent of the number of Registrable Securities requested to be included in such registration pursuant to this Section 4.3 which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, the number of Registrable Securities which the Holders have requested to be included in such registration, such amount to be allocated pro rata among all requesting Holders on the basis of the relative number of shares of Registrable Securities then held by each such Holder; provided, that any shares thereby allocated to any such Holder that exceed such Holder’s request will be reallocated among the remaining requesting Holders in like manner.

     (d)   Registration Rights of Third Parties. After the date hereof and prior to the time at which the tag-along rights under Section 2.2 expires, the Company shall not grant any Third Party Holder any piggyback or incidental registration rights which are senior in priority with the registration rights provided in this Section 4.3 or which are pari passu or senior in priority with the registration rights provided under Section 4.2.

     SECTION 4.4.   Registration Procedures. If and whenever the Company is required to use its reasonable best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company will:

     (i) prepare and, in any event within 90 days after the end of the period within which a request for registration may be given by the Demand Party pursuant to Section 4.2, file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of its securities which is being effected pursuant to Section 4.3 at any time prior to the effective date of the registration statement relating thereto;

     (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period not in excess of 180 days and to comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations of the SEC thereunder with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement;

     (iii) furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, including any documents incorporated by reference), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller;

16

     (iv) use its reasonable best efforts to register or qualify such Registrable Securities covered by such registration under such other securities or blue sky laws in such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this clause (iv), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction;

     (v) notify each seller of any such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in clause (ii) of this Section 4.4, of the Company’s becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made;

     (vi) use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its shareholders, as soon as reasonably practicable (but not more than eighteen months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder;

     (vii) (A) use its reasonable best efforts to list such Registrable Securities on any national securities exchange on which the Common Stock is then listed if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; and (B) use its reasonable best efforts to provide a transfer agent and registrar for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement;

     (viii) enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other persons in addition to, or in substitution for the provisions of Section 4.5 hereof, as the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (provided that the Holders on whose behalf the Registrable Securities are to be distributed by such underwriters shall be parties to any such underwriting agreement and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters, shall also be made to and for the benefit of such Holders);

17

     (ix) make available for reasonable inspection by any seller of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, in each case upon reasonable notice, pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors and employees to supply all pertinent information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement, and use reasonable best efforts to provide reasonable opportunities to discuss the business of the Company with the independent public accountants who have certified or reviewed the Company’s financial statements;

     (x) notify counsel (selected pursuant to Section 4.7 hereof) for the Holders of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing (A) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment prospectus shall have been filed, (B) of the receipt of any comments from the SEC, (C) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information, and (D) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes;

     (xi) make every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment;

     (xii) if requested by the managing underwriter or agent or any Holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such Holder reasonably requests to be included therein, including, without limitation, with respect to the number of Registrable Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment;

     (xiii) cooperate with the Holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates representing securities to be sold under the registration statement, and enable such securities to be in such denominations and

18

registered in such names as the managing underwriter or agent, if any, or such Holders may request;

     (xiv) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD;

     (xv) cause management of the Company to participate in investor “road shows” and other investor efforts or meetings so long as such requested participation is reasonable and will not unduly interfere with the Company’s business and operations; and

     (xvi) use its reasonable best efforts to furnish an opinion of counsel for the Company addressed to the underwriters dated the date of the closing under the underwriting agreement (if any) (or if such offering is not underwritten, dated the effective date of the registration statement), and (ii) use its reasonable best efforts to furnish a “cold comfort” letter addressed to the underwriters and each Holder of Registrable Securities included in such registration statement, if permissible under applicable accounting practices, and signed by the independent public accountants who have audited the Company’s financial statements included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities.

     The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company with such information regarding such seller and pertinent to the disclosure requirements relating to the registration and the distribution of such securities as the Company may from time to time reasonably request in writing.

     Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in clause (v) of this Section 4.4, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by clause (v) of this Section 4.4, and, if so directed by the Company, such Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in clause (ii) of this Section 4.4 shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to clause (v) of this Section 4.4 and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by clause (v) of this Section 4.4.

     SECTION 4.5.   Indemnification. (a)  Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act pursuant to

19

Section 4.2 or 4.3, the Company will, and it hereby does, indemnify and hold harmless, to the extent permitted by law, the seller of any Registrable Securities covered by such registration statement, each affiliate of such seller and their respective directors and officers, members or general and limited partners (including any director, officer, affiliate, employee, agent and controlling Person of any of the foregoing), each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such seller, each Affiliate thereof, or any such underwriter within the meaning of the Securities Act (collectively, the “Indemnified Parties”), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including reasonable attorney’s fees and reasonable expenses of investigation) to which such Indemnified Party may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon (a) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto or any document incorporated by reference therein and other documents filed under the Exchange Act, or (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, and the Company will reimburse such Indemnified Party for any legal or any other expenses reasonably incurred by it in connection with investigating or defending against any such loss, claim, liability, action or proceeding; provided, that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereto or in any such preliminary, final or summary prospectus in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Indemnified Party specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any Indemnified Party and shall survive the transfer of such securities by such seller.

     (b)   Indemnification by the Seller. The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Section 4.4 herein, that the Company shall have received an undertaking reasonably satisfactory to it from the prospective seller of such Registrable Securities or any underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 4.5(a)) the Company and all other prospective sellers with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller or underwriter specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the prospective sellers, or any of their respective affiliates, directors, officers

20

or controlling Persons and shall survive the transfer of such securities by such seller. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder, or of any underwriter be greater than the dollar amount of the discount or commission received by such underwriter, in each case upon the sale of the Registrable Securities giving rise to such indemnification obligation.

     (c)   Notices of Claims, Etc. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 4.5, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, that the failure of the indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 4.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, or there are separate defenses available to such indemnified party, or the indemnifying party fails to timely assume the defense of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include, as an unconditional term thereof, the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

     (d)   Contribution. If for any reason the indemnity provided for in this Section 4.5 is unavailable or is insufficient to hold harmless an indemnified party hereunder, then each indemnifying party shall contribute to the amount paid or payable by the indemnified party in respect of the losses, claims, damages or liabilities suffered by the indemnified party (i) as between the Company and the holders of Registrable Securities covered by a registration statement, on the one hand, and the underwriters, on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such holders, on the one hand, and the underwriters, on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such holders, on the one hand, and of the underwriters, on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations, and (ii) as between the Company, on the one hand, and each holder of Registrable Securities covered by a registration statement, on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and such holders, on the one hand, and the underwriters, on the other, shall be deemed to be in the same proportion as the total proceeds

21

from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and such holders bear to the total underwriting discounts and commissions received by the underwriters. The relative fault of the Company and such holders, on the one hand, and of the underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and such holders or by the underwriters. The relative fault of the Company, on the one hand, and of each such holder, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the Company or by such holder, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

     The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

     (e)   Other Indemnification. Indemnification similar to that specified in the preceding provisions of this Section 4.5 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act.

     (f)   Non-Exclusivity. The obligations of the parties under this Section 4.5 shall be in addition to any liability which any party may otherwise have to any other party.

     SECTION 4.6.   Rules 144 and 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Shareholder, make publicly available such information), and it will take such further action as any Holder of Registrable Securities (or, if the Company is not required to file reports as provided above, any Shareholder) may reasonably request, all to the extent required from time to time to enable such Holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rules 144 or 144A under the Securities Act, as such Rules may be amended from time to time, or (ii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding anything contained in this Section 4.6, the Company may deregister under Section 12 of the Exchange Act if it then is permitted to do so pursuant to the Exchange Act and the rules and regulations thereunder.

     SECTION 4.7.   Selection of Counsel. In connection with any registration of Registrable Securities pursuant to Section 4.2 or 4.3 hereof, the Holders of a majority of the Registrable Securities covered by any such registration may select one counsel to represent all

22

Holders of Registrable Securities covered by such registration; provided, however, that in the event that the counsel selected as provided above is also acting as counsel to the Company in connection with such registration, the remaining Holders shall be entitled to select one additional counsel to represent all such remaining Holders.

     SECTION 4.8.   Holdback Agreement. (a) If any registration shall be in connection with an underwritten public offering (including the Qualified Public Offering), to the extent requested by the managing underwriters, each Holder of Registrable Securities agrees (but only if such offering is the Qualified Public Offering or an offering in which such Holder is selling securities) not to effect any sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of equity securities of the Company, or of any securities convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such underwritten public offering), within seven days before, or such period not to exceed 90 days (or 180 days in the case of the Qualified Public Offering) as the underwriting agreement may require (or such lesser period as the managing underwriters may permit) after, the effective date of such registration. If Tom Ward, Malone Mitchell or any of their Permitted Transferees are released from the restrictions contemplated by this Section 4.8 (the “Release Event”), the New Investors and their Permitted Transferees shall be released to the same extent from their obligations contemplated by this Section 4.8.

     (b) The Company agrees, if so required by the managing underwriter of any offering of Registrable Securities, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public Sale or distribution of or otherwise dispose of any of its equity securities during the 30 days prior to and the 90 days (or 180 days in the case of the Qualified Public Offering) after any underwritten registration pursuant to Section 4.2 or 4.3 hereof has become effective (the “Holdback Period”), except as part of such underwritten registration. Notwithstanding the foregoing sentence, the Company shall be entitled to (i) issue shares of Common Stock or other securities upon the exercise of an option or warrant or the conversion or exchange of a security outstanding prior to the Holdback Period, (ii) grant options to purchase shares of Common Stock or issue restricted shares of Common Stock or other securities pursuant to employee benefit plans in effect prior to the Holdback Period and (iii) sell shares of Common Stock or other securities in a transaction in which the purchaser agrees to be bound by the restrictions contained in Section 4.8(a). The Company shall use its reasonable best efforts to obtain and enforce similar agreements from any other Persons if requested by the managing underwriter of such offering. Neither the Company nor such Persons shall be subject to the restrictions set forth in this Section 4.8(b) for longer than 120 days during any 12-month period (or 180 days in the case of the 12-month period prior to the expiration of the Holdback Period for the Qualified Public Offering).

     SECTION 4.9.   Existing Agreements. Notwithstanding anything to the contrary in this Agreement, all of the rights and obligations of the parties hereto under this Agreement are subject to and qualified by the rights of the Company’s securityholders under the Existing Agreements (including as to priority and timing of registrations), and the Company’s compliance with the Existing Agreements shall not constitute a violation of this Agreement; provided, that the Company shall not amend any Existing Agreement in any manner detrimental in any material respect to the New Investors’ rights hereunder without receiving the prior written consent of the New Investors holding a majority of the Shares then held by all of the New Investors.

23

ARTICLE V

MISCELLANEOUS

     SECTION 5.1.   Amendments and Waivers. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective without the approval of the Company, the TW Agent, the MM Agent and holders of a majority of the Shares held by the New Investors; provided, that the Company or any Shareholder may waive (in writing) the benefit of any provision of this Agreement with respect to itself for any purpose. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

     SECTION 5.2.   Successors, Assigns and Transferees. This Agreement shall bind and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. Shareholders may assign their respective rights and obligations hereunder to any Transferees only to the extent expressly provided herein.

     SECTION 5.3.   Legend. (a)  All certificates (if any) representing the Shares held by each Shareholder shall bear a legend substantially in the following form:

     THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS (I) REGISTERED UNDER THE APPLICABLE SECURITIES LAWS, (II) SUCH TRANSACTION IS PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (III) AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY, HAS BEEN DELIVERED TO THE COMPANY AND SUCH OPINION STATES THAT THE SHARES MAY BE TRANSFERRED WITHOUT SUCH REGISTRATION.

     (b)   Upon (i) the Sale of any Shares pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 or Rule 144A under the Securities Act or another exemption from registration under the Securities Act (and such Shares cease to be subject to the provisions hereof), (ii) upon the Transfer of any Shares pursuant to Section 2.1(c) hereof or (iii) the termination of this Agreement, the certificates representing such Shares shall be replaced, at the expense of the Company, with certificates or instruments not bearing the legends required by this Section 5.3; provided, that the Company may condition such replacement of certificates upon the receipt of an opinion of securities counsel reasonably satisfactory to the Company.

     SECTION 5.4.   Notices. All notices and other communications hereunder shall be in writing and delivered (i) personally, (ii) by overnight courier or (iii) facsimile (with a PDF or other copy by electronic mail), and shall be deemed duly given on the date of delivery. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

24

If to the Company or SandRidge Principals	SandRidge Energy, Inc. 1601 Northwest Expressway, Suite 1600 Oklahoma City, OK 73118 Attention: General Counsel Facsimile No.: (405) 753- 5975 Email: bthompson@sdrge.com
with a copy to: (which shall not constitute notice)	Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 Attention: Robert E. Spatt, Esq.                     Edward J. Chung, Esq. Facsimile No.: (212) 455-2502 Email: rspatt@stblaw.com Email: echung@stblaw.com
If to any New Investor	As set forth on Schedule 1

     SECTION 5.5.   Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.

     SECTION 5.6.   Entire Agreement. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter hereof in any way; provided, that this Agreement does not supersede, preempt or otherwise affect the Existing Agreements or any other shareholder agreements in effect between the Company and any New Investor.

     SECTION 5.7.   Conflicting Agreements. Each party hereto represents to the other parties hereto that such party has not granted and is not a party to any proxy, voting trust or other agreement (other than the Existing Agreements) which is inconsistent with or conflicts with any provision of this Agreement.

     SECTION 5.8.   Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter

25

occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on the part of any party hereto of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.

     SECTION 5.9.   Governing Law; Consent to Jurisdiction; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Each party hereto agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby, whether in tort or contract or at law or in equity, exclusively in the federal or state courts located in New York, New York (the “Chosen Courts”). In addition, each party hereby (a) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (b) waives, to the fullest extent permitted by applicable Law, any objection to laying venue in the Chosen Court and agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) waives any objection or defense that the Chosen Court is an inconvenient forum or does not have personal jurisdiction over any party hereto. Each party hereto further agrees that, to the fullest extent permitted by applicable Law, any final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment. Further, each party hereto hereby waives all right to trial by jury in any claim, action, proceeding or counterclaim by any party hereto on any matters arising out of or in any way connected with this Agreement.

     SECTION 5.10.   Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

     SECTION 5.11.   Enforcement. Each party hereto acknowledges that money damages would not be an adequate remedy in the event that any of the covenants or agreements in this Agreement are not performed in accordance with its terms, and it is therefore agreed that in addition to and without limiting any other remedy or right it may have, the non-breaching party will have the right to an injunction, temporary restraining order or other equitable relief in any court of competent jurisdiction enjoining any such breach and enforcing specifically the terms and provisions hereof.

     SECTION 5.12.   Agents for Shareholders. (a)  Tom Ward or another Person named in any written notice to the other parties hereto after the date hereof and signed by Tom Ward and all of his Permitted Transferees (the “TW Agent”) shall act as the sole agent for Tom Ward and each of his Permitted Transferees and shall be authorized to exercise all rights of Tom Ward and his Permitted Transferees hereunder. The TW Agent shall have sole power and authority to take any action on behalf of Tom Ward and his Permitted Transferees pursuant to this Agreement, including delivering any notice or granting any waiver or consent hereunder,

26

and each party hereto shall be entitled to rely on any action taken by the TW Agent as being taken on behalf of Tom Ward or any of his Permitted Transferees. Any notice required to be delivered hereunder to Tom Ward or any of his Permitted Transferees shall be delivered to the TW Agent.

     (b)   Malone Mitchell or another Person named in any written notice to the other parties hereto after the date hereof and signed by Malone Mitchell and all of his Permitted Transferees (the “MM Agent”) shall act as the sole agent for Malone Mitchell and each of his Permitted Transferees and shall be authorized to exercise all rights of Malone Mitchell and his Permitted Transferees hereunder. The MM Agent shall have sole power and authority to take any action on behalf of Malone Mitchell and his Permitted Transferees pursuant to this Agreement, including delivering any notice or granting any waiver or consent hereunder, and each party hereto shall be entitled to rely on any action taken by the MM Agent as being taken on behalf of Malone Mitchell or any of his Permitted Transferees. Any notice required to be delivered hereunder to Malone Mitchell or any of his Permitted Transferees shall be delivered to the MM Agent.

     SECTION 5.13.   Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

     SECTION 5.14.   Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile signature(s).

     SECTION 5.15.   Capitalization. The Company represents and warrants to the New Investors that as of the date hereof, the authorized capital of the Company consists of: (i) 50,000,000 shares of preferred stock, par value of $0.001 per share, of which 2,625,000 shares are designated as Preferred Stock, 2,184,288 of which are issued as of the date of this Agreement, and (ii) 400,000,000 shares of Common Stock, 109,252,493 of which are issued as of the date hereof. Except for warrants issued as part of the Common Units issued pursuant to the November 21, 2006 Securities Purchase Agreement (the “2006 Securities Purchase Agreement”), 434,762 shares of Preferred Stock issuable upon the exchange of the Common Units issued pursuant to the 2006 Securities Purchase Agreement (based on an Accreted Value of $210.00 per share of Preferred Stock and assuming the surrender of 4,805,264 shares of Common Stock) and 22,275,881 shares of Common Stock issuable upon conversion of the shares of Preferred Stock issued pursuant to the 2006 Securities Purchase Agreement (based on a Conversion Price of $20.5918 per share of Preferred Stock), as of the date hereof, the Company has not issued any other options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or entered into any agreement giving any Person any right to subscribe for or acquire, any shares of its capital stock or other security. Capitalized terms used but not defined in this Section 5.15 shall have the meanings assigned to them in the 2006 Securities Purchase Agreement.

27

     SECTION 5.16.   Waiver; Other Agreements. (a)  Each of Tom Ward and Malone Mitchell hereby waives his rights pursuant to Section 2.1(a)(iii) of the Original Shareholders Agreement.

     (b)   (i) Until such time as the tag-along rights provided herein expire in accordance with Section 2.2(e), (A) Ares hereby waives its rights pursuant to Section 2.1 of the Shareholders Agreement, dated March 20, 2007, by and among the Company, Ares and the other parties listed on the signature pages thereto, and held by Ares as of such date, and (B) agrees that its “tag-along” rights with respect to all of the Additional Ares Shares shall be governed solely by this Agreement; (ii) Ares hereby waives its rights pursuant to Section 3(g) of the Registration Rights Agreement, dated March 20, 2007, by and among the Company and the purchasers set forth therein (the “Ares Reg Rights Agreement); and (iii) Ares hereby acknowledges and agrees that it may only exercise its “piggyback registration rights” for Piggyback Ares Shares either pursuant to (x) Section 3 of the Ares Reg Rights Agreement or (y) Article IV herein, but not under both agreements.

[Remainder of page intentionally left blank]

28

     IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Shareholders Agreement as of the date set forth in the first paragraph hereof.

SANDRIDGE ENERGY, INC.
By:	/s/ Tom. L. Ward
	Name:	Tom L. Ward.
	Title:	Chief Executive Officer

[Amended and Restated Shareholders Agreement Signature Page]

	/s/ Tom L. Ward
	TOM L. WARD
192 INVESTMENTS, LLC
By:	/s/ Bill Blaik
	Name:	Bill Blaik
	Title:	Manager

[Amended and Restated Shareholders Agreement Signature Page]

/s/ N. Malone Mitchell, 3rd

N. MALONE MITCHELL, 3^RD 

/s/ Amy Mitchell

AMY MITCHELL 

[Amended and Restated Shareholders Agreement Signature Page]

/s/ Alexandria Nicole Mitchell

ALEXANDRIA NICOLE MITCHELL 

/s/ N. Malone Mitchell, 3rd

N. MALONE MITCHELL 3^RD, as custodian for 

Noah Malone Mitchell 4^th, under the Texas Uniform Transfer to Minors Act 

/s/ N. Malone Mitchell, 3rd

N. MALONE MITCHELL 3^RD, as custodian for 

Stevenson Briggs Mitchell under the Texas Uniform transfer to Minors Act 

/s/ N. Malone Mitchell, 3rd

N. MALONE MITCHELL 3^RD as custodian for 

Elizabeth Lee Mitchell 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Malone Mitchell, 3rd GRAT #2005 for Alexandria Nicole Mitchell 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Amy E. Mitchell GRAT #2005 for Alexandria Nicole Mitchell 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Malone Mitchell, 3rd GRAT #2005 for Noah Malone Mitchell, 4^th 

[Amended and Restated Shareholders Agreement Signature Page]

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Amy E. Mitchell GRAT #2005 for Noah Malone Mitchell, 4^th 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Malone Mitchell, 3rd GRAT #2005 for Stevenson Briggs Mitchell 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Amy E. Mitchell GRAT #2005 for Stevenson Briggs Mitchell 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Malone Mitchell, 3rd GRAT #2005 for Elizabeth Lee Mitchell 

/s/ Barbara Pope

BARBARA POPE, as Trustee for the Amy E. Mitchell GRAT #2005 for Elizabeth Lee Mitchell 

[Amended and Restated Shareholders Agreement Signature Page]

New Investors FARALLON CAPITAL PARTNERS, L.P.
By:	Farallon Partners, L.L.C.,
	its General Partner
By:	/s/ Monica R. Landry
	Name:	Monica R. Landry
	Title:	Managing Member
FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P.
By:	Farallon Partners, L.L.C.,
	its General Partner
By:	/s/ Monica R. Landry
	Name:	Monica R. Landry
	Title:	Managing Member
FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P.
By:	Farallon Partners, L.L.C.,
	its General Partner
By:	/s/ Monica R. Landry
	Name:	Monica R. Landry
	Title:	Managing Member
FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P.
By:	Farallon Partners, L.L.C.,
	its General Partner
By:	/s/ Monica R. Landry
	Name:	Monica R. Landry
	Title:	Managing Member

[Amended and Restated Shareholders Agreement Signature Page]

TINICUM PARTNERS, L.P.
By:	Farallon Partners, L.L.C.,
	its General Partner
By:	/s/ Monica R. Landry
	Name:	Monica R. Landry
	Title:	Managing Member

[Amended and Restated Shareholders Agreement Signature Page]

ARES CORPORATE OPPORTUNITIES FUND II, L.P.
By:	ACOF OPERATING MANAGER II, L.P., its Manager
By:	/s/ Jeffrey Serota
	Name:	Jeffrey Serota
	Title:	Vice President
ARES SANDRIDGE, L.P.
By:	ACOF OPERATING MANAGER II, L.P., its Manager
By:	/s/ Jeffrey Serota
	Name:	Jeffrey Serota
	Title:	Vice President
ARES SANDRIDGE 892 INVESTORS, L.P.
By:	ACOF OPERATING MANAGER II, L.P., its Manager
By:	/s/ Jeffrey Serota
	Name:	Jeffrey Serota
	Title:	Vice President
ARES SANDRIDGE CO-INVEST LLC
By:	ARES MANAGEMENT LLC, its Manager
By:	/s/ Jeffrey Serota
	Name:	Jeffrey Serota
	Title:	Vice President

[Amended and Restated Shareholders Agreement Signature Page]

TLW PROPERTIES, L.L.C.
By:	/s/ Tom L. Ward
	Name:	Tom L. Ward
	Title:	Manager

[Amended and Restated Shareholders Agreement Signature Page]

GSO ORIGINATION FUNDING PARTNERS LP
By:	/s/ George Fan
	Name:	George Fan
	Title:	Managing Director
GSO SPECIAL SITUATIONS FUND LP
By:	/s/ George Fan
	Name:	George Fan
	Title:	Managing Director
GSO SPECIAL SITUATIONS OVERSEAS FUND LTD.
By:	/s/ George Fan
	Name:	George Fan
	Title:	Managing Director
GSO CREDIT OPPORTUNITIES FUND (HELIOS), L.P.
By:	/s/ George Fan
	Name:	George Fan
	Title:	Managing Director

[Amended and Restated Shareholders Agreement Signature Page]

SANKATY CREDIT OPPORTUNITIES II, L.P.
By:	/s/ Jeffrey Hawkins
	Name:	Jeffrey Hawkins
	Title:	Chief Administrative Officer Executive Vice President
SANKATY CREDIT OPPORTUNITIES III, L.P.
By:	/s/ Jeffrey Hawkins
	Name:	Jeffrey Hawkins
	Title:	Chief Administrative Officer Executive Vice President

[Amended and Restated Shareholders Agreement Signature Page]

DB INVESTMENT PARTNERS, INC.
By:	/s/ Michael Thomas Iben
	Name:	Michael Thomas Iben
	Title:	Director
By:	/s/ Helmut Mannhardt
	Name:	Helmut Mannhardt
	Title:	Vice President

[Amended and Restated Shareholders Agreement Signature Page]

SOLAR CAPITAL LLC
By:	/s/ Bruce Spohler
	Name:	Bruce Spohler
	Title:	Senior Vice President

Exhibit A

ASSIGNMENT AND ASSUMPTION AGREEMENT

     Pursuant to the Shareholders Agreement, dated as of ___, ___and (the “Shareholders Agreement”), among SandRidge Energy, Inc., a Delaware corporation (the “Company”), and each of the Shareholders of the Company whose name appears on the signature pages listed therein (each, a “Shareholder” and collectively, the “Shareholders”), ___, (the “Transferor”) hereby assigns to the undersigned the rights that may be assigned thereunder with respect to the Shares so Transferred, and the undersigned hereby agrees that, having acquired Shares as permitted by the terms of the Shareholders Agreement, the undersigned shall assume the obligations of the Transferor under the Shareholders Agreement with respect to the Shares so Transferred. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Shareholders Agreement.

     Listed below is information regarding the Shares:

Number of shares of

Common Stock

     IN WITNESS WHEREOF, the undersigned has executed this Assumption Agreement as of ___ ___, 20___.

[NAME OF TRANSFEREE]
By:
	Name:
	Title:

Acknowledged by:

SANDRIDGE ENERGY, INC.
By:
	Name:
	Title:

Exhibit B

CERTIFICATE

     ___hereby certify, represent, warrant and agree, pursuant to Section 2.1(d)(2) of the Shareholders Agreement dated as of November 21, 2006 (the “Agreement”), among SandRidge Energy, Inc. and the Shareholders party thereto, as follows:

(1)	___and/or one or more affiliates of the foregoing (collectively, the “Borrower”) are contemplating entering into a financing transaction as generally described on Schedule I attached hereto (the “Financing”).
(2)	In connection with the Financing, the Borrower intends to make pledges, hypothecations or encumbrances (collectively, the “Pledges”) as contemplated in Section 2.1(d)(2) of the Agreement.
(3)	The Financing and the Pledges are bona fide.
(4)	This certificate constitutes a legal, valid and binding obligation of ___.

[Signature block of New Investor]

Schedule 1

NOTICE INSTRUCTIONS

Farallon Capital Partners, L.P.
Farallon Capital Institutional Partners, L.P.
Farallon Capital Institutional Partners II, L.P.
Farallon Capital Institutional Partners III, L.P.
Tinicum Partners, L.P.
c/o Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 2100
San Francisco, California 94111
Attention: Kristen Biniek and Colby Clark
Telephone: (415) 421-2132
Facsimile: (415) 421-1121

Ares Corporate Opportunities Fund II, L.P.
Ares SandRidge, L.P.
Ares SandRidge 892 Investors, L.P.
Ares SandRidge Co-Invest LLC
c/o 1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attention:Jeffrey Serota
Facsimile:(310) 201-4157

     w/ a copy to: Sullivan & Cromwell LLP
1888 Century Park East
Los Angeles, California 90067-1725
Attention: Alison S. Ressler, Esq.
                    Patrick S. Brown, Esq.
Facsimile No.: (310) 712-8800

GSO Origination Funding Partners LP
GSO Special Situations Fund LP
GSO Special Situations Overseas Fund Ltd.
GSO Credit Opportunities Fund (Helios), L.P.
280 Park Ave, Eleventh Floor
New York, New York 10017
Attention: George Fan
Telephone: (212) 503-2100
Facsimile: (212) 503-6924

Sankaty Credit Opportunities II, L.P.

Sankaty Credit Opportunities III, L.P.
111 Huntington Avenue
Boston, MA 02110
Attention: Rob Cunjak
Telephone: (617) 516-2000
Facsimile: (617) 516-2010

DB Investment Partners, Inc.
60 Wall Street
New York, NY 10005
Attention: Tom Iben
Telephone: (212) 250-5493
E-mail: michael.t.iben@db.com

     w/ a copy to: DB Investment Partners, Inc.
700 Louisiana St., Suite 1500
Houston, TX 77002
Attention: Zach Jordan
Telephone: (832) 239-4660
E-mail: zach.jordan@db.com

Solar Capital LLC
500 Park Avenue, 5th Floor
New York, NY 10022
Attention: Chief Financial Officer
Telephone: (212) 993-1670
Facsimile: (212) 993-1699
E-mail: solarnotices@magnetar.com

EX-10.2

Exhibit 10.2

RIATA 2005 STOCK PLAN

     1. Purpose of the Plan. The purposes of this RIATA 2005 Stock Plan are to attract and retain the best available individuals for positions of substantial responsibility, to provide additional incentive to such individuals, and to promote the success of the Company’s business by aligning the financial interests of Employees and Consultants providing personal services to the Company or to any Subsidiary of the Company with long-term shareholder value.

     Awards granted hereunder may be Incentive Stock Options, Nonqualified Stock Options, Stock Awards, or SARs, at the discretion of the Board and as reflected in the terms of the Award Agreement.

     2. Definitions. As used herein, the following definitions shall apply:

     (a) “Award” shall mean any award or benefits granted under the Plan.

     (b) “Award Agreement” shall mean a written or electronic agreement between the Company and the Awardee setting forth the terms of the Award.

     (c) “Awardee” shall mean the holder of an outstanding Award.

     (d) “Board” shall mean (i) the Board of Directors of the Company or (ii) both the Board and the Committee, if a Committee has been appointed in accordance with Section 4(a) of the Plan.

     (e) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (f) “Committee” shall mean the Compensation Committee appointed by the Board of Directors in accordance with Section 4(a) of the Plan, if one is appointed; provided, however, if the Board of Directors appoints more than one Committee pursuant to Section 4(a), then “Committee” shall refer to the appropriate Committee, as indicated by the context of the reference.

     (g) “Common Shares” shall mean the common shares of Riata Energy, Inc.

     (h) “Company” shall mean Riata Energy, Inc., a Texas corporation and any successor thereto.

     (i) “Consultant” shall mean any person, except an Employee, engaged by the Company or Subsidiary of the Company, to render personal services to such entity, including as an advisor.

     (j) “Continuous Status as a Participant” shall mean as the Awardee’s continuation as an Employee, Consultant, or Director, as provided in the regulations under Section 409A of the Code. Continuous Status as a Participant shall not be considered interrupted (i) for an Employee in the case of sick leave, maternity leave, infant care leave, medical emergency leave, military leave, or any other leave of absence for which Continuous Status is not considered interrupted in accordance with the Company’s policies on such matters, and (ii) for a Consultant, in the case of any temporary interruption in such person’s availability to provide services to the Company which has been authorized in writing by a Vice President of the Company prior to its commencement.

     (k) “Conversion Options” shall mean the Options described in Section 6(c) of the Plan.

     (l) “Director” shall mean any person serving on the Board of Directors of the Company.

     (m) “Employee” shall mean any person, including an officer, who is a common law employee of, receives remuneration for personal services to, is reflected on the official human resources database as an employee of, and is on the payroll of the Company or Subsidiary of the Company. A person is on the payroll if he or she is paid from the payroll department of the Company, or Subsidiary of the Company. Persons providing services to the Company, or to any Subsidiary of the Company, pursuant to an agreement with a staff leasing organization, temporary workers engaged through or employed by temporary or leasing agencies, and workers who hold themselves out to the Company, or Subsidiary to which they are providing services as being independent contractors, or as being employed by or engaged through another company while providing the services are not Employees for purposes of this Plan, whether or not such persons are, or may be reclassified by the courts, the Internal Revenue Service, the U. S. Department of Labor, or other person or entity as, common law employees of the Company, Parent, or Subsidiary, either solely or jointly with another person or entity.

     (n) “Effective Date” shall mean September 23, 2005.

     (o) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (p) “Incentive Stock Option” shall mean any Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

     (q) “Maximum Annual Participant Award” shall have the meaning set forth in Section 5(b).

     (r) “Nonqualified Stock Option” shall mean an Option not intended to qualify as an Incentive Stock Option.

     (s) “Option” shall mean a stock option granted pursuant to Section 6 of the Plan.

     (t) “Participant” shall mean an Employee, Consultant, or Director.

     (u) “Performance Goals” shall mean goals established by the Board in connection with any proposed Award pursuant to Section 4 of the Plan.

     (v) “Performance Year” with respect to an Award shall be the calendar year within which the Performance Goals relating to that Award are to be achieved.

     (w) “Phantom Stock” means an Award of the right to receive the value of a Share.

     (x) “Plan” shall mean this RIATA 2005 Stock Plan, including any amendments thereto.

     (y) “Restricted Stock” shall mean a Share subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code.

     (z) “Share” shall mean one Common Share, as adjusted in accordance with Section 14 of the Plan.

     (aa) “SAR” shall mean a stock appreciation right awarded pursuant to Section 8 of the Plan.

     (bb) “Stock Award” shall mean a grant of Shares or of a right to receive Shares or their cash equivalent (or both) pursuant to Section 7 of the Plan, whether as Stock Option, Phantom Stock, SARS, Restricted Stock, or other Stock Based Award.

     (cc) “Stock Based Award” means a Stock based Award other than a Stock Option, a SAR or

     Phantom Stock.

     (dd) “Stock Option” means Incentive Stock Options and Non-Qualified Stock Options.

     (ee) “Subsidiary” shall mean (i) in the case of an Incentive Stock Option a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code, and (ii) in the case of a Nonqualified Stock Option, a Stock Award or an SAR, in addition to a subsidiary corporation as defined in (i), a limited liability company, partnership or other entity in which the Company controls 50 percent or more of the voting power or equity interests.

     3. Shares Subject to the Plan. Subject to the provisions of Sections 15 and 17 of the Plan, the maximum aggregate number of Shares (increased, proportionately, in the event of any stock split, stock dividend or similar event with respect to the Shares) which may be awarded and delivered under the Plan are 25,125 Shares. The Shares may be authorized, but unissued, or reacquired Shares, including shares used to pay any exercise price, withholding tax or other expense.

Subject to the provisions of the following sentence, if an Award should expire or become unexercisable for any reason without having been exercised in full, the undelivered Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future Awards under the Plan.

     4. Administration of the Plan.

     (a) Procedure. The Plan shall be administered by the Board of Directors of the Company.

     (i) The Board of Directors may appoint one or more Committees each consisting of not less than two members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, such Committees shall continue to serve until otherwise directed by the Board of Directors.

     (ii) From time to time the Board of Directors may increase the size of the Committee(s) and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, or fill vacancies however caused.

     (b) Powers of the Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: (i) to grant Incentive Stock Options, Nonqualified Stock Options, SARS,

Phantom Stock, Restricted Stock or other Stock Awards, (ii) cash denominated Awards that may be paid in Shares, cash or both, (iii) to determine, in accordance with Section 11(b) of the Plan, the fair market value of the Shares; (iv) to determine, in accordance with Section 11(a) of the Plan, the exercise price per Share of Awards to be granted; (v) to establish Performance Goals and determine whether such goals have been achieved; (vi) to determine the Participants to whom, and the time or times at which, Awards shall be granted and the number of Shares to be represented by each Award; (vii) to interpret the Plan and the terms of Awards; (viii) to prescribe, amend, and rescind rules and regulations relating to the Plan; including the form of Award Agreement, and manner of acceptance of an Award, (ix) to determine the terms and provisions of each Award to be granted (which need not be identical) and, with the consent of the Awardee, modify or amend any Award; (x) to authorize conversion or substitution under the Plan of any or all Conversion Options; (xi) to accelerate or defer (with the consent of the Awardee) the vesting or exercise date of any Award; (xii) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Award previously granted by the Board; (xiii) delegate to the President of the Company the ability to make Awards subject to such limitations as the Committee may proscribe and subject to any legal restrictions; and (xiv) to make all other determinations deemed necessary or advisable for the administration of the Plan; provided that, no consent of an Awardee is necessary under clauses (xi) if the modification, amendment, acceleration, or deferral, in the reasonable judgment of the Board confers a benefit on the Awardee, or is made pursuant to an adjustment in accordance with Section 15.

     (c) The Board may, but need not, determine that an Award shall vest or be granted subject to the satisfaction of one or more Performance Goals. Performance Goals for awards will be determined by the Compensation Committee of the Board and will be designed to support the business strategy, and align executives’ interests with customer and shareholder interests. For awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, Performance Goals will be based on one or more of the following business criteria:

(i) Company earnings per share;

(ii) Cash distributions to shareholders;

(iii) Company or Subsidiary earnings before interest and taxes or earnings before interest, taxes and corporate charges;

(iv) Company or Subsidiary net income;

(v) Company or Subsidiary revenues;

(vi) Company or Subsidiary unit revenues minus unit variable costs;

(vii) Company or Subsidiary return on capital, return on equity, return on assets, or return on invested capital;

(viii) Company or Subsidiary cash flow return on assets or cash flows from operating activities;

(ix) Company or Subsidiary capital expenditures;

(x) Company or Subsidiary operations and maintenance expense or general and administrative expense;

(xi) Company or Subsidiary debt-equity ratios and key profitability ratios;

(xii) Company stock price;

(xiii) Company or Subsidiary proven reserves

(xiv) the Company or Subsidiary production; and

(xv)the Company or Subsidiary finding costs.

     (d) At the time of establishing the Performance Goals, the Committee shall specify (i) the formula to be used in calculating the compensation payable to a Participant if the Performance Goals are obtained, and (ii) the individual employee or class of employees to which the formula applies. The Award shall be expressed as an amount of cash. The Committee may also specify a minimum acceptable level of achievement of the relevant Performance Goals, as well as one or more additional levels of achievement, and a formula to determine the percentage of the Award opportunity deemed to have been earned by the Participant upon attainment of each such level of achievement. The Performance Goals and opportunity relating to any particular Award need not be the same as those relating to any other Award, whether made at the same or a different time.

     (e) Earning and Certification of Award. Promptly after the date on which the necessary information for a particular Performance Year becomes available, the Committee shall determine, and certify in writing (with respect to each Participant who is a “covered employee”), the extent to which the Award for such Performance Year has been earned, through the achievement of the relevant Performance Goals, by each Participant for such Performance Year.

     (f) These criteria may be measured: individually, alternatively or in any combination; with respect to the Company, a Subsidiary, division, business unit, product line, product or any combination of the foregoing; on an absolute basis, or relative to the Performance Goal, to a designated comparison group, to results in other periods or to other external measures; and including or excluding items that could affect the measurement, such as extraordinary or unusual and nonrecurring gains or losses, litigation or claim judgments or settlements, material changes in tax laws, acquisitions or divestitures, the cumulative effect of accounting changes, asset write-downs, restructuring charges, or the results of discontinued operations.

     (g) Effect of Board’s Decision. All decisions, determinations, and interpretations of the Board shall be final and binding on all Participants and Awardees.

     (h) Discretionary Downward Adjustments. Notwithstanding the terms of any Award, the Committee, in its sole and absolute discretion, may reduce the amount of the Award payable to any Participant for any reason, including the Committee’s judgment that the Performance Goals have become an inappropriate measure of achievement, a change in the employment status, position or duties of the Participant, unsatisfactory performance of the Participant, or the Participant’s service for less than the entire Performance Year. Notwithstanding the foregoing, the reduction of an Award payable to a Participant may not result in an increase in the amount of an Award payable to another Participant.

5. Eligibility.

     (a) Awards may be granted to Participants and to persons to whom offers of employment as an Employee have been extended; provided that Incentive Stock Options may only be granted to Employees.

     (b) The maximum number of Shares-denominated Awards that may be granted to any Participant in any one calendar year (the “Maximum Annual Participant Award”) shall not exceed

7,500 Common Shares, subject to adjustment as provided in Section 15. The maximum amount of dollar-denominated Awards that may be granted to any Participant in any calendar year may not exceed $5,000,000.

6. Options.

     (a) Each Option shall be designated in the written or electronic option agreement as either an Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding such designations, to the extent that the aggregate fair market value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Employee during any calendar year (under all plans of the Company) exceeds $100,000, such Options shall be treated as Nonqualified Stock Options.

     (b) For purposes of Section 6(a), Options shall be taken into account in the order in which they were granted, and the fair market value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

     (c) Options converted or substituted under the Plan for any or all outstanding stock options and stock appreciation rights held by employees, consultants, advisors or other option holders granted by entities subsequently acquired by the Company or a subsidiary or affiliate of the Company (“Conversion Options”) shall be effective as of the close of the respective mergers and acquisitions of such entities by the Company. The Conversion Options may be Incentive Stock Options or Nonqualified Stock Options, as determined by the Committee; provided, however, that stock appreciation rights in the acquired entity shall only be converted to or substituted with Nonqualified Stock Options. The Conversion Options shall be options to purchase the number of Common Shares determined by multiplying the number of shares of the acquired entity’s common stock underlying each such stock option or stock appreciation right immediately prior to the closing of such merger or acquisition by the number specified in the applicable merger or acquisition agreement for conversion of each share of such entity’s common stock to a Common Share (the “Merger Ratio”). Such Conversion Options shall be exercisable at an exercise price per Common Share (increased to the nearest whole cent) equal to the exercise price per share of the acquired entity’s common stock under each such stock option or stock appreciation right immediately prior to closing divided by the Merger Ratio. No fractional Common Shares will be issued upon exercise of Conversion Options. In lieu of such issuance, the Common Shares issued pursuant to each such exercise shall be rounded to the closest whole Share. All other terms and conditions applicable to such stock options and stock appreciation rights prior to closing of the acquisition, including vesting, shall remain unchanged

under the Conversion Options.

     (d) Subject to adjustment pursuant to Section 15, no more than 12,500 Shares may be issued with respect to Incentive Stock Options.

7. Stock Awards.

     (a) Stock Awards may be granted either alone, in addition to, or in tandem with other Awards granted under the Plan. After the Committee determines that it will offer a Stock Award, it will advise the Awardee in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions, including vesting, if any, related to the offer, including the number of Shares that the Awardee shall be entitled to receive or purchase, the price to be paid, if any, and, if applicable, the time within which the Awardee must accept the offer. The offer shall be accepted by execution of an Award Agreement in the manner determined by the Committee.

     (b) Unless the Committee determines otherwise, the Award Agreement shall provide for the forfeiture of the non-vested Common Shares underlying such Stock Award upon the Awardee ceasing to be a Participant. To the extent that the Awardee purchased the Shares granted under such Stock Award and any such Shares remain non-vested at the time the Awardee ceases to be a Participant, the cessation of Participant status shall cause an immediate sale of such non-vested Shares to the Company at the original price per Common Share paid by the Awardee.

8. SARs.

     (a) The Committee shall have the full power and authority, exercisable in its sole discretion, to grant SARs to selected Awardees. The Committee is authorized to grant both tandem stock appreciation rights (“Tandem SARs”) and stand-alone stock appreciation rights (“Stand-Alone SARs”) as described below.

     (b) Tandem SARs.

     (i) Awardees may be granted a Tandem SAR, exercisable upon such terms and conditions as the Committee shall establish, to elect between the exercise of the underlying Section 6 Option for Common Shares or the surrender of the Option in exchange for a distribution from the Company in an amount equal to the excess of (A) the fair market value (on the Option surrender date) of the number of Shares in which the Awardee is at the time

vested under the surrendered Option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such vested Shares.

     (ii) No such Option surrender shall be effective unless it is approved by the Committee, either at the time of the actual Option surrender or at any earlier time. If the surrender is so approved, then the distributions to which the Awardee shall become entitled under this Section 8(b) may be made in Common Shares valued at fair market value on the Option surrender date, in cash, or partly in Shares and partly in cash, as the Committee shall deem appropriate.

     (iii) If the surrender of an Option is not approved by the Committee, then the Awardee shall retain whatever rights he or she had under the surrendered Option (or surrendered portion thereof) on the Option surrender date and may exercise such rights at any time prior to the later of (A) five (5) business days after the receipt of the rejection notice or (B) the last day on which the Option is otherwise exercisable in accordance with the terms of the instrument evidencing such Option, but in no event may such rights be exercised more than ten (10) years after the date of the Option grant.

     (c) Stand-Alone SARs.

     (i) An Awardee may be granted a Stand-Alone SAR not tied to any underlying Option under Section 6 of the Plan. The Stand-Alone SAR shall cover a specified number of Common Shares and shall be exercisable upon such terms and conditions as the Committee shall establish. Upon exercise of the Stand-Alone SAR, the holder shall be entitled to receive a distribution from the Company in an amount equal to the excess of (A) the aggregate fair market value (on the exercise date) of the Common Shares underlying the exercised right over (B) the aggregate base price in effect for those Shares.

     (ii) The number of Common Shares underlying each Stand-Alone SAR and the base price in effect for those Shares shall be determined by the Committee at the time the Stand-Alone SAR is granted. In no event, however, may the base price per Share be less than the fair market value per underlying Common Share on the grant date.

     (iii) The distribution with respect to an exercised Stand-Alone SAR may be made in Common Shares valued at fair market value on the exercise date, in cash, or partly in Shares and partly in cash, as the Committee shall deem appropriate.

     (d) The Common Shares underlying any SARs exercised under this Section 8 shall not be available for subsequent issuance under the Plan.

     9. Term of Plan. The Plan shall become effective as of the Effective Date. It shall continue in effect until terminated under Section 17 of the Plan.

     10. Term of Award; Limitations on Vesting and Repricing.

     (a) The term of each Award shall be no more than ten (10) years from the date of grant. However, in the case of an Incentive Stock Option granted to a Participant who, at the time the Option is granted, owns Shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the term of the Option shall be no more than five (5) years from the date of grant.

     (b) Each award shall vest over a period of time set forth in the Award Agreement.

     (c) No Award may be repriced, replaced, regranted through cancellation, or modified without approval of the shareholders of the Company (except in connection with an adjustment pursuant to Section 15 if the effect would be to reduce the exercise price for the Shares underlying such Award.

     11. Exercise Price and Consideration.

     (a) The per Share exercise price under each Award shall be such price as is determined by the Board, subject to the following:

     (i) In the case of an Incentive Stock Option

     (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of grant.

     (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the fair market value per Share on the date of grant.

     (ii) Except for Conversion Options under Section 6(c), the per Share exercise price under

a Nonqualified Stock Option or SAR shall be no less than seventy-five percent (75%) of the fair market value per Share on the date of grant.

     (iii) The maximum aggregate number of Shares underlying all Nonqualified Stock Options and SARs with a per Share exercise price of less than fair market value on any grant date that may be granted under this Plan is 1,000 Shares (increased, proportionately, in the event of any stock split, or stock dividend or similar event with respect to the Shares); provided that Conversion Options shall not count against the limit of this Section 11(a)(iii).

     (b) The fair market value per Share shall be the closing price per share of the Common Share on the national market exchange on which the Shares are listed on the date of grant. If the Shares are not listed on a national market exchange, the Board shall designate an alternative method of determining the fair market value of the Shares.

     (c) The consideration to be paid for the Shares to be issued upon exercise of an Award, including the method of payment, shall be determined by the Board from time to time and may consist of cash and/or check, surrender of Shares, withholding Shares upon the exercise or payment of the Award, surrender of Awards (either fully or partially) or such other method as the Board may determine. Payment may also be made by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale proceeds necessary to pay the exercise price.

     (d) Prior to issuance of the Shares upon exercise of an Award, the Awardee shall pay or cause to be paid all tax withholding obligations applicable to such Award, and payment may be made in such manor authorized by the Board. If an Awardee is an officer of the Company within the meaning of Section 16 of the Exchange Act, he may elect to pay such withholding tax obligations by having the Company withhold Shares having a value equal to the amount required to be withheld, and any Award under the Plan may permit or require that such withholding tax obligations be paid by having the Company withhold Shares having a value equal to the amount required to be withheld. The value of the Shares to be withheld shall equal the fair market value of the Shares on the day the Award is exercised. The right of an officer to dispose of Shares to the Company in satisfaction of withholding tax obligations shall be deemed to be approved as part of the initial grant of an Award, unless thereafter rescinded, and shall otherwise be made in compliance with Rule 16b-3 and other applicable regulations, and any Award under the Plan may permit or require that such withholding tax obligations be paid by having the Company withhold Shares having a value equal to the amount required to be withheld.

     12. Exercise of Award.

     (a) Procedure for Exercise; Rights as a Shareholder. Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Board at the time of grant, and as shall be permissible under the terms of the Plan.

     An Award may not be exercised for a fraction of a Share.

     An Award shall be deemed to be exercised when written or electronic notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 11(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the share certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares subject to the Award, notwithstanding the exercise of the Award. The Company shall issue (or cause to be issued) such share certificate promptly upon exercise of the Award. In the event that the exercise of an Award is treated in part as the exercise of an Incentive Stock Option and in part as the exercise of a Nonqualified Stock Option pursuant to Section 6(a), the Company shall issue a share certificate evidencing the Shares treated as acquired upon the exercise of an Incentive Stock Option and a separate share certificate evidencing the Shares treated as acquired upon the exercise of a Nonqualified Stock Option, and shall identify each such certificate accordingly in its share transfer records. No adjustment will be made for a dividend or other right for which the record date is prior to the date the share certificate is issued, except as provided in Section 15 of the Plan.

     Exercise of an Award in any manner and delivery of the Shares subject to such Award shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Award, by the number of Shares as to which the Award is exercised.

     (b) Termination of Status as a Participant. In the event of termination of an Awardee’s Continuous Status as a Participant, such Awardee may exercise his or her rights under any outstanding Awards to the extent exercisable on the date of termination (but in no event later than the date of expiration of the term of such Award as set forth in the Award Agreement). To the extent that the Awardee was not entitled to exercise his or her rights under such Awards at the date of such

termination, or does not exercise such rights within the time specified in the individual Award Agreements, the Awards shall terminate.

     (c) Disability of Awardee. Notwithstanding the provisions of Section 12(b) above, to the extent not provided otherwise in an Award Agreement, in the event of termination of an Awardee’s Continuous Status as a Participant as a result of total and permanent disability (i.e., the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of twelve (12) months), the Awardee will vest in the Award, but only to the extent of the vesting that would have occurred had the Awardee remained in Continuous Status as a Participant for a period of twelve (12) months after the date on which the Participant ceased performing services as a result of the total and permanent disability. An Option or SAR that is vested pursuant to this Section 12(c) must be exercised within eighteen (18) months (or such shorter time as is specified in the grant) from the date on which the Participant ceased performing services as a result of the total and permanent disability (but in no event later than the date of expiration of the term of such Option or SAR as set forth in the Award Agreement). To the extent that the Awardee was not entitled to exercise such Option or SAR within the time specified herein, the Award shall terminate.

     (d) Death of Awardee. Notwithstanding the provisions of Section 12(b) above, to the extent not provided otherwise in an Award Agreement, in the event of the death of an Awardee:

     (i) who is at the time of death a Participant, the Award will vest, but only to the extent of the vesting that would have occurred had the Awardee continued living and remained in Continuous Status as a Participant twelve (12) months following the date of death. An Option or SAR that is vested pursuant to this Section 12(d)(i) may be exercised, at any time within twelve (12) months following the date of death, by the Awardee’s estate or by a person who acquired the right to exercise the Award by bequest or inheritance; or

     (ii) whose Option or SAR has not yet expired but whose Continuous Status as a Participant terminated prior to the date of death, the Option or SAR may be exercised, at any time within twelve (12) months following the date of death, by the Awardee’s estate or by a person who acquired the right to exercise the Option or SAR by bequest or inheritance, but only to the extent of the right to exercise that had vested at the date of termination.

     (e) Notwithstanding subsections (b), (c), and (d) of this Section 12, the Board shall have the authority to extend the expiration date of any outstanding Option in circumstances in which it deems

such action to be appropriate (provided that no such extension shall extend the term of an Award beyond the date on which the Award would have expired if no termination of the Awardee’s Continuous Status as a Participant had occurred).

     13. Non-Transferability of Awards. An Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Awardee, only by the Awardee; provided that the Board may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability.

14. Change in Control.

     (a) Notwithstanding any other provision of this Plan or contained in any Award granted hereunder (including any provision for deferred payment thereof), upon the occurrence of a Change in Control, the Board, in its discretion, may take any action with respect to outstanding Awards that it deems appropriate, which action may vary among Awards granted to individual Participants. If a Change in Control occurs and, in connection with or as a result of such Change in Control, N. Malone Mitchell 3^rd no longer holds or does not continue to hold the office of Chairman of the Company, each Participant shall be deemed to have earned 100% of the bonus opportunities contained in any outstanding Awards for which the determinations have not been made, and the amount of such bonus opportunities shall be paid promptly and no later than 30 days after the Change of Control) in a cash lump sum. Notwithstanding the provisions of Section 2.3, following a Change in Control the Board shall not adjust the bonus opportunity specified in an Award from that in effect immediately prior to the Change in Control in a manner adverse to the Participant.

     (b) A “Change in Control” shall be deemed to have occurred if the conditions set forth in any one or more of the following shall have been satisfied:

     (i) any “person,” as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting

         power of the Company’s then outstanding securities;

     (ii) during any period of two consecutive years (not including any period prior to the Effective Date of the Plan), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c) or (d) of this Section 14(b)) whose election by the Board of Directors or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason other than normal retirement, death or disability to constitute at least a majority thereof;

     (iii) completion of a merger or consolidation of the Company with any other person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities for the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger in which the Company is the surviving entity but no “person” (as defined above) acquires more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities; or

     (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect).

     (c) Notwithstanding the foregoing, to the extent that an Award is subject to Code Section 409A, the provisions of Code Section 409A and regulations promulgated thereunder shall define a “Change in Control” for the purpose of such Award.

     15. Adjustments to Shares Subject to the Plan. If any change is made to the Shares by reason of any stock split, stock dividend, capitalization, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Shares as a class without the Company’s receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities and/or the price per Share covered by outstanding Awards under the Plan, (iii) the Maximum Annual Participant Award, and (iv) the maximum aggregate

number of Shares underlying all Nonqualified Stock Options and SARs with a per Share exercise price of less than fair market value on any grant date that may be granted under the Plan. The Board may also make adjustments described in (i)-(v) of the previous sentence in the event of any distribution of assets to shareholders other than a normal cash dividend. In determining adjustments to be made under this Section 15, the Board may take into account such factors as it deems appropriate, including (i) the restrictions of applicable law, (ii) the potential tax consequences of an adjustment and (iii) the possibility that some Awardees might receive an adjustment and a distribution or other unintended benefit, and in light of such factors or circumstances may make adjustments that are not uniform or proportionate among outstanding Awards, modify vesting dates, defer the delivery of stock certificates or make other equitable adjustments. Any such adjustments to outstanding Awards will be effected in a manner that precludes the enlargement of rights and benefits under such Awards. Adjustments, if any, and any determinations or interpretations, including any determination of whether a distribution is other than a normal cash dividend, made by the Board shall be final, binding and conclusive. For purposes of this Section 15, conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award.

     In the event of the proposed dissolution or liquidation of the Company, the Award will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Award shall terminate as of a date fixed by the Board and give each Awardee the right to exercise an Award as to all or any part of the Shares subject to an Award, including Shares as to which the Award would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each Award shall be assumed or an equivalent award shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless such successor corporation does not agree to assume the Award or to substitute an equivalent award, in which case the Board shall, in lieu of such assumption or substitution, provide for the Awardee to have the right to exercise the Award as to all of the Shares subject to Awards, including Shares as to which the Award would not otherwise be exercisable. If the Board makes an Award fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Awardee that the Award shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Award will terminate upon the expiration of such period.

     16. Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Company completes the corporate action relating to the grant of such Award and all conditions to

the grant have been satisfied, provided that conditions to the grant, exercise or vesting of an Award shall not defer the date of grant. Notice of a grant shall be given to each Participant to whom an Award is so granted within a reasonable time after the determination has been made.

     17. Substitutions and Assumptions. The Board shall have the right to substitute or assume Awards in connection with mergers, reorganizations, separations, or other transactions to which Section 424(a) of the Code applies, provided such substitutions and assumptions are permitted by Section 424 of the Code and the regulations promulgated thereunder. The number of Shares reserved pursuant to Section 3 may be increased by the corresponding number of Awards assumed and, in the case of a substitution, by the net increase in the number of Shares subject to Awards before and after the substitution.

     18. Amendment and Termination of the Plan.

     (a) Amendment and Termination. The Board, in its sole discretion, may amend or terminate the Plan from time to time in such respects as the Board may deem advisable (including, but not limited to amendments which the Board deems appropriate to enhance the Company’s ability to claim deductions related to stock option exercises) without shareholder approval, except that any increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 15 of the Plan, and shall require approval of or ratification by the shareholders of the Company.

     (b) Effect of Amendment or Termination. Except as otherwise provided in Sections 4 and 14, any such amendment or termination of the Plan shall not affect Awards already granted and such Awards shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Awardee and the Board, which agreement must be in writing and signed by the Awardee and the Company.

     19. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

     20. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

     21. No Employment/Service Rights. Nothing in the Plan shall confer upon any Participant the right to an Award or to continue in service as an Employee, Director, or Consultant for any period of specific duration, or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining such person), or of any Participant or Awardee, which rights are hereby expressly reserved by each, to terminate such person’s services at any time for any reason, with or without cause.

     22. Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an “unfunded” plan. With respect to any amounts payable to a Participant pursuant to an Award, nothing contained in the Plan (or in any documents related thereto), nor the creation or adoption of the Plan, the grant of any Award, or the taking of any other action pursuant to the plan, shall give any such Participant any rights that are greater than those of a general creditor of the Company. The Committee may authorize the creation of trusts or make other arrangements to meet the Company’s obligations under the Plan; however, such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan.

     23. Section 162(m). It is intended that the Plan comply fully with and meet all the requirements of Code Section 162(m) with respect to “covered employees” so that Awards granted hereunder to “covered employees” shall constitute “qualified performance-based compensation” within the meaning of Code Section 162(m). If any provision of the Plan would disqualify the Plan or would not otherwise permit the Plan to comply with Code Section 162(m) as so intended, such provision shall be construed or deemed amended to conform to the requirements or provisions of Code Section 162(m).

EX-10.3

Exhibit 10.3

EMPLOYEE PARTICIPATION PLAN AGREEMENT

     The Company has adopted an Employee Participation Plan (the “Plan”) as set forth in the provisions of this Employee Participation Plan Agreement (the “Agreement”).

ARTICLE I
PURPOSE

     1.01 The purposes of the Plan are to:

     (a) closely associate the interest of the employees of the Company and its Affiliates with the shareholders by reinforcing the relationship between Participant’s rewards and increase in Company assets.

     (b) maintain competitive compensation levels; and

     (c) provide an incentive to employees for continued employment with the Company.

     1.02 All capitalized terms have the meaning as set forth in Article II hereof or as otherwise provided.

ARTICLE II
DEFINITIONS

     2.01 Certain Definitions. As used in this Agreement, the following terms have the following meanings:

     “Acquisition Costs” means the costs of acquiring a leasehold interest, including, without limitation, lease bonuses, direct costs of seismic data and interpretation, lease broker services, title examinations, filing fees.

     “Affiliate ” means, when used with reference to a specified Person, (a) any Person directly or indirectly owning, controlling or holding power to vote 50% or more of the outstanding voting securities of the specified Person, (b) any Person 50% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by or under common control with the specified Person, (d) if the specified Person is a corporation, any officer or director of the specified Person or of any corporation directly or indirectly controlling that specified Person, (e) if the specified Person is a partnership, any Company or if the Company is a partnership, the Companies of that partnership, and (f) if the specified Person is an individual, such individual’s spouse and natural and adoptive lineal descendants and trusts for the benefit of any such Persons. For purposes of this definition, the ability through share ownership or contractual arrangement to elect or cause the election of a majority of the board of directors of a corporation shall constitute “control.”

     “Change in Control” “Change in Control” shall be deemed to have occurred if the conditions set forth in any one or more of the following shall have been satisfied:

     (i) any “person,” as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (other than N. Malone Mitchell 3rd and Amy Mitchell, a Person which they or their heirs, devisees or grantees controls or the heirs, devisees or grantees of N. Malone Mitchell 3^rd or Amy Mitchell; the Company; any trustee; or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities;

1

     (ii) during any period of two consecutive years (not including any period prior to the Effective Date of the Plan), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c) or (d) of this Section 14(b)) whose election by the Board of Directors or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason other than normal retirement, death or disability to constitute at least a majority thereof;

     (iii) completion of a merger or consolidation of the Company with any other person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities for the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger in which the Company is the surviving entity but no “person” (as defined above) acquires more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities; or

     (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect).

     “Company” means Riata Energy, Inc., a Texas corporation.

     “Costs” means all Acquisition Costs and Well Costs.

     “Event of Forfeiture” has the meaning set forth in Section 4.13.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Independent Legal Counsel” shall mean an attorney, selected in accordance with the provisions of Section 6(b) hereof, who shall not have otherwise performed services for Indemnitee, the Company, any person that controls the Company or any of the directors of the Company, within five years preceding the time of such selection (other than in connection with seeking indemnification under this Agreement). Independent Legal Counsel shall not be any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement, nor shall Independent Legal Counsel be any person who has been sanctioned or censured for ethical violations of applicable standards of professional conduct. “Code” means the Internal Revenue Code of 1986, as amended.

     “Interest” means the interest attributable to a Participant in a Project.

     “Lease” means a lease, mineral interest, mineral servitude, license, concession or other right covering oil, gas and related hydrocarbons (or a contractual right to acquire such an interest) or an undivided interest therein or portion thereof, together with all appurtenances, easements, permits, licenses, servitudes and rights-of-way situated upon or used or held for future use in connection with such an interest or the exploration, development or production thereof. A “Lease” shall also mean and include all rights and interests in all lands and interests unitized or pooled therewith pursuant to any law, rule, regulation or agreement. A Lease does not include any royalty, overriding royalty or other non-cost bearing interest owned by the Company.

     “Monthly Allowance” means a dollar amount allocated to a Participant each month to pay Costs incurred in Projects in which the Participant has an Interest.

2

     “Operating Agreement” means an agreement between the operator and non-operating interest owners in a Lease for the testing, development and operation of a tract of land or Lease for the exploration and development of oil, gas, minerals or hydrocarbons.

     “Participant” means an individual designated by the Company eligible to participate in the Plan.

     “Person” means an individual, corporation, partnership, limited liability company, business trust or other legal entity.

     “Project” means an area designated by the Company in which the Company owns or intends to acquire Leasehold Interests and in which it elects to allow Participants to participate in a portion of exploration and production activities attributable to the interest in a Lease owned by the Company. The Company may alter or amend at any time the designation of a Project, but no alteration or amendment will affect operations conducted on the Project prior to such alteration or amendment. A designation of a Project will include the aerial extent of the Project; depth limitations, if any, of the Project; the portion of the Company’s Working Interest in the Project available for Participants, and such other information, limitations or conditions as the Company in its sole discretion shall determine.

     “Project Information” means such information as the Company determines in its sole discretion to provide to Participants. To the extent practicable, Project Information will include geologic or engineering information; operating agreements, farmout or other agreements applicable to the Project; and exploration or drilling activities the Company initially intends to undertake on the Project.

     “Regulations” mean the regulations promulgated by the United States Department of Treasury pursuant to the Code. All references herein to sections of the Treasury Regulations shall include corresponding provision or provisions of succeeding, similar, substitute, temporary or final Treasury Regulations.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Transfer ” means any sale, transfer, assignment, pledge, encumbrance, hypothecation, gift or disposition of an Interest in whole or in part, or any rights or benefits to which a holder of an Interest may be entitled as provided in this Agreement, including, without limitation, the right to receive distributions in cash or in kind.

     “Well” means a well in which the Company holds a Working Interest derived from its ownership of one or more Leases.

     “Well Costs” means the Participant’s share of costs pursuant to any Operating Agreement for the drilling, completing, equipping, deepening or sidetracking a Well, including, without limitation: (i) the costs of surveying and staking the Well, the costs of any surface damages and the costs of clearing, coring, testing, logging and evaluating the Well; (ii) the costs of casing, cement and cement services for the Well; (iii) the cost of plugging and abandoning the Well (including standard and customary remediation activities associated therewith), if it is determined that the Well would not produce in commercial quantities and should be abandoned; (iv) all direct charges and overhead chargeable with respect to the Well under any applicable Operating Agreement until such time as all operations are carried out as required by applicable regulations and sound engineering practices to make such Well ready for production, including the installation and testing of wellhead equipment, or to plug and abandon a dry hole; (v) all costs incurred recompleting or plugging back any Well; (vi) all costs incurred in reworking any Well if the rework is covered by an authority for expenditure under the applicable Operating Agreement; (vii) all costs incurred in locating, drilling, completing, equipping, deepening or sidetracking any enhanced recovery producer or injector Well (including the costs of all necessary surface equipment such as steam generators, compressors, water treating facilities, injection pumps, flow lines and steam lines); and (viii) the costs of constructing production facilities, pipelines and other facilities necessary to develop a Property and produce, collect, store, treat, deliver, market, sell or otherwise dispose of oil, gas and other hydrocarbons and minerals therefrom; provided, that Well Costs shall not include any Acquisition Costs.

3

     “Working Interest” means a fractional operating interest in a Lease that permits the Company to explore, develop and produce one or more Properties and bear its percentage of the costs and expenses relating to the maintenance and development of and operations relating to such properties in return for a share of the mineral production from the property.

     2.02 Construction. Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine and neuter. All references to Articles and Sections refer to articles and sections of this Agreement, and all references to exhibits are to Exhibits attached to this Agreement, each of which is made a part of this Agreement for all purposes.

ARTICLE III
PROJECTS

     3.01 Notification. The Company will notify each Participant of any Project in which the Participant is allowed to participate. The Participant shall have a one-time election to participate in the Project.

     3.02 Project Information. The notification will include a description of the Project and the activities the Company has already conducted or initially intends to conduct in the future, including Costs incurred or expected initially to be incurred. Unless expressly identified as an actual Cost, any Costs will be estimates only.

     3.03 Elections. The Company will establish the date by which Participants may elect to participate in a Project. Any elections must be made in writing and delivered to the Company in the manner designated by the Company on or before the election date established by the Company. The failure to respond shall be deemed an election not to participate in the Project, and a Participant shall thereafter have no right to participate in the Project.

     3.04 Amount. If a Participant elects to participate in a Project, the election shall include the percentage interest of the Project the Participant wishes to select. In the event all Participants’ elections exceed 100% of the amount available to Participants, the Company may elect to increase the amount available in the Project, proportionately reduce each Participant’s percentage interest in the Project, or both.

     3.05 No Increase or Decrease. Once established, a Participant’s percentage interest in a Project is fixed, and the Participant may not change the percentage interest in the Project.

ARTICLE IV
PARTICIPANTS

     4.01 Designation of Participants. The Company shall from time to time designate an Employee as a Participant. Once designated as a Participant, the Employee shall remain a Participant until death, permanent disability (as determined by the Company in its sole discretion), termination of status as an Employee for any reason, or election by the Company in its sole discretion to withdraw the Employee’s designation as a Participant.

     4.02 Monthly Allowance. Each Participant shall receive a Monthly Allowance as determined by the Company in its sole discretion. The Monthly Allowance may be increased, decreased or eliminated at any time by the Company in its sole discretion, provided that any change will be prospective only. All or any portion of the Monthly Allowance may be used each month by a Participant to pay for Costs billed to the Participant in the previous Month or may be accumulated by the Participant to pay for future Costs. In any event, all portions of a Monthly Allowance must be used within eleven (11) months after the Month in which the Monthly Allowance is received. Any portion of the Monthly Allowance not used within such period shall be forfeited. Use of accumulations of a Participant’s Monthly Allowance will be made on a first-in, first-out basis. In no event shall a Participant be entitled to receive cash or other compensation in exchange or as a substitute for the Monthly Allowance.

     4.03 Statements. Each month, or at such other time selected by the Company the Company will deliver to each Participant a statement showing amount due from the Participant for activities conducted in each Project or anticipated to be conducted on each Project. The Company may elect to make cash calls for any activity in the

4

manner allowed by any applicable Operating Agreement. Each Participant shall be responsible for the percentage share of the actual Costs attributable to the Interest of the Participant in a Project.

     4.04 Payment of Costs.

          (a) A Participant may use all or any portion of the Participant’s Monthly Allowance, including any allowed accumulations, to pay all costs attributable to the Participant percentage interest in Projects in which the Participant is participating. In the event a Participant’s Monthly Allowance, including any allowed accumulations, is insufficient to pay Costs attributable to the Participant, the Participant shall within the time established by the Company, or if no time is established by the Company, within ten (10) days following delivery of the statement showing Costs, deliver to the Company a check for the amount of such deficit.

          (b) If a Participant fails to discharge any financial obligation attributable to the Participant’s Interest, including without limitation the failure to make any advance within the period required for such payment the Participant shall be deemed to be a non-consenting party as to the activity for which payment has not been made. In such event, the Company will allocate any payments actually made including any Monthly Allowance, to the payment of Costs, as it may determine in its sole discretion.

          (c) If any Costs remain unpaid for ten (10) days following the date payment was due, the Participant shall be ineligible to elect to participate in any future Projects for as long as such amounts remain unpaid.

          (d) Further, if a default in the payment of any financial obligation continues for a period of ten (10) days after such payment was due, regardless of whether thereafter cured, the Company may thereafter require advance payment from the Participant for all anticipated Costs.

     4.05 Non-Consent Elections. A Participant may elect not to participate in any activity of a Project where the applicable Operating Agreement allows a non-operator a non-consent election, in accordance with the terms of such provision.

     4.06 Distributions. At least monthly all cash which the Company reasonably determines is not needed for the payment of any existing or reasonably foreseeable Participant obligations and expenditures shall be distributed to each Participant attributable to the Interest of such Participant.

     4.07 Withholding Taxes. The Company shall at all times be entitled (but not obligated) to make payments required to discharge any obligation of the Participant or the Company to withhold or make payments to any governmental authority with respect to any federal, state or local tax liability of any Participant for such taxes arising out of such Participant’s Interest. The amount of each such payment made by the Company with respect to any Participant shall be deducted from any distributions otherwise payable to such Participant pursuant to this Agreement. Notwithstanding anything contained in this Agreement to the contrary, in the event the Company fails to withhold any federal, state or local taxes in respect of any Participant when required to do so (including as a result of any change in law or interpretation thereof or otherwise) any liability incurred by the Company (including any interest and penalties) as a result of such failure shall be borne by such Participant (and charged to such Participant, and such Participant shall indemnify and hold harmless the Company from and against any and all claims, demands, liabilities, costs, damages and causes of action of any nature whatsoever related to such withholding obligation.

     4.08 Access to Information. A Participant or a permitted assignee of an Interest, on written request to the Company stating the purpose, may examine, at any reasonable time, for any proper purpose, records kept by the Company relating to the Interest of the Participant.

     Information provided to or obtained by a Participant or a permitted assignee of an Interest shall be used by such Participant or assignee solely in furtherance of his or her interests as a Participant and shall not be used for any other purpose. Participant or a permitted assignee of an Interest shall maintain the confidentiality of all such information and shall not disclose such information to any other Person. If a Participant or a permitted assignee of an Interest receives a request to disclose information relating to the Partnership or Property under the terms of a subpoena, investigative demand or order issued by a court or governmental agency, the Participant or a permitted

5

assignee of an Interest shall promptly notify the Company of the existence, terms and circumstances surrounding such request, so that the Company may seek a protective order or confidential treatment of such information. If the Company receives a subpoena, document request or any other notice or document seeking or requesting information relating to a Participant’s Interest the Company may acquire the Interest pursuant to Section 4.12 hereof.

     4.09 No Liens or Encumbrances. Participant shall not mortgage, assign, transfer, or encumber the Interest.

     4.10 Investment Representations of the Participants.

          (a) In order to become a Participant, an employee must represent and warrant to the Company that, as a Participant, such employee is acquiring his or her Interest for his or her own account, for investment purposes only and not with a view to the resale or distribution thereof, in whole or in part. And will acknowledge that the Interests have not been registered under the Securities Act.

          (b) Each Participant represents that he or she has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment pursuant to the Plan.

     4.11 Transfer Restrictions. Except as provided in Section 4.15, no Participant shall Transfer any Interest therein without the prior written consent of the Company. Any attempted Transfer in violation of this section shall be null and void, and the Company shall refuse to recognize any such Transfer and shall not reflect on its records any change in ownership of such Interest pursuant to any such Transfer.

     4.12 Company’s Right of Purchase. The Company shall have the right and option to purchase any or all Interests held by a Participant following such Participant’s (i) termination of employment with the Company for any reason, including death, permanent disability, voluntary resignation, termination for cause or termination without cause, or (ii) the causes stated in Section 4.08 hereof. The Participant’s admission to or conviction of a felony or misdemeanor offense against the Company or any of its Affiliates (“Event of Forfeiture”) shall result in the forfeiture of the Participant’s Interest without any payment to the Participant. The Company may exercise such right and option of purchase within one hundred twenty (120) days of an Event of Forfeiture. The purchase price to be paid for the Interest shall be equal to an amount computed as follows:

The acquisition price of the Interest shall be based upon the present value of the proved developed producing and proved undeveloped reserves, using the then current pricing schedule of the Company’s primary lender and the most recent independent engineer’s report, deducting anticipated capital expenditures, and applying a fifteen percent (15%) discount rate for proved developed producing reserves and a discount rate of thirty percent (30%) for proved developed non-producing reserves. No value shall be given for proved undeveloped reserves.

     To the extent the Company exercises its option to purchase a Participant’s Interest under this provision, Participant, or the legal representative of or heir or designee of Participant, as the case may be, shall execute such assignments and bills of sale to the Company as the Company may reasonably request, free and clear of any liens or encumbrances created by the Participant.

     4.13 Change in Control and Sales. Upon a Change in Control, the Company shall assign each Participant the Interest of the Participant, subject to all applicable operating and other agreements. If Company elects to sell its interest in a Project, the Participant’s Interest will also be included in such sales.

     4.14 Marketing. Production of oil and gas attributable to a Participant’s Interest shall be marketed on the same terms and conditions as that of the outside owners in the respective Project.

     4.15 Permitted Transfers; Status as Assignee. A Participant may Transfer all or any portion of his or her Interest (i) to the Company, (ii) to his or her spouse, parents or natural or adoptive lineal descendants, or to one or more trusts or partnerships established exclusively for the benefit of his or her spouse, parents or natural or adoptive lineal descendants; provided, that any such permitted assignee shall receive and hold such rights subject to the provisions of this Agreement, including, without limitation, the provisions of this Article IV. A Participant

6

intending to Transfer Interests pursuant to this Section 4.15 shall provide at least 10 days prior written notice of such proposed transfer to the Company. In the event the Company elects not to exercise its option to purchase the Interest of a Participant in the Event of Forfeiture, the Company shall assign the Participant’s Interest to the Participant without warranty of any kind, either express or implied.

     4.16 Specific Performance. The parties agree that the Company and each Participant would be irreparably damaged if any of the provisions of this Article IV are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which they may be entitled, at law or in equity, the Company and any nondefaulting Participant shall be entitled to injunctive relief to prevent breaches of the provisions of this Article IV and specifically to enforce the terms and provisions hereof in any action instituted in any court of competent jurisdiction.

ARTICLE V
ADMINISTRATION, ALLOCATIONS, AND DISTRIBUTIONS

     5.01 Administration.

          (a) The Plan shall be administered by a Committee composed of the President.

          (b) The Committee shall have the authority, in its sole discretion and from time to time to:

          (i) designate the employees who will be Participants;

          (ii) establish the Monthly Allowance for each Participant;

          (iii) impose limitations, restrictions and conditions in connection with the Plan as the Committee shall deem appropriate; and

          (iv) interpret the Plan, adopt, amend, and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan.

          (c) Decisions and determinations of the Committee on all matters relating to the Plan shall be in its sole discretion and shall be conclusive. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan.

          (d) The Committee shall prepare such agreements, awards, notices or other documents necessary to effectuate the intent of the Plan.

ARTICLE VI
BOOKS, RECORDS AND BANK ACCOUNTS

     6.01 Maintenance of Books. The books of account for each Participant shall be maintained on an accrual basis in accordance with the terms of this Agreement.

     6.02 Accounts. The Company shall establish and maintain one or more bank and investment accounts and arrangements for Participants’ funds with financial institutions and firms that the Company determines. The Company need not establish separate accounts for the Participants, and may commingle the funds of Participants with funds of its own.

ARTICLE VII
GENERAL PROVISIONS

     7.01 Offset. Whenever the Company is to pay any sum to any Participant, any amounts that Participant owes the Company or its Affiliates may be deducted from that sum before payment.

7

     7.02 Notices. All notices, requests or consents required or permitted to be given under this Plan must be in writing and shall be considered as properly given if mailed by first class United States mail, postage paid, and registered or certified with return receipt requested, or if delivered to the recipient in person, by courier or by facsimile transmission. Notices, requests and consents shall be sent to a Participant at the address shown on the records of the Company for each Participant. A Participant may change its address by giving written notice to the Company. Any notice, request or consent to the Company shall be sent to the Company at its principal place of business, to the attention of the President.

     7.03 Entire Agreement. This Agreement constitutes the entire agreement of the Plan and supersedes all prior contracts or agreements with respect to the Plan, whether oral or written.

     7.04 Effect of Waiver or Consent. A waiver or consent, express or implied, to or of any breach or default by any Person in the performance by that Person of its obligations with respect to the Company is not a consent or waiver to or of any other breach or default in the performance by that Person of the same or any other obligations of that Person with respect to the Company. Failure on the part of a Person to complain of any act of any Person or to declare any Person in default with respect to the Company, irrespective of how long that failure continues, does not constitute a waiver by that Person of its rights with respect to that default until the applicable statute of limitations period has run.

     7.05 Amendment or Modification. Any amendment to this Agreement by the Company may be made at any time, provided that no prior actions of any Participant may be affected.

     7.06 Binding Effect. Subject to the restrictions on Transfers set forth in this Agreement, this Agreement is binding on and inures to the benefit of the Participant’s and their respective successors and assigns.

     7.07 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICT OF LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. If any provision of this Agreement or its application to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other Persons or circumstances is not affected and that provision shall be enforced to the fullest extent permitted by law.

     7.08 Further Assurances. In connection with this Agreement and the transactions contemplated by it, each Participant shall execute and deliver any additional documents and instruments as the Company may request, and perform any additional acts that may be necessary or appropriate as the Company may request, to effectuate and perform the provisions of this Agreement and those transactions.

     7.09 No Employment Contract. Nothing contained in this Agreement shall be construed as conferring upon any Participant who is or may become an employee of the Company or any Affiliate of the Company any right to continue in the employment of the Company or any Affiliate of the Company for any period of time or interfere with or restrict in any way the rights of the Company or any Affiliate of the Company or such Participant to terminate the employment of such Participant at any time for any reason (or without any reason) whatsoever, with or without cause.

     7.10 Termination. The Plan may be terminated at any time by the Company without liability or obligation to the Company.

     7.11 Effective Date. The Effective Date of the Plan is January 1, 2006.

8

EX-10.4

Exhibit 10.4

RIATA ENERGY, INC.
WELL PARTICIPATION PROGRAM

     1. Purpose This Well Participation Program (the “Program”) has been adopted by the Board of Directors of Riata Energy, Inc. (the “Company”) and is intended to foster and promote the development and execution of the Company’s business by: (a) retaining and motivating the principal executive officers of the Company, Tom L. Ward and Malone Mitchell 3^rd (the “Executives”); (b) aligning the financial rewards and risks of the Executives with the Company more effectively than overriding royalty, carried interest or other performance incentive programs maintained by many of the Company’s peers; and (c) imposing on the Executives the same risk incurred by the Company in its core operations.

     2. Effective Date. The Program will be effective on June 8, 2006 (the “Effective Date”). The Board of Directors will have the right to terminate the Program after December 31, 2016 by providing written notice of termination to the Executives at least one year before the effective date of such termination.

     3. Administration. The Program will be administered and interpreted by the Board of Directors of the Company or a Compensation Committee thereof (the “Committee”). The Committee will have the power to: (1) employ attorneys, consultants, accountants and other advisors as deemed necessary or appropriate by the Committee; (2) to establish, adopt, or revise such rules and regulations and to make all such determinations relating to the Program as the Committee may deem necessary or advisable for the administration of the Program; and (3) take any and all action the Committee deems necessary or advisable for the proper operation or administration of the Program. The Committee’s interpretations of this Program or any instruments executed in connection with the Program and all decisions and determinations by the Committee with respect thereto will be final, binding and conclusive on all parties.

     4. Well Participation. Each Executive will be permitted to acquire and agrees to acquire an interest in the governmental, spacing or production unit for each Program Well (as hereafter defined) spudded during a Participation Period (as hereafter defined) equal to the Minimum Participation (as hereafter defined). The term “Program Well” means any new well in which any of the Company Entities (as hereafter defined) participates as a working interest owner but expressly excludes: (a) any well in which the Company Entities own an interest and has not elected to participate as a working interest owner with respect to such interest; (b) any well which constitutes a re-entry of an existing producing well; (c) any well drilled in a multi-unit secondary or tertiary recovery unit in which the Executives do not already have a working interest by virtue of participation in a well or well(s) that have been combined into the unit; (d) any other wells which the Company reasonably determines the Executives should not participate in given the objectives of the Program; and (e) any other well subject to a preferential right to purchase or other contractual restriction that would limit the Company’s ability to transfer an interest to the Executives. The Company will provide a semi-annual report regarding the Program to the Committee.

     5. Participation Election. On or before the date which is thirty (30) days before the first (1st) day of each Participation Period, each Executive will provide written notice to the Committee of such Executive’s election to participate in Program Wells during the succeeding

Riata Energy Well Participation Program Page 1 of 4

Participation Period and the percentage working interest which the Executive proposes to participate with during such Participation Period (the “Acquisition Percentage”). Notwithstanding anything herein to the contrary, the Acquisition Percentage for any Participation Period may not exceed three percent (3.0%) on an eight-eighths (8/8) basis for Tom L. Ward and two percent (2.0%) on an eight-eighths (8/8) basis for Malone Mitchell 3rd. If prior to the date specified herein, an Executive fails to provide notice of such Executive’s election to participate or the Acquisition Percentage for such Participation Period, the amount of the Acquisition Percentage for such Participation Period will be deemed to be equal to the Acquisition Percentage for the immediately preceding Participation Period. The initial Participation Period will run from the Effective Date until December 31, 2006.

     6. Amount of Participation. On an election to participate and the designation of the Acquisition Percentage for a Participation Period in accordance with this Program, the Executive will be deemed to have elected to participate in each Program Well spudded during the applicable Participation Period with a working interest equal to the greater of the following determined on a well-by-well basis (the “Minimum Participation”): (a) the Acquisition Percentage for such Program Well (as adjusted for any well under paragraph 6.2 of this Program); or (b) the prior interest owned by the Executive in the drilling unit for such Program Well.

     6.1 Interest Assigned. If the foregoing clause (a) is applicable to a Program Well, the Company will assign or allocate to the Executive a unit working interest in the Program Well sufficient to cause such Executive’s combined interest in such Program Well to equal the Acquisition Percentage (including in such computation any prior interests owned by the Executive). If the foregoing clause (b) is applicable because the Executive’s prior interest in the well exceeds the Acquisition Percentage, the Company will not assign or allocate any interest in the Program Well. The interest to be assigned or allocated under this paragraph to cause the Executive’s participation in a Program Well to be equal to the Acquisition Percentage will be derived proportionately from all the interests owned by the Company Entities in the Program Well (including non-consenting interests, back-in interests, leased royalty interests, overriding royalty interests or other similar interests) so that the total interest in the Program Well assigned or allocated to the Executive is substantially similar to the interests retained by the Company Entities. The Executive’s prior interests in a Program Well for purposes of this paragraph expressly includes any interests owned by the Executive or the Executive’s Affiliates in the unit for such Program Well.

     6.2 Minimum Company Participation. If the interests to be assigned or allocated to the Executives under this Program in a specific Program Well causes the aggregate working interest of the Company Entities (determined after consideration of any carried or reversionary interests) on the spud date for such Program Well to be less than twelve and one-half percent (12.5%) on an eight-eighths (8/8ths) basis, then the Acquisition Percentage for that Program Well will be equal to zero and neither Executive will be entitled to participate in such Program Well, except with respect to prior interests in such Program Well owned by the Executive or the Executive Affiliates.

Riata Energy Well Participation Program Page 2 of 4

     7. Conditions of Participation. Each Executive’s participation in the Program is independent of the other Executive’s participation in the Program. An Executive’s Acquisition Percentage cannot be changed during any Participation Period without the prior approval of the Committee. Any participation by the Executive under this Program is conditioned on the Executive’s participation in each Program Well spudded during such Participation Period in an amount equal to the Minimum Participation. Each Executive hereby: (a) agrees to execute and deliver any documents reasonably requested by the Company in connection with the Program, including, but not limited to a joint operating agreement in the Company’s customary form and providing for general and administrative well overhead fees customarily charged by the Company; (b) appoints the Company as such Executive’s agent and attorney-in-fact to execute and deliver such documents if such Executive fails or refuses to execute such documents; (c) agrees to pay all joint interest billings immediately on receipt of the Company’s invoice issued by the Company in the ordinary conduct of its business; and (d) agrees to prepay to the Company amounts attributable to the Executive’s interest in a Program Well operated by a third party to the extent that a Company Entity is required to prepay any costs in connection with such Program Well.

     8. Well Charges. The amount to be paid by each Executive for the acreage to be assigned in connection with the participation in the Program Wells during a Participation Period will be computed as of the first day of such Participation Period and will be equal to the following amount computed on a per acre basis: (a) all direct third party costs and relevant allocable costs of exploration wells, if any, paid by the Company Entities and capitalized in the appropriate accounting pool in accordance with the Corporation’s accounting procedures (including capitalized interest, leasehold payments, acquisition costs, landman charges and seismic charges); divided by (b) the acreage in the applicable pool. The acreage charge amount will be recomputed as of the first day of each Participation Period by the Company and submitted to the Committee for approval. All other costs for Program Wells will be billed in accordance with the Company’s accounting procedures applicable to third party participants pursuant to any applicable joint operating agreement or exploration agreement relating to a particular Program Well. Notwithstanding anything herein to the contrary, in each case the Executive’s participation in a Program Well will be on no better terms than the terms agreed to by unaffiliated third party participants in connection with the participation in such Program Well or similar wells operated by the Company Entities.

     9. Definitions. For purposes of this Agreement, the term:

     (1) “Participation Period” means the period commencing on the first (1st) day of each January (except for the initial Participation Period which will commence on the Effective Date) and ending on the earlier of (i) December 31 of such year; and (ii) the termination of the Executive’s employment with the Company for any reason;

     (2) “Company Entities” means the Company, any affiliate or successor to the Company, any entity which controls, subsequently owns or is under common control with the Company and any subsidiary corporation, partnership, limited liability company or other entity owned by, controlled by or under common control with any of the foregoing (whether direct or indirect); and

Riata Energy Well Participation Program Page 3 of 4

     (3) “Executive Affiliate” means TLW Investments, Inc., an Oklahoma corporation, with respect to Tom L. Ward and Duet 8, L.P. with respect to Malone Mitchell 3rd, and any entity owned solely by such Executive and such Executive’s immediate family members designated as a Executive Affiliate in writing and approved by the Committee.

     10. General. The following additional terms apply:

     10.1 Amendment or Termination of Program. The Board may suspend or terminate this Program at any time after December 31, 2016 and after providing a minimum of one (1) year’s prior written notice to the Executives of the Board’s intentions.

     10.2 Nonassignability. The right to participate in the Program can only be assigned by a Executive to a Executive Affiliate designated as such in accordance with this Program. This Program does not limit the sale, mortgage, gift or assignment by a Executive of an interest in a Program Well once the interest has been assigned of record by the Company Entities.

     10.3 Right to Continued Employment. Participation in this Program will not give any Executive any right to remain in the employ of or continue serving as a director of the Company or any Company Entity.

     10.4 Reliance on Reports. Each member of the Committee and each member of the Board may rely and act in good faith on any report made by the independent public accountants of any Company Entity and on any other information furnished in connection with the Program by any person or persons other than the Executives. In no event will any person who is or will have been a member of the Committee or of the Board be liable for any determination made or other action taken or any omission to act in reliance upon any such report or information or for any action taken or failure to act if such person acted in good faith.

     10.5 Titles. The titles and headings of the paragraphs in this Program are for convenience of reference only, and in the event of any conflict, the text of this document, rather than such titles or headings, will control.

     10.6 Governing Law. This Program will be governed by and construed in accordance with the laws of the state of Texas, except as superseded by applicable federal law.

Riata Energy Well Participation Program Page 4 of 4

EX-10.6

Exhibit 10.6

CREDIT AGREEMENT

Dated as of November 21, 2006

among

RIATA ENERGY, INC.
(d/b/a SandRidge Energy, Inc.)
as the Borrower,

BANK OF AMERICA, N.A.,
as Administrative Agent, Swing Line Lender
and
L/C Issuer,

and

The Other Lenders Party Hereto

BANC OF AMERICA SECURITIES LLC,
Sole Lead Arranger and Sole Book Manager

TABLE OF CONTENTS

Section			Page
ARTICLE I.		DEFINITIONS AND ACCOUNTING TERMS		1
	1.01	Defined Terms		1
	1.02	Other Interpretive Provisions		27
	1.03	Accounting Terms		28
	1.04	Petroleum Terms		28
	1.05	Rounding		28
	1.06	Times of Day		28
	1.07	Letter of Credit Amounts		28
ARTICLE II.		THE COMMITMENTS AND CREDIT EXTENSIONS		29
	2.01	Committed Loans		29
	2.02	Borrowings, Conversions and Continuations of Committed Loans		29
	2.03	Letters of Credit		30
	2.04	Swing Line Loans		39
	2.05	Borrowing Base		42
	2.06	Prepayments		44
	2.07	Termination or Reduction of Commitments		46
	2.08	Repayment of Loans		46
	2.09	Interest		46
	2.10	Fees		47
	2.11	Computation of Interest and Fees		48
	2.12	Evidence of Debt		48
	2.13	Payments Generally; Administrative Agent’s Clawback		49
	2.14	Sharing of Payments by Lenders		50
ARTICLE III.		TAXES, YIELD PROTECTION AND ILLEGALITY		51
	3.01	Taxes		51
	3.02	Illegality		53
	3.03	Inability to Determine Rates		53
	3.04	Increased Costs; Reserves on Eurodollar Rate Loans		54
	3.05	Compensation for Losses		55
	3.06	Mitigation Obligations; Replacement of Lenders		56
	3.07	Survival		56
ARTICLE IV.		CONDITIONS PRECEDENT TO CREDIT EXTENSIONS		56
	4.01	Conditions of Initial Credit Extension		56
	4.02	Conditions to all Credit Extensions		61
ARTICLE V.		REPRESENTATIONS AND WARRANTIES		62
	5.01	Existence, Qualification and Power		62
	5.02	Authorization; No Contravention		62
	5.03	Governmental Authorization; Other Consents		62
	5.04	Binding Effect		63
	5.05	Financial Statements; No Material Adverse Effect		63
	5.06	Litigation		64
	5.07	No Default		64
	5.08	Ownership of Property; Liens		64
	5.09	Environmental Compliance		64

i

Section			Page
	5.10	Insurance		65
	5.11	Taxes		65
	5.12	ERISA Compliance		65
	5.13	Subsidiaries; Equity Interests; Loan Parties		66
	5.14	Margin Regulations; Investment Company Act		66
	5.15	Disclosure		66
	5.16	Compliance with Laws		67
	5.17	Solvency		67
	5.18	Casualty, Etc.		67
	5.19	Labor Matters		67
	5.20	Collateral Documents		67
	5.21	Engineered Oil and Gas Properties		67
	5.22	Sale of Production		68
ARTICLE VI.		AFFIRMATIVE COVENANTS		70
	6.01	Financial Statements		70
	6.02	Certificates; Other Information		71
	6.03	Notices		73
	6.04	Payment of Obligations		74
	6.05	Preservation of Existence, Etc.		74
	6.06	Maintenance of Properties		75
	6.07	Maintenance of Insurance		75
	6.08	Compliance with Laws		75
	6.09	Books and Records		75
	6.10	Inspection Rights		75
	6.11	Use of Proceeds		76
	6.12	Covenant to Guarantee Obligations and Give Security		76
	6.13	Compliance with Environmental Laws		77
	6.14	Further Assurances		77
	6.15	Production Proceeds		78
ARTICLE VII.		NEGATIVE COVENANTS		78
	7.01	Liens		78
	7.02	Investments		80
	7.03	Indebtedness		81
	7.04	Fundamental Changes		82
	7.05	Dispositions		83
	7.06	Restricted Payments		84
	7.07	Change in Nature of Business		84
	7.08	Transactions with Affiliates		84
	7.09	Burdensome Agreements		85
	7.10	Use of Proceeds		85
	7.11	Financial Covenants		85
	7.12	Hedge Transactions		85
ARTICLE VIII.		EVENTS OF DEFAULT AND REMEDIES		86
	8.01	Events of Default		86
	8.02	Remedies Upon Event of Default		88
	8.03	Application of Funds		88
ARTICLE IX.		ADMINISTRATIVE AGENT		89
	9.01	Appointment and Authority		89

ii

Section			Page
	9.02	Rights as a Lender		90
	9.03	Exculpatory Provisions		90
	9.04	Reliance by Administrative Agent		91
	9.05	Delegation of Duties		91
	9.06	Resignation of Administrative Agent		91
	9.07	Non-Reliance on Administrative Agent and Other Lenders		92
	9.08	No Other Duties, Etc.		92
	9.09	Administrative Agent May File Proofs of Claim		93
	9.10	Collateral and Guaranty Matters		93
ARTICLE X.		MISCELLANEOUS		94
	10.01	Amendments, Etc.		94
	10.02	Notices; Effectiveness; Electronic Communication		95
	10.03	No Waiver; Cumulative Remedies		97
	10.04	Expenses; Indemnity; Damage Waiver		97
	10.05	Payments Set Aside		99
	10.06	Successors and Assigns		100
	10.07	Treatment of Certain Information; Confidentiality		104
	10.08	Right of Setoff		105
	10.09	Interest Rate Limitation		105
	10.10	Counterparts; Integration; Effectiveness		106
	10.11	Survival of Representations and Warranties		106
	10.12	Severability		106
	10.13	Replacement of Lenders		106
	10.14	Governing Law; Jurisdiction; Etc.		107
	10.15	Waiver of Jury Trial		108
	10.16	No Advisory or Fiduciary Responsibility		108
	10.17	USA PATRIOT Act Notice		109

iii

SCHEDULES
	2.01	Commitments and Applicable Percentages
	5.03	Governmental Authorizations
	5.05	Supplement to Interim Financial Statements
	5.06	Litigation
	5.09	Environmental Matters
	5.13	Subsidiaries; Other Equity Investments and Loan Parties
	5.22	Sale of Production
	7.01	Existing Liens
	7.03	Existing Indebtedness
	10.02	Administrative Agent’s Office; Certain Addresses for Notices
	10.06	Processing and Recordation Fees
EXHIBITS
		Form of
	A	Committed Loan Notice
	B	Swing Line Notice
	C	Note
	D	Compliance Certificate
	E	Assignment and Assumption
	F	Guaranty
	G	Opinion of Counsel to the Loan Parties
	H	Pledge and Security Agreement
	I	Mortgages

iv

CREDIT AGREEMENT

     This CREDIT AGREEMENT (“Agreement”) is entered into as of November 21, 2006 among RIATA ENERGY, INC., a Texas corporation (d/b/a SandRidge Energy, Inc.) (the “Borrower”), each LENDER from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.

PRELIMINARY STATEMENTS:

     Capitalized terms used but not defined in these Preliminary Statements shall have respective meanings set forth for such terms in Section 1.01 hereof.

     Pursuant to the Purchase and Sale Agreement dated November 21, 2006 (the “Acquisition Agreement”) by and among            SandRidge Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Borrower (“Buyer”) , American Real Estate Partners, L.P., a Delaware limited partnership, American Real Estate Holdings Limited Partnership, a Delaware limited partnership, AREP Oil & Gas Holdings LLC, a Delaware limited liability company, AREP O & G Holdings LLC, a Delaware limited liability company (collectively, the “Seller”) and NEG Oil & Gas LLC, a Delaware limited liability company (the “Target”) , Buyer has agreed to acquire (the “Acquisition”) all of the membership interests of Target for not more than $1,269.0 million in cash, plus additional consideration in the form of common equity of the Borrower.

     The Borrower intends to finance the Acquisition, the costs and expenses related to the Transaction, the repayment of certain existing indebtedness of the Borrower and the Target and the Borrower’s and its Subsidiaries’ ongoing working capital and other general corporate purposes after consummation of the Acquisition from the following sources: (a) at least $500.0 million in cash proceeds to be received from the issuance and sale of convertible preferred equity (the “Preferred Stock”), (b) at least $244.0 million of common equity of the Target currently held by the Seller to be rolled over (directly or indirectly) into common equity of the Borrower, (c) the revolving senior secured credit facility provided under this Agreement, of which not more than $150.0 million may be drawn on the Closing Date of the Transaction, and (d) up to $850.0 million of senior unsecured loans under a bridge facility (the “Bridge Facility”) made available to the Borrower as interim financing.

     The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.

     In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS

     1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

     “Acquisition” has the meaning specified in the Preliminary Statements.

1

     “Acquisition Agreement” has the meaning specified in the Preliminary Statements.

     “Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

     “Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.

     “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

     “Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

     “Aggregate Commitments” means the Commitments of all the Lenders.

     “Agreement” means this Credit Agreement.

     “Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

     “Applicable Rate” means, at any date, the applicable percentage per annum, set forth below, based upon the Borrowing Base Utilization Ratio at such date:

		Applicable Rate
			Eurodollar
			Rate +
	Borrowing Base	Base Rate	Letters of	Commitment
Level	Utilization Ratio	+	Credit	Fee
1	³ 90%	1.000%	2.000%	0.375%
2	³ 75% and < 90%	0.750%	1.750%	0.375%
3	³ 50% and < 75%	0.500%	1.500%	0.250%
4	< 50%	0.250%	1.250%	0.250%

2

     “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

     “Arranger” means Banc of America Securities LLC, in its capacity as sole lead arranger and sole book manager in respect of this Agreement.

     “Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

     “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.06(b), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

     “Attributed Value” means, with respect to any Engineered Oil and Gas Property, the portion of the Borrowing Base attributed by the Administrative Agent to such Engineered Oil and Gas Property for purposes of the most recent determination of the Borrowing Base, based upon the discounted present value of the estimated net cash flow to be realized from the production of Hydrocarbons from such Engineered Oil and Gas Property.

     “Attributable Indebtedness” means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.

     “Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2005, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.

     “Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.07, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.

     “Available Borrowing Base” means, at any time of determination, the remainder of (a) the lesser of the Borrowing Base or the Aggregate Commitments, minus (b) the Total Outstandings.

     “Bank of America” means Bank of America, N.A. and its successors.

     “Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate

3

set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

     “Base Rate Committed Loan” means a Committed Loan that is a Base Rate Loan.

     “Base Rate Loan” means a Loan that bears interest based on the Base Rate.

     “Borrower” has the meaning specified in the introductory paragraph hereto.

     “Borrower Existing Credit Agreement” means that certain First Amended and Restated Master Credit Agreement dated as of January 12, 2006, among the Borrower (under its former name of Riata Energy, Inc.), Bank of America, N.A. and certain subsidiaries of Borrower from time to time party thereto as guarantors,

     “Borrower Materials” has the meaning specified in Section 6.02.

     “Borrowing” means a Committed Borrowing or a Swing Line Borrowing, as the context may require.

     “Borrowing Base” means, on any date, either the amount provided for in Section 2.05(a) or the amount determined in accordance with the provisions of Section 2.05(b); provided, however, that in no event shall the Borrowing Base ever exceed the Aggregate Commitments.

     “Borrowing Base Deficiency” means, as of any date, the amount, if any, by which the Total Outstandings on such date exceeds the Borrowing Base in effect on such date.

     “Borrowing Base Utilization Ratio” means at any time the ratio (expressed as a percentage) determined by taking the Total Outstandings and dividing by the Borrowing Base.

     “Bridge Facility” has the meaning specified in the Preliminary Statements.

     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

     “Cash Collateralize” has the meaning specified in Section 2.03(g).

     “Cash Equivalents” means any of the following types of Investments, to the extent owned by the Borrower or any of its Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents):

     (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having

4

maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

     (b) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 90 days from the date of acquisition thereof;

     (c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and

     (d) Investments, classified in accordance with GAAP as current assets of the Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

     “Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Oil and Gas Property of the Borrower or any of its Subsidiaries having a fair market value in excess of $500,000.

     “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

     “CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

     “CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

     “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

     “Change of Control” means an event or series of events by which:

5

     (a) at any time prior to the creation of a Public Market, the Ward/Mitchell Group shall cease to own and control legally and beneficially (free and clear of all Liens), either directly or indirectly, equity securities in the Borrower representing more than 30% of the combined voting power of all of equity securities entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that the Ward/Mitchell Group has the right to acquire pursuant to any option right (as defined in clause (b) below)); or

     (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) other than the Ward/Mitchell Group becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of more than a Control Percentage of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such “person” or “group” has the right to acquire pursuant to any option right); for this purpose, “Control Percentage” means (i) prior to the creation of the Public Market, the percentage of which the Ward/Mitchell Group is the beneficial owner (determined as provided above) and (ii) at any time after the creation of a Public Market, the greater of 30% and the percentage in (i); or

     (c) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).

     “Citi L/Cs” means letters of credit outstanding under the Target Existing Credit Agreements.

     “Citi Payoff Documents” means documents executed and delivered in connection with the termination of the Target Existing Credit Agreements which shall be satisfactory in form and substance to the Administrative Agent.

6

     “Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.

     “Code” means the Internal Revenue Code of 1986.

     “Collateral” means all of the “Collateral” and “Mortgaged Property” referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.

     “Collateral Documents” means, collectively, the Security Agreement, the Mortgages, each of the mortgages, collateral assignments, Security Agreement Supplements, security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent pursuant to the Security Agreement or Section 6.12, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

     “Commitment” means, as to each Lender, its obligation to (a) make Committed Loans to the Borrower pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

     “Commitment Letter” means the letter agreement so denominated dated November 20, 2006 among the Borrower, the Administrative Agent, the Arranger and the other parties thereto.

     “Committed Borrowing” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.

     “Committed Loan” has the meaning specified in Section 2.01.

     “Committed Loan Notice” means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

     “Compliance Certificate” means a certificate substantially in the form of Exhibit D.

     “Consolidated” refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person’s Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries.

7

     “Consolidated Current Assets” means, for any period, the aggregate amount of all assets of Borrower and its Consolidated Subsidiaries which would be properly classified as current assets in accordance with GAAP plus any Available Borrowing Base, but excluding any unrealized assets resulting from compliance with the Financial Accounting Standards Board’s Statement 133 concerning mark-to-market requirements on hedging transactions.

     “Consolidated Current Liabilities” means, for any period, the aggregate amount of all liabilities of Borrower and its Consolidated Subsidiaries which would be properly classified as current liabilities in accordance with GAAP, but excluding current maturities under this Agreement, all amounts outstanding pursuant to the Bridge Facility and any unrealized liabilities resulting from compliance with the Financial Accounting Standards Board’s Statement 133 concerning mark-to-market requirements on hedging transactions.

     “Consolidated Current Ratio” means, as of any date of determination, the ratio of (a) Consolidated Current Assets as of such date to (b) Consolidated Current Liabilities as of such date.

     “Consolidated EBITDAX” means for any period, the Consolidated Net Income of Borrower for such period; plus each of the following (without duplication) determined for Borrower and its Consolidated Subsidiaries on a Consolidated basis for such period: (a) any provision for (or less any benefit from) income or franchise taxes included in determining Consolidated Net Income; (b) any interest expense deducted in determining Consolidated Net Income; (c) any depreciation, depletion, amortization or exploration expense deducted in determining Consolidated Net Income; (d) any non-cash loss on change in fair value of derivative instruments deducted in determining Consolidated Net Income; and (e) any other non-cash charge, expense or loss deducted in determining Consolidated Net Income; and minus each of the following (without duplication) determined for Borrower and its Consolidated Subsidiaries on a Consolidated basis for such period, to the extent included in determining such Consolidated Net Income for such period: (a) any non-cash gain on change in fair value of derivative instruments; (b) any interest income included in determining Consolidated Net Income and (c) any other non-cash income or gains; provided however, that in determining Consolidated Net Income for the purposes of this definition for any period in which Borrower or any of its Consolidated Subsidiaries has acquired or acquires additional Consolidated Subsidiaries (whether by purchase, merger or otherwise) or has acquired or disposed of or acquires or disposes of producing Oil and Gas Properties, (1) the Consolidated Net Income of such acquired Consolidated Subsidiaries shall be included in such calculation on a pro forma basis as if they had been owned by Borrower and its Consolidated Subsidiaries throughout such period, (2) the revenues attributable to the oil and gas production from such acquired Oil and Gas Properties during such period, less the direct operating expenses and severance and ad valorem taxes incurred with respect to such properties during such period, shall be included in such calculation on a pro forma basis as if they had been owned by Borrower and its Consolidated Subsidiaries throughout such period, and (3) the revenues attributable to the oil and gas production from producing Oil and Gas Properties disposed of during such period, less the direct operating expenses and severance and ad valorem taxes incurred with respect to such properties during such period, shall be deducted in such calculation on a pro forma basis as if they had not been owned by Borrower and its Consolidated Subsidiaries throughout such period. Pro forma adjustments made in connection with Subsidiaries or Oil and Gas Properties acquired or disposed

8

of shall be consistent with Article 11 of Regulation S-X and certified by the Borrower’s chief financial officer.

     “Consolidated Fixed Charges” means, for any period, the sum of (a) Consolidated Interest Charges for such period, (b) the aggregate amount of scheduled principal payments made during such period in respect of Long-Term Indebtedness of the Borrower and its Consolidated Subsidiaries (except payments made by the Borrower or any Consolidated Subsidiary to the Borrower or any Consolidated Subsidiary), and (c) the aggregate amount of principal payments (except scheduled principal payments) made during such period in respect of Long-Term Indebtedness of the Borrower and its Consolidated Subsidiaries (other than the Loans), but in the case of any principal payment other than scheduled principal payments, only to the extent that such payment reduced any scheduled principal payments that would have become due within one year after the date of such payment.

     “Consolidated Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter, the ratio of (a) Consolidated EBITDAX for the period of the four prior fiscal quarters ending on such date to (b) Consolidated Fixed Charges for such period.

     “Consolidated Funded Indebtedness” means, as of any date of determination, for the Borrower and its Consolidated Subsidiaries on a Consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business), (d) Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations, (e) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (d) above of Persons other than the Borrower or any Consolidated Subsidiary, and (f) all Indebtedness of the types referred to in clauses (a) through (e) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which the Borrower or a Consolidated Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to the Borrower or such Consolidated Subsidiary.

     “Consolidated Interest Charges” means, for any period, for the Borrower and its Consolidated Subsidiaries on a Consolidated basis, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses of the Borrower and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP (but excluding amortization of debt discount and expense in connection with the Transaction), (b) to the extent not reflected in (a), plus the net amount payable under Swap Contracts in respect of interest rates (or minus the net amount receivable under Swap Contracts in respect of interest rates) plus (c) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period under capital leases that is treated as interest in accordance with GAAP.

9

     “Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDAX for the period of the four fiscal quarters most recently ended.

     “Consolidated Net Income” means, for any period, the net income (or loss) of Borrower and its Consolidated Subsidiaries for such period determined in accordance with GAAP, provided that the following shall be excluded in calculating Consolidated Net Income and Consolidated EBITDAX: (i) any extraordinary items of gain or loss, (ii) any gain or loss from the sale of assets other than in the ordinary course of business, (iii) any non-cash income, gains, losses or charges resulting from the requirements of SFAS 133 or 143 and (iv) any professional fees related to the Transaction.

     “Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

     “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

     “Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

     “Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

     “Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

     “Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.

     “Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such failure has been cured, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute or

10

unless such failure has been cured, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

     “Determination Date” has the meaning specified in Section 2.05(b).

     “Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith. The issuance of Equity Interests by any Subsidiary to any Person other than the Borrower or a wholly-owned Subsidiary shall be deemed a Disposition by the Borrower of its direct or indirect Equity Interest in such Subsidiary to the extent of the resulting dilution.

     “Dollar” and “$” mean lawful money of the United States.

     “Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

     “Election Notice” has the meaning specified in Section 2.05(c).

     “Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)).

     “Engineered Oil and Gas Property” means any Oil and Gas Property listed in the Initial Engineering Report or any subsequent Engineering Report.

     “Engineering Report” means the Initial Engineering Report and each engineering report delivered pursuant to Section 6.01. To the extent that two or more engineering firms prepare reports as of the same date for portions of the properties required to be reported on, such reports will collectively constitute a single “Engineering Report” for the purposes hereof.

     “Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

     “Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

11

     “Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

     “Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

     “Equity Issuance” means the issuance of the Preferred Stock.

     “ERISA” means the Employee Retirement Income Security Act of 1974.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

     “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

     “Eurodollar Rate” means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such

12

Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

     “Eurodollar Rate Loan” means a Committed Loan that bears interest at a rate based on the Eurodollar Rate.

     “Event of Default” has the meaning specified in Section 8.01.

     “Excluded Personal Property” has the meaning specified in the Security Agreement.

     “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a).

     “Existing Credit Agreements” mean collectively the Borrower Existing Credit Agreement and the Target Existing Credit Agreements.

     “Existing Letters of Credit” means the letter of credit number 3085220 in the amount of $2,990,000.00 issued on November 7, 2006 for the benefit of Indemnity Insurance Company of North America and expiring on October 31, 2007.

     “Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

     “Fee Letter” means the letter agreement so denominated dated November 20, 2006 among the Borrower, the Administrative Agent, the Arranger and the other parties thereto.

13

     “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

     “FRB” means the Board of Governors of the Federal Reserve System of the United States.

     “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

     “GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

     “Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

     “Granting Lender” has the meaning specified in Section 10.06(h).

     “Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as

14

determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

     “Guarantors” means, collectively, (i) NEG Oil & Gas LLC, ROC Gas Company, National Onshore LP, National Offshore LP, NEG Operating LLC, Lariat Compression Company, Alsate Management and Investment Company, Integra Energy, L.L.C., Petrosource Energy Company, L.P., Petrosource Production Company, L.P. and SandRidge Holdings, Inc. and (ii) each Person which becomes a Guarantor after the Closing Date pursuant to Section 6.12.

     “Guaranty” means the Guaranty made by the Guarantors in favor of the Administrative Agent and the Lenders, substantially in the form of Exhibit F.

     “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

     “Hedge Transaction” means any commodity, interest rate, currency or other swap, option, collar, futures contract or other contract pursuant to which a Person hedges risks related to commodity prices, interest rates, currency exchange rates, securities prices or financial market conditions. Hedge Transactions expressly include Oil and Gas Hedge Transactions.

     “Hydrocarbons” means oil, gas, casinghead gas, drip gasolines, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith, and all products, by-products and all other substances derived therefrom or the processing thereof, and all other minerals and substances, including, but not limited to, sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium, and any and all other minerals, ores, or substances of value, and the products and proceeds therefrom, including, without limitation, all gas resulting from the insitu combustion of coal or lignite.

     “Immaterial Title Deficiencies” means, with respect to specified Proved Reserves, defects or clouds on title, discrepancies in reported net revenue and working interest ownership percentages, inaccuracies of representations and warranties in Sections 5.21 and 5.22 that are qualified by reference to this term, and other Liens, defects, discrepancies and similar matters, including without limitation rights of participants in the Well Participation Program or any similar predecessor or successor program, which do not, in the aggregate, reduce the Attributed Value of all Proved Reserves of the Borrower by more than four percent (4%) of Attributed Value of all such Proved Reserves.

     “Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

     (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

15

     (b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

     (c) net obligations of such Person under any Swap Contract;

     (d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 90 days after the date on which such trade account payable was created);

     (e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

     (f) capital leases and Synthetic Lease Obligations;

     (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person (other than the Preferred Stock), valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

     (h) all Guarantees of such Person in respect of any of the foregoing.

     For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

     “Indemnified Taxes” means Taxes other than Excluded Taxes.

     “Indemnitees” has the meaning specified in Section 10.04(b).

     “Information” has the meaning specified in Section 10.07.

     “Initial Engineering Report” means the engineering report concerning Oil and Gas Properties of Loan Parties dated as of June 30, 2006 prepared by Netherland, Sewell & Associates and DeGolyer & MacNaughton.

     “Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest

16

Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each March, June, September and December and the Maturity Date.

     “Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Loan Notice; provided that:

     (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

     (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

     (iii) no Interest Period shall extend beyond the Maturity Date.

     “Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Borrower’s internal controls over financial reporting, in each case as described in the Securities Laws.

     “Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

     “IRS” means the United States Internal Revenue Service.

     “ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

     “Issuer Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor the L/C Issuer and relating to such Letter of Credit.

     “Lariat” means Lariat Services, Inc., a Texas corporation and a wholly-owned Subsidiary of the Borrower.

17

     “Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, licenses, authorizations and permits of, and agreements with, any Governmental Authority.

     “L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.

     “L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.

     “L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

     “L/C Issuer” means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.

     “L/C Obligations” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.07. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

     “Lead Arranger” means Banc of America Securities LLC.

     “Lender” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender.

     “Lender Counterparty” means any counterparty under a Swap Contract that was a Lender (or an Affiliate of a Lender) at the time such Swap Contract was entered into.

     “Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

     “Letter of Credit” means any letter of credit issued hereunder and shall include the Existing Letters of Credit.

     “Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer. In the event of any inconsistency between the provisions of any Letter of Credit Application and the provisions of this Agreement, the provisions of this Agreement shall prevail.

18

     “Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).

     “Letter of Credit Fee” has the meaning specified in Section 2.03(i).

     “Letter of Credit Sublimit” means an amount equal to $50,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments.

     “Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

     “Loan” means an extension of credit by a Lender to the Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.

     “Loan Documents” means this Agreement, each Note, each Issuer Document, the Fee Letter, the Guaranty and the Collateral Documents.

     “Loan Parties” means, collectively, the Borrower and each Guarantor.

     “Long-Term Indebtedness” means any Indebtedness that, in accordance with GAAP, constitutes (or, when incurred, constituted) a long-term liability.

     “Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), results of operations or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of (i) the rights and remedies of the Administrative Agent or any Lender under any Loan Document or (ii) the ability of the Loan Parties to perform their obligations under the Loan Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

     “Maturity Date” means November 21, 2011; provided, however, that if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.

     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

     “Mortgage” has the meaning specified in Section 4.01(a)(iv).

     “Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

     “Net Cash Proceeds” means:

19

(a) with respect to any Disposition by the Borrower or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by the Borrower or such Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith and (D) the Swap Termination Value, if any, associated with such transaction; provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds; and

(b) with respect to the incurrence or issuance of any Indebtedness by the Borrower or any of its Subsidiaries, the excess of (i) the sum of the cash and Cash Equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by the Borrower or such Subsidiary in connection therewith.

     “Note” means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C.

     “Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit or any Swap Contract with a Lender Counterparty, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

     “Oil and Gas Business” means the business of acquiring, exploring, or developing and operating Oil and Gas Properties and the production, marketing, processing and transporting of Hydrocarbons therefrom.

     “Oil and Gas Hedge Transaction” means a Hedge Transaction pursuant to which any Person hedges the price to be received by it for future production of Hydrocarbons.

     “Oil and Gas Properties” means all oil, gas and/or mineral leases, oil, gas or mineral properties, mineral servitudes and/or mineral rights of any kind (including, without limitation, mineral fee interests, lease interests, farmout interests, overriding royalty and royalty interests, net profits interests, oil payment interests, production payment interests and other types of mineral interests), and all oil and gas gathering, treating, storage, processing and handling assets.

20

     “Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

     “Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

     “Outstanding Amount” means (i) with respect to Committed Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.

     “Participant” has the meaning specified in Section 10.06(d).

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “PCAOB” means the Public Company Accounting Oversight Board.

     “Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

     “Permitted Encumbrances” has the meaning specified in the Mortgages.

     “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

     “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

     “Platform” has the meaning specified in Section 6.02.

21

     “Pledged Equity” has the meaning specified in the Security Agreement.

     “Preferred Stock” has the meaning set forth in the Preliminary Statements.

     “Proved Reserves” means, collectively, proved developed nonproducing reserves, proved developed producing reserves and proved undeveloped reserves.

     “Public Market” shall exist if (a) a Public Offering has been consummated and (b) any Equity Interests of the Borrower have been distributed by means of an effective registration statement under the Securities Act of 1933.

     “Public Offering” means a public offering of the Equity Interests of the Borrower pursuant to an effective registration statement under the Securities Act of 1933.

     “PV10 Pricing” means means the net present value, discounted at 10% per annum, of the future net revenues expected to accrue to the Borrower’s and its Subsidiaries’ collective interests in Proved Reserves expected to be produced from Oil and Gas Properties during the remaining expected economic lives of such reserves made in accordance with the then existing standards of the Society of Petroleum Engineers (with appropriate adjustments made for hedging operations) as follows:

     (a) for anticipated sales of oil and gas that are fixed in a firm fixed price sales contract with an investment grade counterparty or a counterparty guaranteed, or for whom a letter of credit has been issued, by an investment grade party (or another counterparty approved by Administrative Agent), the fixed price or prices provided for in such sales contract during the term thereof; and

     (b) for anticipated sales of oil and gas, if such sales are not under a sales contract that is described in paragraph (a) above, for the date of calculation (or, if such date is not a Business Day, for the first Business Day thereafter), adjusted in each case for historical location and quality differentials during the twelve months preceding such date of determination:

     (i) for the remainder of the current calendar year (whether a whole or partial year), the average NYMEX Pricing for the remaining contracts in the current calendar year,

     (ii) for each of the succeeding three complete calendar years, the average NYMEX Pricing for the twelve months in each such calendar year, and

     (iii) for the succeeding fourth complete calendar year, and for each calendar year thereafter, the average NYMEX Pricing for the twelve months in such fourth calendar year.

     “Register” has the meaning specified in Section 10.06(c).

     “Registered Public Accounting Firm” has the meaning specified in the Securities Laws and shall be independent of the Borrower as prescribed by the Securities Laws.

22

     “Related Documents” means the Acquisition Agreement and the documentation for the Equity Issuance.

     “Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

     “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

     “Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

     “Required Lenders” means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

     “Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and, solely for purposes of notices given pursuant to Article II, any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

     “Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower’s stockholders, partners or members (or the equivalent Person thereof).

     “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

     “Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

     “Scheduled Determination” has the meaning specified in Section 2.05(b)(i).

23

     “SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

     “Secured Parties” means, collectively, the Administrative Agent, the Lenders, the L/C Issuer, the Lender Counterparties, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

     “Securities Laws” means the Securities Act of 1933 and regulations thereunder, the Securities Exchange Act of 1934 and regulations thereunder, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.

     “Security Agreement” has the meaning specified in Section 4.01(a)(iii).

     “Security Agreement Supplement” has the meaning specified in the Security Agreement.

     “Seller” has the meaning specified in the Preliminary Statements.

     “Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

     “SPC” has the meaning specified in Section 10.06(h).

     “Special Determination” has the meaning specified in Section 2.05(b)(ii).

     “Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

24

     “Super-Majority Lenders” means, as of any date of determination, Lenders having 75% or more of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding in the aggregate 75% or more of the Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Super-Majority Lenders.

     “Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

     “Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

     “Swing Line” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.

     “Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

     “Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

     “Swing Line Loan” has the meaning specified in Section 2.04(a).

25

     “Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

     “Swing Line Sublimit” means an amount equal to the lesser of (a) $25,000,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.

     “Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

     “Target” has the meaning specified in the Preliminary Statements.

     “Target Existing Credit Agreements” means (i) that certain Credit Agreement dated as of December 20, 2005, among the Target (under its former name of AREP OIL & GAS LLC), Citicorp USA, Inc., as Administrative Agent, Bear Stearns Corporate Lending Inc., as the Syndication Agent and certain financial institutions from time to time party thereto as lenders and (ii) that certain Amended and Restated Credit Agreement, dated as of December 20, 2005, by and among NEG Operating LLC, a Delaware limited liability company, as borrower, NEG Oil & Gas Sub LLC (as assignee of Target), a Delaware limited liability company, as lender and administrative agent, and Citicorp USA, Inc., as Collateral Agent.

     “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

     “Threshold Amount” means $2,500,000.

     Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.

     “Transaction” means, collectively, the Acquisition, the Equity Issuance, the entering into and funding of the senior credit facility under this Agreement, the entering into and funding of the Bridge Facility, the refinancing of certain outstanding Indebtedness of the Borrower and the Target under the Existing Credit Agreements, and all related transactions and the payment of the fees and expenses incurred in connection with the consummation of the foregoing.

     “Type” means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

     “UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

26

     “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

     “United States” and “U.S.” mean the United States of America.

     “Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

     “Well Participation Program” means that the Well Participation Program effective as of June 8, 2006 by and among the Borrower and certain executive officers of the Borrower, as in effect on the Closing Date.

     “Ward/Mitchell Group” means (i) each of Tom L. Ward (“Ward”) and N. Malone Mitchell III (“Mitchell”); (ii) the wife of either of them; (iii) a lineal descendant of either of them; (iv) the estate of either of them; (v) any trust of which at least one of the trustees is Ward or Mitchell, or the principal beneficiaries of which are any one or more of the Persons in (i)-(iv); (vi) any Person which is Controlled by any one or more of the persons in (i)-(v); and (vii) any group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of which each of Ward and Mitchell is a member.

     1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

     (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning

27

and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

     (b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

     (c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

     1.03 Accounting Terms. (a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

     (b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

     1.04 Petroleum Terms.

     As used herein, the terms “proved reserves,” “proved developed reserves,” “proved developed producing reserves,” “proved developed nonproducing reserves,” and “proved undeveloped reserves” have the meaning given such terms from time to time and at the time in question by the Society of Petroleum Engineers of the American Institute of Mining Engineers.

     1.05 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

     1.06 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Central time (daylight or standard, as applicable).

     1.07 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in

28

effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

ARTICLE II.
THE COMMITMENTS AND CREDIT EXTENSIONS

     2.01 Committed Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “Committed Loan”) to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Commitment; provided, however, that after giving effect to any Committed Borrowing, (i) the Total Outstandings shall not exceed the lesser of the Aggregate Commitments and the Borrowing Base, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment. Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.06, and reborrow under this Section 2.01. Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.

     2.02 Borrowings, Conversions and Continuations of Committed Loans.

     (a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Committed Loans, and (ii) on the requested date of any Borrowing of Base Rate Committed Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Sections 2.03(c), each Borrowing of or conversion to Base Rate Committed Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a

29

conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.

     (b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided, however, that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrower as provided above.

     (c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.

     (d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

     (e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans.

     2.03 Letters of Credit.

     (a) The Letter of Credit Commitment.

     (i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Lenders set forth in this Section 2.03, (1)

30

from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrower, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the lesser of the Aggregate Commitments and the Borrowing Base, (y) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof.

     (ii) The L/C Issuer shall not issue any Letter of Credit, if:

     (A) subject to Section 2.03(b)(iii), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

     (B) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date.

     (iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:

     (A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or

31

expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

     (B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;

     (C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is in an initial stated amount less than $100,000, in the case of a commercial Letter of Credit, or $50,000, in the case of a standby Letter of Credit; or

     (D) such Letter of Credit is to be denominated in a currency other than Dollars;

     (iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof.

     (v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

     (vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

     (b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension and Auto-Reinstatement Letters of Credit.

     (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the

32

full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

     (ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit.

     (iii) If the Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is seven Business Days before the Non-Extension Notice Date (1) from the Administrative Agent

33

that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.

     (iv) If the Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that permits the automatic reinstatement of all or a portion of the stated amount thereof after any drawing thereunder (each, an “Auto-Reinstatement Letter of Credit”). Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer to permit such reinstatement. Once an Auto-Reinstatement Letter of Credit has been issued, except as provided in the following sentence, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to reinstate all or a portion of the stated amount thereof in accordance with the provisions of such Letter of Credit. Notwithstanding the foregoing, if such Auto-Reinstatement Letter of Credit permits the L/C Issuer to decline to reinstate all or any portion of the stated amount thereof after a drawing thereunder by giving notice of such non-reinstatement within a specified number of days after such drawing (the “Non-Reinstatement Deadline”), the L/C Issuer shall not permit such reinstatement if it has received a notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Reinstatement Deadline (A) from the Administrative Agent that the Required Lenders have elected not to permit such reinstatement or (B) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied (treating such reinstatement as an L/C Credit Extension for purposes of this clause) and, in each case, directing the L/C Issuer not to permit such reinstatement.

     (v) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.

     (c) Drawings and Reimbursements; Funding of Participations.

     (i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an “Honor Date”), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Lender’s Applicable Percentage thereof. In such event, the Borrower shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Commitments

34

and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

     (ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent’s Office in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Committed Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer.

     (iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.

     (iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Percentage of such amount shall be solely for the account of the L/C Issuer.

     (v) Each Lender’s obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Committed Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.

     (vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the

35

foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.

     (d) Repayment of Participations.

     (i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Administrative Agent.

     (ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

     (e) Obligations Absolute. The obligation of the Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

     (i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;

     (ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection

36

with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

     (iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

     (iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or

     (v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any Subsidiary.

     The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will immediately notify the L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.

     (f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.03(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to

37

consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

     (g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrower shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.03, Section 2.06 and Section 8.02(c), “Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America.

     (h) Applicability of ISP and UCP. Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance shall apply to each commercial Letter of Credit.

     (i) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage a Letter of Credit fee (the “Letter of Credit Fee”) for each Letter of Credit equal to the Applicable Rate times the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.07. Letter of Credit Fees shall be (i) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the

38

Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.

     (j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The Borrower shall pay directly to the L/C Issuer for its own account a fronting fee with respect to each Letter of Credit, at the rate of 0.125% per annum, (i) with respect to each commercial Letter of Credit, computed on the amount of such Letter of Credit and payable upon the issuance thereof, (ii) with respect to any amendment of a commercial Letter of Credit increasing the amount of such Letter of Credit, computed on the amount of such increase, and payable upon the effectiveness of such amendment, and (iii) with respect to each standby Letter of Credit, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears, and due and payable on the first Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.07. In addition, the Borrower shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

     (k) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

     2.04 Swing Line Loans.

     (a) The Swing Line. Subject to the terms and conditions set forth herein, the Swing Line Lender agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.04, to make loans (each such loan, a “Swing Line Loan”) to the Borrower from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding Amount of Committed Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Commitment; provided, however, that after giving effect to any Swing Line Loan, (i) the Total Outstandings shall not exceed the lesser of the Aggregate Commitments and the Borrowing Base, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and provided, further, that the Borrower shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.04, prepay under Section 2.06, and reborrow under this Section 2.04. Each Swing Line Loan shall be a Base Rate Loan. Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk

39

participation in such Swing Line Loan in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Swing Line Loan.

     (b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the Borrower’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrower at its office by crediting the account of the Borrower on the books of the Swing Line Lender in immediately available funds.

     (c) Refinancing of Swing Line Loans.

     (i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Lender make a Base Rate Committed Loan in an amount equal to such Lender’s Applicable Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02. The Swing Line Lender shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Lender shall make an amount equal to its Applicable Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agent’s Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Lender that so makes funds available shall be deemed to have made a Base Rate Committed Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.

40

     (ii) If for any reason any Swing Line Loan cannot be refinanced by such a Committed Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Committed Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Lenders fund its risk participation in the relevant Swing Line Loan and each Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.

     (iii) If any Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

     (iv) Each Lender’s obligation to make Committed Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Committed Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.02. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to repay Swing Line Loans, together with interest as provided herein.

     (d) Repayment of Participations.

     (i) At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Swing Line Lender.

     (ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any

41

settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay to the Swing Line Lender its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

     (e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Lender funds its Base Rate Committed Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of the Swing Line Lender.

     (f) Payments Directly to Swing Line Lender. The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.

     2.05 Borrowing Base

     (a) Initial Borrowing Base. During the period from the Closing Date until the next Determination Date the Borrowing Base shall be $300,000,000.

     (b) Subsequent Determinations of the Borrowing Base. Upon each designation of a new Borrowing Base on a Scheduled Determination or a Special Determination, the Administrative Agent shall notify the Borrower of the new Borrowing Base which designation shall take effect immediately on the date such notice is sent (each such date, a “Determination Date”) and shall remain in effect until, but not including, the next Determination Date. The Borrowing Base shall be determined in accordance with the following methodology:

          (i) By April 1 and October 1 of each year beginning April 1, 2007, the Borrower shall furnish to the Administrative Agent (with sufficient copies for each Lender of any information provided on paper, computer disks, or other tangible media) the Engineering Report then required under Section 6.01(d) or (e) together with all information, reports and data that the Administrative Agent requests concerning the businesses and properties of the Borrower and its Subsidiaries (including their Oil and Gas Properties and the reserves and production relating thereto). As promptly as reasonably practicable after receiving such Engineering Report, information, reports and data, the Administrative Agent shall propose a Borrowing Base following the procedures set forth in Section 2.05(b)(iii) below. Each such determination of the Borrowing Base is herein called a “Scheduled Determination”. If the Borrower does not furnish all such information, reports and data by the date specified in the first sentence of this Section, the Administrative Agent may nonetheless designate the Borrowing Base at any amount that Required Lenders determine (or, in the case of an increase, that all the Lenders determine) and the Borrowing Base may similarly be designated from time to time thereafter until each Lender receives all such information, reports and data, whereupon the Lenders shall designate a new Borrowing Base as described above.

          (ii) In addition to Scheduled Determinations, the Borrower may request the Lenders to make additional determinations of the Borrowing Base (x) twice during the twelve

42

months following the Closing Date and (y) thereafter once during each twelve month interval between Scheduled Determinations, and the Administrative Agent also may (and at the request of Required Lenders must) request the Lenders to make an additional determination of the Borrowing Base (x) once during the twelve months following the Closing Date and (y) thereafter once during each twelve month interval between Scheduled Determinations. The Administrative Agent shall give notice to the Borrower of any such request made by the Administrative Agent to the Lenders. The Borrower shall submit any such request made by Borrower to Administrative Agent and each Lender and, at the time of such request, the Borrower shall (A) deliver to the Administrative Agent and each Lender an updated Engineering Report prepared either by the Borrower or by independent petroleum engineers, and (B) notify the Administrative Agent and each Lender of the Borrowing Base requested by the Borrower. Any determination of the Borrowing Base made pursuant to a request under this clause (ii) is herein called a “Special Determination”. Any Special Determination shall be made by Lenders in accordance with the procedures set forth in Section 2.05(b)(iii), provided, however, that the Borrower shall not be required to deliver an updated Engineering Report to the Administrative Agent and Lenders in connection with any Special Determination requested by the Administrative Agent.

          (iii) The Administrative Agent shall (within 30 days after receiving the information, if any, required for a Scheduled Determination or a Special Determination) propose to the Lenders a specific Borrowing Base amount for the Lenders to approve or disapprove. Within 15 days thereafter each Lender shall respond to the Administrative Agent in writing, either approving such proposed amount or setting out a reasonable alternative amount (based on the criteria described in clause (v) below), and any Lender’s failure to respond to such proposal within such time will be deemed a disapproval of the proposed amount. After receiving such responses or deemed responses from all Lenders, the Administrative Agent will designate the new Borrowing Base at the highest amount approved (i) by all Lenders, in the case of an increase to the then current Borrowing Base, or (ii) at the highest amount approved by Required Lenders, in the case of a reduction to or continuation of the then current Borrowing Base.

          (iv) In addition to the foregoing, the Administrative Agent and Lenders shall also have the right to adjust the Borrowing Base (which shall not count as a Special Determination but which shall otherwise be done in accordance with the procedures set forth in Section 2.05(b)(iii)) if the Borrower or any Subsidiaries sell or otherwise transfer (excluding transfers to the Borrower or a Subsidiary of the Borrower that is a Guarantor) Oil and Gas Properties that, on a cumulative basis since the then most recent Determination Date, represent more than ten percent of the net present value of all of their proved reserves, as determined in the most recently delivered Engineering Report.

          (v) Each redetermination of the Borrowing Base pursuant to this Section 2.05 shall be made in good faith by all of the Lenders and the Administrative Agent, in the exercise of their reasonable discretion and in accordance with their respective customary and prudent standards for oil and gas lending and credit transactions as they exist at such time. Without limiting such discretion, Borrower acknowledges and agrees that the Administrative Agent and the Lenders (i) may make such assumptions regarding appropriate existing and projected pricing for Hydrocarbons as they deem appropriate in their discretion, (ii) may make such assumptions regarding projected rates and quantities of future production of Hydrocarbons from the Oil and Gas Properties owned by Borrower and its Subsidiaries as they deem appropriate in their discretion, (iii) may consider the projected cash requirements of Borrower and its Subsidiaries,

43

           (iv) are not required to consider any asset other than Proved Reserves owned by Borrower and its Subsidiaries, and (v) may make such other assumptions, considerations and exclusions as they deems appropriate in the exercise of their discretion. It is further acknowledged and agreed that the Administrative Agent and the Lenders may consider such other credit factors as they deem appropriate in the exercise of their discretion.

     (c) Borrowing Base Deficiency. If a Borrowing Base Deficiency exists at any time, the Borrower shall, within ten (10) days after being notified of such Borrowing Base Deficiency, provide written notice (the “Election Notice”) to Lender stating the action which Borrower proposes to take to remedy such Borrowing Base Deficiency, and the Borrower shall thereafter, at its option, do one or a combination of the following in an aggregate amount sufficient to eliminate such Borrowing Base Deficiency:

          (i) within ten (10) days following the delivery of such Election Notice, make a prepayment of the Loans,

          (ii) pay monthly installments of the Outstanding Amount of the Loans over a term and in an amount satisfactory to the Administrative Agent, but in any event not to exceed six months, by immediately dedicating a sufficient amount of monthly cash flow from the Oil and Gas Properties of the Borrower and its Subsidiaries,

          (iii) within thirty (30) days following the delivery of the Election Notice, submit additional Oil and Gas Properties to the Administrative Agent for evaluation as Borrowing Base Properties which the Administrative Agent, in its sole discretion, determines have a value sufficient to increase the Borrowing Base by at least the amount of the Borrowing Base Deficiency (after giving effect to other actions taken pursuant to this Section 2.05(c) that have the effect of reducing such Borrowing Base Deficiency) , and/or

          (iv) within thirty (30) days following the delivery of such Election Notice, apply the Net Cash Proceeds from a Disposition permitted by Section 7.05(g) to reduce the Borrowing Base Deficiency after giving effect to any reduction of the Borrowing Base as determined by the Required Lenders as a result of such sale.

     2.06 Prepayments.

     (a) Optional.

          (i) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) on the date of prepayment of Base Rate Committed Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any prepayment of Base Rate Committed Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given

44

by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages.

          (ii) The Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (ii) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.

     (b) Mandatory.

          (i) If for any reason the Total Outstandings at any time exceed the Aggregate Commitments then in effect, the Borrower shall immediately prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; provided, however, that the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.06(b) unless after the prepayment in full of the Loans the Total Outstandings exceed the Aggregate Commitments then in effect.

          (ii) If the Borrower or any of its Subsidiaries Disposes of any property under Section 7.05(g) which results in the realization by such Person of Net Cash Proceeds, the Borrower shall use the Net Cash Proceeds to eliminate any Borrowing Base Deficiency resulting from such sale; provided that, the proceeds of any Disposition permitted by Section 7.05(g) shall not constitute Net Cash Proceeds to the extent that (A) such proceeds are reinvested in replacement properties or assets, or other productive properties or assets, acquired by the Borrower or a Subsidiary of a kind then used or usable in the business of the applicable Person (with equal or greater aggregate Attributed Value) within 180 days from the date of receipt thereof or (B) if the applicable Borrower or Subsidiary intends to acquire replacement properties or assets, or other productive properties or assets, with such proceeds as part of a like-kind exchange under Section 1031 of the Code, the potential replacement properties or assets are identified by such Borrower or Subsidiary within 180 days from the date the ownership to the sold assets is transferred to the buyer of such property and the proceeds from such property are reinvested to acquire such replacement properties or assets (with equal or greater aggregate Attributed Value) within 180 days from the date the ownership to the sold assets is transferred to the buyer of such property; provided further that, the proceeds of any Casualty Event shall not constitute Net Cash Proceeds to the extent that such proceeds are reinvested in replacement properties or assets, or other productive properties or assets, acquired by the Borrower or a Guarantor of a kind then used or usable in the business of the applicable Person (with equal or greater aggregate Attributed Value) within 180 days from the date of receipt thereof.

45

          (iii) Upon the incurrence or issuance by the Borrower or any of its Subsidiaries of any Indebtedness (other than Indebtedness expressly permitted to be incurred or issued pursuant to Section 7.03, the Borrower shall prepay an aggregate principal amount of Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by the Borrower or such Subsidiary (such prepayments to be applied as set forth in clause (iv) below).

          (iv) Prepayments of the Total Outstandings made pursuant to this Section 2.06(b), first, shall be applied ratably to the L/C Borrowings, second, shall be applied ratably to the outstanding Loans, and, third, shall be used to Cash Collateralize the remaining L/C Obligations. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrower or any other Loan Party) to reimburse the L/C Issuer or the Lenders, as applicable.

     2.07 Termination or Reduction of Commitments. The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, and (iv) if, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Commitments, such Sublimit shall be automatically reduced by the amount of such excess. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination.

     2.08 Repayment of Loans.

     (a) The Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of Committed Loans outstanding on such date.

     (b) The Borrower shall repay each Swing Line Loan on the earlier to occur of (i) demand by the Swing Line Lender and (ii) the Maturity Date.

     2.09 Interest.

     (a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate; (ii) each Base Rate Committed Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate; and (iii) each Swing Line Loan shall bear interest on the outstanding principal

46

amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

     (b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

     (ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

     (iii) Upon the request of the Required Lenders, while any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

     (iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

     (c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

     2.10 Fees. In addition to certain fees described in subsections (i) and (j) of Section 2.03:

     (a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to the Applicable Rate times the daily amount of the Available Borrowing Base. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. For the purposes of computation of the Commitment Fee, Swing Line Loans shall not be counted as usage of the Aggregate Commitments.

     (b) Other Fees. (i) The Borrower shall pay to the Arranger and the Administrative Agent for their own respective accounts fees in the amounts and at the times specified in the Fee

47

Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

     (ii) The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

     2.11 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.13(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

     2.12 Evidence of Debt.

     (a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.

     (b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

48

     2.13 Payments Generally; Administrative Agent’s Clawback.

     (a) General. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

     (b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Committed Borrowing of Eurodollar Rate Loans (or, in the case of any Committed Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Committed Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Committed Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Committed Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Committed Loan included in such Committed Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

     (ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer

49

hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

     A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

     (c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

     (d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 10.04(c).

     (e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

     2.14 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans made by it, or the participations in L/C Obligations or in Swing Line Loans held by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Committed Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and subparticipations in L/C Obligations and in Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with

50

the aggregate amount of principal of and accrued interest on their respective Committed Loans and other amounts owing them, provided that:

     (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

     (ii) the provisions of this Section shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).

     The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

ARTICLE III.
TAXES, YIELD PROTECTION AND ILLEGALITY

     3.01 Taxes.

     (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

     (b) Payment of Other Taxes by the Borrower. Without limiting the provisions of subsection (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

     (c) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent, each Lender and the L/C Issuer, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and any penalties,

51

interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error.

     (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

     (e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

     Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

     (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

     (ii) duly completed copies of Internal Revenue Service Form W-8ECI,

     (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

52

     (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

     (f) Treatment of Certain Refunds. If the Administrative Agent, any Lender or the L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

     3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Committed Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.

     3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate

53

Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.

     3.04 Increased Costs; Reserves on Eurodollar Rate Loans.

     (a) Increased Costs Generally. If any Change in Law shall:

     (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e)) or the L/C Issuer;

     (ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer); or

     (iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.

     (b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender’s or the L/C Issuer’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the L/C Issuer’s capital or on the capital of such Lender’s or the L/C Issuer’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding

54

company could have achieved but for such Change in Law (taking into consideration such Lender’s or the L/C Issuer’s policies and the policies of such Lender’s or the L/C Issuer’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company for any such reduction suffered.

     (c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

     (d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s or the L/C Issuer’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the L/C Issuer’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

     (e) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.

     3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

     (a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

55

     (b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or

     (c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13;

including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

     3.06 Mitigation Obligations; Replacement of Lenders.

     (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

     (b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 10.13.

     3.07 Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

ARTICLE IV.
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

     4.01 Conditions of Initial Credit Extension. The obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:

56

     (a) The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

     (i) executed counterparts of this Agreement, the Guaranty and the Security Agreement, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;

     (ii) a Note executed by the Borrower in favor of each Lender requesting a Note;

     (iii) a pledge and security agreement, in substantially the form of Exhibit H (together with each other pledge and security agreement and pledge and security agreement supplement delivered pursuant to Section 6.12, in each case as amended, the “Security Agreement”), duly executed by each Loan Party, together with:

               (A) any and all certificates representing the Pledged Equity referred to therein accompanied by undated stock powers executed in blank,

               (B) proper financing statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Security Agreement, covering the Collateral described in the Security Agreement,

               (C) completed requests for information, dated on or before the date of the initial Credit Extension, listing all effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such other financing statements,

               (D) evidence of the completion of all other actions, recordings and filings of or with respect to the Security Agreement that the Administrative Agent may deem necessary in order to perfect the Liens created thereby, and

               (E) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Security Agreement has been taken (including receipt of duly executed payoff letters, UCC-3 termination statements);

     (iv) deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages and leasehold deeds of trust, in substantially the form of Exhibit I (with such changes as may be satisfactory to the Administrative Agent and its counsel to account for local law matters) and covering properties sufficient to comply with Section 6.12(b) (together with each other mortgage delivered pursuant to Section 6.12, in each case as amended, the “Mortgages”), duly executed by the appropriate Loan Party, together with:

57

               (A) evidence that counterparts of the Mortgages have been duly executed, acknowledged and delivered and are in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may deem necessary in order to create a valid first and subsisting Lien (subject to Permitted Liens) on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties and that all filing, documentary, stamp, intangible and recording taxes and fees have been paid,

               (B) evidence that all other action that the Administrative Agent may reasonably deem necessary or desirable in order to create valid first and subsisting Liens (subject to Permitted Liens) on the property described in the Mortgages has been taken; and

               (C) title opinions and other documentation satisfactory to the Administrative Agent with respect to Oil and Gas Properties of the Borrower, the Target and their Subsidiaries covering at least 75% in total Attributed Value of the Engineered Oil and Gas Properties subject to the Mortgages;

     (v) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

     (vi) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

     (vii) a favorable opinion of Vinson and Elkins LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit G and such other matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;

     (ix) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies, or an exhibit, of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

     (x) a certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in Sections 4.02(b) and (c) have been satisfied and (B) that there has been no event or circumstance since the date of the Audited Financial

58

Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect;

     (xi) certificates attesting to the Solvency of each Loan Party before and after giving effect to the Transaction and the incurrence of indebtedness related thereto, from its chief financial officer;

     (xiv) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect, together with the certificates of insurance, naming the Administrative Agent, on behalf of the Lenders, as an additional insured or loss payee, as the case may be, under all insurance policies maintained with respect to the assets and properties of the Loan Parties that constitutes Collateral;

     (xv) certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Lenders, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall reasonably request;

     (xvi) the Initial Engineering Report.

     (xvii) evidence that the Existing Credit Agreements have been or concurrently with the Closing Date are being terminated and all Liens securing obligations under the Existing Credit Agreements have been or concurrently with the Closing Date are being released;

     (xviii) the following financial information: (A) audited consolidated financial statements of each of the Borrower and the Target for the three fiscal years ended most recently prior to the Acquisition, unaudited consolidated financial statements of each of the Borrower and the Target for any interim quarterly periods that have ended since the most recent of such audited financial statements, and pro forma financial statements of the Borrower giving effect to the Transaction for the most recently completed fiscal year and the period commencing with the end of the most recently completed fiscal year and ending with the most recently completed quarter, which in each case, (1) shall be satisfactory in form and substance to the Lead Arranger and the Lenders, (2) shall not be materially inconsistent with the Information heretofore provided to the Lenders, and (3) shall meet the requirements of Regulation S-X under the Securities Act of 1933, as amended, and all other accounting rules and regulations of the SEC promulgated thereunder applicable to a registration statement under such Act on Form S-1; (B) forecasts prepared by management of the Borrower, each in form satisfactory to the Administrative Agent and the Lenders, of balance sheets, income statements and cash flow statements for the first year following the Closing Date and for each year commencing with the first fiscal year following the Closing Date for the term of this Agreement; and (C) evidence satisfactory to the Administrative Agent that (1) Consolidated EBITDAX for the twelve-month period ended June 30, 2006 calculated on a pro forma basis giving effect to the Transaction was not less than $290,000,000, (2) the ratio of Consolidated Funded Indebtedness at the Closing Date to Consolidated EBITDAX for the twelve months ended June 30, 2006 (which ratio shall be calculated

59

reflecting the Transaction on a pro forma basis) was not greater than 3.3:1.0 and (3) the pro forma financial statements delivered pursuant to clause (A) above and the forecasts delivered pursuant to clause (B) above were prepared in good faith on the basis of the assumptions stated therein, which assumptions are fair in light of the then existing conditions, and, in the case of each of (1), (2) and (3) above, and the chief financial officer of the Borrower shall have provided the Administrative Agent and the Lenders a written certification to that effect.

     (xix) evidence of the receipt by the Borrower of not less than $500,000,000 cash proceeds from the Preferred Stock and not less than $850,000,000 gross cash proceeds from the advance under the Bridge Facility (less any amount by which the Bridge Facility should have been reduced pursuant to the provisions of the Fee Letter);

     (xx) such reports and audits prepared by the Borrower or any of its Affiliates or any advisor engaged by the Borrower or any of its Affiliates with respect to the Target and its Subsidiaries as the Administrative Agent may reasonably request; and

     (xxi) such other certificates, documents, or opinions as the Administrative Agent, the L/C Issuer, the Swing Line Lender or the Required Lenders reasonably may require.

     (b) Any fees required to be paid on or before the Closing Date shall have been paid.

     (c) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).

     (d) The Closing Date shall have occurred on or before November 22, 2006.

     (e) All applicable waiting periods (including, without limitation, the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1975) shall have expired or terminated without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on any of the Borrower, the Target, their respective Subsidiaries or the Transaction or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable that in the judgment of the Lead Arranger could have such effect.

     (f) The Acquisition shall have been consummated substantially in accordance with the terms of the Acquisition Agreement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein, other than waivers or amendments that could not reasonably be expected to have a Material Adverse Effect, and in compliance with all applicable requirements of Law.

     (g) There shall have been no change, occurrence or development since June 30, 2006 that could reasonably be expected to have a Material Adverse Effect.

60

     (h) The aggregate principal amount of Loans made on the Closing Date shall not exceed $150,000,000.

     Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

     4.02 Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of Eurodollar Rate Loans) is subject to the following conditions precedent:

     (a) After giving effect to such Credit Extension, (x) the Total Outstandings shall not exceed the lesser of the Aggregate Commitments and the Borrowing Base, (y) the aggregate Outstanding Amount of the Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations shall not exceed such Lender’s Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit.

     (b) The representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.

     (c) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.

     (d) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

     Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a), (b) and (c) have been satisfied on and as of the date of the applicable Credit Extension.

61

ARTICLE V.
REPRESENTATIONS AND WARRANTIES

     The Borrower represents and warrants to the Administrative Agent and the Lenders that:

     5.01 Existence, Qualification and Power. Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and (as of the Closing Date only) Related Documents to which it is a party and consummate the Transaction, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

     5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document and (as of the Closing Date only) Related Document to which such Person is or is to be a party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation that is material to the Loan Parties to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

     5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document or Related Document, or for the consummation of the Transaction, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for (i) the authorizations, approvals, actions, notices and filings listed on Schedule 5.03, all of which have been duly obtained, taken, given or made and are in full force and effect, (ii) authorizations, approvals, actions, notices and filings in connection with enforcement of pledge and the sale of the Pledged Equity in connection therewith, (iii) authorizations, approvals, actions, notices and filings required in connection with the additional mortgage and security interests required to be granted under this Agreement; (iv) routine authorizations, approvals, actions, notices and filings in the ordinary course of business (e.g. tax filings, annual reports, environmental filings, etc. ); and (v) authorizations, approvals and consents necessary in connection with the Borrower’s mineral class leases with the general land office of State of Texas. All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any Governmental Authority restraining,

62

preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them.

     5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

     5.05 Financial Statements; No Material Adverse Effect. (a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

     (b) The unaudited consolidated balance sheet of the Borrower and its Subsidiaries dated September 30, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. Schedule 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness.

     (c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

     (d) The consolidated pro forma balance sheet of the Borrower and its Subsidiaries as at June 30, 2006, and the related consolidated pro forma statements of income and cash flows of the Borrower and its Subsidiaries for the twelve months then ended, certified by the chief financial officer or treasurer of the Borrower, copies of which have been furnished to each Lender, fairly present the consolidated pro forma financial condition of the Borrower and its Subsidiaries as at such date and the consolidated pro forma results of operations of the Borrower and its Subsidiaries for the period ended on such date, in each case giving effect to the Transaction, all in accordance with GAAP (except for the absence of footnotes and subject to year-end audit adjustments).

     (e) The consolidated forecasted balance sheets, statements of income and cash flows of the Borrower and its Subsidiaries delivered pursuant to Section 4.01 or Section 6.01(c) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were reasonable in light of the conditions existing at the time of delivery of such forecasts, and

63

represented, at the time of delivery, the Borrower’s reasonable estimate of its future financial condition and performance.

     5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower after due and diligent investigation, threatened, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement, any other Loan Document, any Related Document or the consummation of the Transaction, or (b) except as specifically disclosed in Schedule 5.06 (the “Disclosed Litigation”), either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and there has been no change in the status, or financial effect on any Loan Party or any Subsidiary thereof, of the matters described in Schedule 5.06 that could reasonably be expected to have a Material Adverse Effect.

     5.07 No Default. Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

     5.08 Ownership of Property; Liens. (a) Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

     (b) The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens permitted by Section 7.01.

     5.09 Environmental Compliance. (a) The Loan Parties and their respective Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that, except as specifically disclosed in Schedule 5.09, such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

          (b) As of the Closing Date and except (i) as otherwise set forth in Schedule 5.09 or (ii) to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, none of the properties currently or formerly owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the National Priorities List under 42 USC § 9605(a)(8)(B) or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries; and Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries in quantities or in a manner as to create Environmental Liability.

          (c) As of the Closing Date and except (i) as otherwise set forth in Schedule 5.09 or (ii) to the extent the same could not, individually or in the aggregate,

64

reasonably be expected to have a Material Adverse Effect, neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law that is reasonably expected to result in material Environmental Liability to any Loan Party or any of its Subsidiaries; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material Environmental Liability to any Loan Party or any of its Subsidiaries.

     5.10 Insurance. The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Subsidiary operates.

     5.11 Taxes. The Borrower and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.

     5.12 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws except for such events of noncompliance which could not, in the aggregate, reasonably be expected to result in a Material Adverse Effect.

     (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

     (c) Except to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

65

     5.13 Subsidiaries; Equity Interests; Loan Parties. As of the Closing Date, no Loan Party has any Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are (in the case of corporate securities) fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except those created under the Collateral Documents or permitted by Section 7.01. As of the Closing Date, no Loan Party has any equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13. Set forth on Part (c) of Schedule 5.13 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its incorporation, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation. As of the Closing Date, the copy of the charter of each Loan Party and each amendment thereto provided pursuant to Section 4.01(a)(vii) is a true and correct copy of each such document, each of which is valid and in full force and effect.

     5.14 Margin Regulations; Investment Company Act. (a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

     (b) None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

     5.15 Disclosure. The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished in writing by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains as of the date so furnished any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. There are no statements or conclusions in any Engineering Report which are based upon or include misleading information or fail to take into account material information regarding the matters reported therein, it being understood that projections concerning volumes attributable to the Oil and Gas Properties and production and cost estimates contained in each Engineering Report are necessarily based upon professional opinions, estimates and projections and that the Borrower and the Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove to have been accurate.

66

     5.16 Compliance with Laws. Each Loan Party and each Subsidiary thereof is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     5.17 Solvency. Each Loan Party is, individually and together with its Subsidiaries on a Consolidated basis, Solvent.

     5.18 Casualty, Etc. Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

     5.19 Labor Matters.

          There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date and neither the Borrower nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

     5.20 Collateral Documents. The provisions of the Collateral Documents are effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority Lien (subject to Liens permitted by Section 7.01) on all right, title and interest of the respective Loan Parties in the Collateral described therein. Except as expressly contemplated hereby and by the Collateral Documents, no filing or other action will be necessary to perfect or protect such Liens.

     5.21 Engineered Oil and Gas Properties.

     (a) The Borrower or another Loan Party has good and defensible title to all Engineered Oil and Gas Properties, free and clear of all Liens except as permitted pursuant to Section 7.01 and Immaterial Title Deficiencies. With the exception of Immaterial Title Deficiencies, all such Oil and Gas Properties are valid, subsisting, and in full force and effect, and all material rentals, royalties, and other amounts due and payable in respect thereof have been duly paid. Without regard to any consent or non-consent provisions of any joint operating agreement covering any of the Loan Parties’ Proved Reserves, and with the exception of Immaterial Title Deficiencies, the Loan Parties’ share of (a) the costs for each Engineered Oil and Gas Property is not greater than the decimal fraction set forth in the most recent Engineering Report, before and after payout, as the case may be, and described therein by the respective designations “working interests,” “WI,” “gross working interest,” “GWI,” or similar terms, and (b) production from, allocated to, or attributed to each Engineered Oil and Gas Property is not less than the decimal fraction set forth in the most recent Engineering Report, before and after payout, as the case may be, and described therein by the designations “net revenue interest,” “NRI,” or similar terms.

67

Except to the extent constituting an Immaterial Title Deficiency, each well drilled in respect of each Engineered Oil and Gas Property described in the Engineering Report (y) is capable of, and is presently, producing Hydrocarbons in commercial quantities, and the applicable Loan Party is currently receiving payments for its share of production, with no material funds in respect of any thereof being presently held in suspense, other than any such funds being held in suspense pending delivery of appropriate division orders and other usual and customary suspense accounts, and (z) has been drilled, bottomed, completed, and operated in compliance in all material respects with all applicable Laws and no such well which is currently producing hydrocarbons is subject to any penalty in production by reason of such well having produced in excess of its allowable production. To Borrower’s knowledge, there are no unrecorded assignments or conveyances affecting the Engineered Oil and Gas Properties or any Loan Party’s interest therein that would result in the Borrower or its Subsidiaries having a WI or NRI that is less than the WI/NRI set forth in the Engineering Report, except the interests of Sierra Madera CO2 Pipeline LP and Symbol Energy Inc., which constitute Immaterial Title Deficiencies.

     (b) The Engineered Oil and Gas Properties (and all properties unitized therewith) are, in all material respects, being (and, to the extent the same could materially and adversely affect the ownership or operation of the Engineered Oil and Gas Properties after the date hereof, to the applicable Loan Party’s knowledge, have in the past been) maintained, operated and developed in a good and workmanlike manner, in accordance with prudent industry standards and in conformity with all applicable Laws and in conformity with all oil, gas or other mineral leases and other contracts and agreements forming a part of the Engineered Oil and Gas Property and in conformity with the Permitted Encumbrances. No Engineered Oil and Gas Property is subject to having allowable production after the date hereof reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the date hereof and (ii) none of the wells located on the Engineered Oil and Gas Properties (or properties unitized therewith) are or will be deviated from the vertical more than the maximum permitted by applicable laws, regulations, rules and orders, and such wells are bottomed under and producing from, with the well bores wholly within, the Engineered Oil and Gas Properties (or, in the case of wells located on properties unitized therewith, such unitized properties). There are no dry holes, or otherwise inactive wells, located on the Engineered Oil and Gas Properties or on lands pooled or unitized therewith, except for wells that have been properly plugged and abandoned or for which appropriate plugging and abandonment has been scheduled. Each Loan Party has all material governmental licenses and permits reasonably necessary or appropriate to own and operate its Engineered Oil and Gas Properties, and no Loan Party has received notice in writing of any material violations in respect of any such licenses or permits.

     5.22 Sale of Production. Except (x) as of the Closing Date, as set forth in Schedule 5.22, or (y) thereafter, as disclosed in writing to the Administrative Agent and the Lenders and reflected in the most recent determination of the Borrowing Base, or (z) for matters that constitute Immaterial Title Deficiencies:

     (a) No Engineered Oil and Gas Property is subject to any material contractual or other arrangement (i) whereby payment for production is or can be deferred for a substantial period after the month in which such production is delivered (in the case of oil, not in excess of 60 days, and in the case of gas, not in excess of 90 days) or (ii) whereby payments are made to a Loan

68

Party other than by checks, drafts, wire transfer advises or other similar writings, instruments or communications for the immediate payment of money;

     (b) (i) No Engineered Oil and Gas Property is subject to any material contractual or other arrangement for the sale, processing or transportation of production (or otherwise related to the marketing of production) which cannot be canceled on 120 days’ (or less) notice and (ii) all material contractual or other arrangements for the sale, processing or transportation of production (or otherwise related to the marketing of production) are bona fide arm’s length transactions made with third parties not affiliated with Loan Parties;

     (c) Each Loan Party is presently receiving a price for all production (other than gas used for operations at a field location) from (or attributable to) each Engineered Oil and Gas Property covered by a production sales contract or marketing contract that is computed in accordance with the terms of such contract, and no Loan Party is having deliveries of production from such Engineered Oil and Gas Property curtailed substantially below such property’s delivery capacity, except for curtailments caused (i) by an act or event of force majeure, or (ii) by routine maintenance requirements in the ordinary course of business;

     (d) No Loan Party, nor, to such Loan Party’s knowledge, any Loan Party’s predecessors in title, has received prepayments (including payments for gas not taken pursuant to “take or pay” or other similar arrangements) for any oil, gas or other hydrocarbons produced or to be produced from any Engineered Oil and Gas Properties after the date hereof;

     (e) No Engineered Oil and Gas Property is subject to any “take or pay” or other similar arrangement (i) which can be satisfied in whole or in part by the production or transportation of gas from other properties or (ii) as a result of which production from any Engineered Oil and Gas Property may be required to be delivered to one or more third parties without payment (or without full payment) therefor as a result of payments made, or other actions taken, with respect to other properties;

     (f) There is no Engineered Oil and Gas Property with respect to which any Loan Party, or, to such Loan Party’s knowledge, any Loan Party’s predecessors in title, has, prior to the date hereof, taken more (“overproduced”), or less (“underproduced”), in any material respect, gas from the lands covered thereby (or pooled or unitized therewith) than its ownership interest in such Engineered Oil and Gas Property would entitle it to take; and as of the Closing Date Schedule 5.22 accurately reflects, in all material respects, for each well or unit with respect to which such an imbalance is shown thereon to exist, (i) whether such Loan Party is overproduced or underproduced and (ii) the volumes (in cubic feet or British thermal units) of such overproduction or underproduction and the effective date of such information;

     (g) No Engineered Oil and Gas Property is subject to a gas balancing arrangement under which one or more third parties may take a portion of the production attributable to such Engineered Oil and Gas Property without payment (or without full payment) therefor as a result of production having been taken from, or as a result of other actions or inactions with respect to, other properties; and

     (h) No Engineered Oil and Gas Property is subject at the present time to any regulatory refund obligation and, to such Loan Party’s knowledge, no facts exist which might cause the same to be imposed.

69

ARTICLE VI.
AFFIRMATIVE COVENANTS

     So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03) cause each Subsidiary to:

     6.01 Financial Statements. Deliver to the Administrative Agent and the Lenders as contemplated by the penultimate paragraph of Section 6.02:

     (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of a Registered Public Accounting Firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit or with respect to the absence of any material misstatement and (ii) commencing at such time as the Borrower is required to prepare the same for SEC reporting purposes, an opinion of such Registered Public Accounting Firm independently assessing the Borrower’s internal controls over financial reporting in accordance with Item 308 of the SEC Regulation S-K, PCAOB Auditing Standard No. 2, and Section 404 of Sarbanes-Oxley expressing a conclusion that contains no statement that there is a material weakness in such internal controls, except for such material weaknesses as to which the Required Lenders do not object, and such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries;

     (b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of the Borrower’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes;

     (c) as soon as available, but in any event within 90 days after the end of each fiscal year (commencing April 1, 2007) of the Borrower, an annual business plan and budget of the Borrower and its Subsidiaries on a Consolidated basis, including forecasts prepared by management of the

70

Borrower, in form satisfactory to the Administrative Agent and the Required Lenders, of consolidated balance sheets and statements of income or operations of the Borrower and its Subsidiaries on a monthly basis for the immediately following fiscal year;

     (d) By April 1 of each year commencing April 1, 2007, an Engineering Report prepared as of the preceding January 1 by one or more of Netherland, Sewell & Associates, DeGolyer & MacNaughton, or other independent petroleum engineers chosen by Borrower and reasonably acceptable to Administrative Agent, concerning all Oil and Gas Properties owned by any Loan Party which are located in or offshore of the United States and which have attributable to them proved oil or gas reserves. This report shall be reasonably satisfactory to Administrative Agent, shall be prepared using PV10 Pricing, shall take into account any “over-produced” status under gas balancing arrangements, and shall contain information and analysis consistent in form and scope in all material respects to that contained in the Initial Engineering Report. This report shall distinguish (or shall be delivered together with a certificate from an appropriate officer of Borrower which distinguishes) (i) the Oil and Gas Properties owned by each Loan Party and (ii) those properties treated in the report which are Collateral from those properties treated in the report which are not Collateral; and

     (e) By October 1 of each year, commencing October 1, 2007, an Engineering Report prepared as of the preceding July 1 (or the last day of the preceding calendar month in the case of a Special Determination) by petroleum engineers who are employees of Borrower (or, at the option of Borrower, by the independent engineers named above or selected in accordance with (d) above), together with an accompanying report on property sales, property purchases and changes in categories that have occurred since the date of the prior Engineering Report, both in the same form and scope as the reports in (d) above.

As to any information contained in materials furnished pursuant to Section 6.02(d), the Borrower shall not be separately required to furnish such information under clause (a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in clauses (a) and (b) above at the times specified therein.

     6.02 Certificates; Other Information. Deliver to the Administrative Agent and the Lenders as contemplated by the penultimate paragraph of this Section 6.02:

     (a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the fiscal quarter ended December 31, 2006), (i) a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of the Borrower and (ii) a calculation of the Borrowing Base Utilization Ratio as of the end of the most recent fiscal quarter;

     (c) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them;

71

     (d) promptly after the same are available, copies of all annual, regular, periodic and special reports, registration statements and proxy statements which the Borrower may file or be required to file with the SEC under Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

     (e) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;

     (f) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof;

     (g) not later than five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of all notices, requests and other documents (including amendments, waivers and other modifications) so received under or pursuant to any Related Document or instrument, indenture, loan or credit or similar agreement regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents and such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request;

     (h) promptly after the assertion or occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could (i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any materially adverse restrictions on ownership, occupancy, use or transferability under any Environmental Law;

     (i) as soon as available, but in any event within 30 days after the Closing Date, a duly completed Compliance Certificate (on a pro forma basis) as of the last day of the fiscal quarter of the Borrower ended on September 30, 2006, signed by a Responsible Officer of the Borrower; and

     (j) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.

     Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the

72

date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

     The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger will make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a “Public Lender”). The Borrower hereby agrees that so long as the Borrower is the issuer of any outstanding debt or equity securities that are registered or issued pursuant to a private offering or is actively contemplating issuing any such securities (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arranger, the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and the Arranger shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”

     Each Public Lender shall designate individuals or advisors authorized to act on behalf of the Public Lender to receive Borrower Materials not designated as “PUBLIC” pursuant to the immediately preceding paragraph, including any notices pursuant to Section 6.03.

     6.03 Notices. Promptly notify the Administrative Agent and each Lender:

73

     (a) of the occurrence of any Default;

     (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;

     (c) of the occurrence of any ERISA Event;

     (d) of any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary;

     (e) of the determination by the Registered Public Accounting Firm providing the opinion required (but only if required) under Section 6.01(a)(ii) (in connection with its preparation of such opinion) or the Borrower’s determination at any time of the occurrence or existence of any Internal Control Event; and

     (f) of the (i) occurrence of any Disposition of property or assets for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.06(b)(ii), and (ii) incurrence or issuance of any Indebtedness for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.06(b)(iii).

     Each notice pursuant to this Section 6.03 (other than Section 6.03(f)) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

     6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property, except, in the case of (a) or (b), for such amounts that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

74

     6.06 Maintenance of Properties. (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

     6.07 Maintenance of Insurance. (a) Maintain (at its own expense) insurance for its property in accordance with the Insurance Schedule with financially sound and reputable insurance companies, as well as insurance in such amounts, with such limitations or deductibles, against such risks, and in such form as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations. All insurance policies covering Collateral shall be endorsed (i) to provide for payment of losses to the Administrative Agent as its interests may appear, (ii) to provide that such policies may not be canceled or reduced or affected in any material manner for any reason without ten (10) days prior notice to the Administrative Agent, and (iii) to provide for any other matters specified in any applicable Collateral Document. Each Loan Party shall at all times maintain insurance against its liability for injury to persons or property in accordance with the Insurance Schedule, which insurance shall be by financially sound and reputable insurers.

     (b) Reimbursement under any liability insurance maintained by Loan Parties pursuant to this Section 6.07 may be paid directly to the Person who has incurred the liability covered by such insurance. With respect to any loss involving damage to Collateral, each Loan Party will make or cause to be made the necessary repairs to or replacements of such Collateral, and any proceeds of insurance maintained by each Loan Party pursuant to this Section 6.07 shall be paid to such Loan Party by the Administrative Agent as reimbursement for the costs of such repairs or replacements as such repairs or replacements are made or acquired; provided that Administrative Agent shall be entitled (but not obligated) to retain and apply such proceeds as Collateral during the continuance of any Event of Default.

     6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

     6.09 Books and Records. (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be.

     6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to

75

discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

     6.11 Use of Proceeds. The Borrower shall apply the proceeds of the Credit Extensions to (i) partially finance the Acquisition, (ii) refinance the Borrower’s existing senior secured revolving credit facility under the Borrower Existing Credit Agreement, (iii) refinance the Target’s existing credit facilities under the Target Existing Credit Agreements, (iv) pay certain fees and expenses incurred in connection with the Acquisition and entering into this Agreement, (v) provide working capital for the Borrower and its Subsidiaries including the issuance of letters of credit, capital expenditures, and other lawful corporate purposes, and (vi) finance permitted acquisitions by the Borrower and its Subsidiaries of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties.

     6.12 Covenant to Guarantee Obligations and Give Security. (a) Upon the formation or acquisition of any new direct or indirect Subsidiary (excluding any CFC or any Subsidiary that is held directly or indirectly by a CFC) by any Loan Party, then the Borrower shall, at the Borrower’s expense:

          (i) within 20 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), cause such Subsidiary, and cause each direct and indirect parent (except, if applicable, Lariat, Cholla Pipeline, L.P. or Sagebrush Pipeline, LLC) of such Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a guaranty or guaranty supplement, in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties’ obligations under the Loan Documents,

          (ii) subject in the case of Oil and Gas Properties to Section 6.12(b), within 30 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), cause such Subsidiary and each direct and indirect parent (except, if applicable, Lariat, L.L.C., Cholla Pipeline, L.P. or Sagebrush Pipeline, LLC) of such Subsidiary (if it has not already done so) to duly execute and deliver to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, Security Agreement Supplements and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including delivery of all Pledged Equity in and of such Subsidiary, and other instruments of the type specified in Section 4.01(a)(iii)), securing payment of all the Obligations of such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting Liens on all such real and personal properties, provided however, that notwithstanding the foregoing, neither the Borrower nor any Subsidiary will be required to grant a security interest in the Equity Interest of any CFC in excess of 66% of the Equity Interest of such CFC,

76

          (iii) subject in the case of Oil and Gas Properties to Section 6.12(b), within 30 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), cause such Subsidiary and each direct and indirect parent (except, if applicable, Lariat, Cholla Pipeline, L.P. or Sagebrush Pipeline, LLC) of such Subsidiary (if it has not already done so) to take whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, Security Agreement Supplements and security and pledge agreements delivered pursuant to this Section 6.12, enforceable against all third parties in accordance with their terms, and

          (iv) within 60 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (i), (ii) and (iii) above, and as to such other matters as the Administrative Agent may reasonably request.

     (b) At all times the Obligations shall be secured by Liens covering and encumbering at least 80% of the total Attributed Value of the Proved Reserves attributable to the Engineered Oil and Gas Properties. To the extent additional Oil and Gas Properties need to be secured by Liens in favor of the Administrative Agent to effect the foregoing, within 30 days after the delivery of each Engineering Report, the Loan Parties that own Engineered Oil and Gas Properties shall execute and deliver (i) mortgages and deeds of trust in form and substance acceptable to the Administrative Agent, together with such other assignments, conveyances, amendments, agreements and other writings (each duly authorized and executed) as the Administrative Agent shall deem necessary to grant, evidence and perfect the Liens on such additional properties required by this Section 6.12(c) and (ii) evidence of title with respect to such additional properties reasonably satisfactory to the Administrative Agent.

     6.13 Compliance with Environmental Laws. Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all material Environmental Permits necessary for its current operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance in all material respects with the requirements of all applicable Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is not required by applicable Environmental Laws or being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

     6.14 Further Assurances. Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (a) correct any material defect or error that may

77

be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) to the fullest extent permitted by applicable law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (ii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iii) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.

     6.15 Production Proceeds. Notwithstanding that, by the terms of the various Mortgages, certain Guarantors and Borrower are and will be assigning to Administrative Agent and Lenders all of the “Production Proceeds” (as defined therein) accruing to the property covered thereby, so long as no Event of Default has occurred such Loan Parties may continue to receive from the purchasers of production all such Production Proceeds, subject, however, to the Liens created under the Mortgages, which Liens are hereby affirmed and ratified. Upon the occurrence of an Event of Default, Administrative Agent and Lenders may exercise all rights and remedies granted under the Mortgages, including the right to obtain possession of all Production Proceeds then held by Loan Parties or to receive directly from the purchasers of production all other Production Proceeds. In no case shall any failure, whether purposed or inadvertent, by Administrative Agent or Lenders to collect directly any such Production Proceeds constitute in any way a waiver, remission or release of any of their rights under the Mortgages, nor shall any release of any Production Proceeds by Administrative Agent or Lenders to Loan Parties constitute a waiver, remission, or release of any other Production Proceeds or of any rights of Administrative Agent or Lenders to collect other Production Proceeds thereafter.

ARTICLE VII.
NEGATIVE COVENANTS

     So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly:

     7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names the Borrower or any of its Subsidiaries as debtor, or assign any accounts or other right to receive income, other than the following:

     (a) Liens pursuant to any Loan Document;

     (b) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount

78

secured or benefited thereby is not increased except as contemplated by Section 7.03(c), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.03(c);

     (c) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

     (d) operators’, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 90 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;

     (e) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

     (f) Liens to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

     (g) (i) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person and (ii) Immaterial Title Deficiencies;

     (h) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);

     (i) Liens on pipelines and pipeline facilities that arise by operation of law or other like Liens arising by operation of law in the ordinary course of business and incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that do not constitute Indebtedness and that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;

     (j) customary contractual Liens under operating lease agreements or which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out and farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for obligations that do not constitute Indebtedness and that are not delinquent or that are being contested in good faith by appropriate action and for which adequate reserves have been

79

maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto;

     (k) Permitted Encumbrances;

     (l) Liens existing on assets at the time of acquisition thereof, or Liens existing on assets of an Person at the time such Person became a Subsidiary, which in each case (i) were not created in contemplation thereof and (ii) do not encumber Oil and Gas Properties to be included in the Borrowing Base;

     (m) UCC financing statements filed in connection with an operating lease under which the Borrower or a Subsidiary is the lessee;

     (n) Liens on assets of Lariat securing obligations of Lariat;

     (o) Liens securing Indebtedness permitted under Section 7.03(f); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition; and

     (p) Liens created by the Citi Payoff Documents securing reimbursement obligations in respect of the Citi L/Cs; provided that the aggregate amount of cash collateral pledged thereunder shall not exceed $20,000,000.

     7.02 Investments. Make any Investments, except:

     (a) Investments held by the Borrower or such Subsidiary in the form of Cash Equivalents;

     (b) advances to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed $500,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;

     (c) Investments of the Borrower in any now existing or hereafter acquired wholly-owned Subsidiary and Investments of any Subsidiary in the Borrower or in another now existing or hereafter acquired wholly-owned Subsidiary; provided, however, that (i) in the case of any Investments in Lariat, the aggregate amount of such Investment shall not exceed (x) $1,000,000 less (y) the aggregate amount of Restricted Payments made to Lariat pursuant to Section 7.06(a) and (ii) in the case of an Investment constituting the acquisition from a third party of a Person which thereby becomes a wholly-owned Subsidiary, such Investment is permitted pursuant to another clause of this Section 7.02;

     (d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and

80

Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

     (e) Investments in Oil and Gas Properties (or in Persons substantially all of whose assets consist of Oil and Gas Properties and which become wholly-owned Subsidiaries pursuant to such Investment);

     (f) Guarantees permitted by Section 7.03;

     (g) Investments received in connection with bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

     (h) Investments (including, without limitation, capital contributions) in general or limited partnerships or other types of entities (each a “venture”) entered into by the Borrower or a Subsidiary with others in the ordinary course of business; provided that (i) any such venture is engaged exclusively in oil and gas exploration, development, production, processing and related activities, including transportation, (ii) the interest in such venture is acquired in the ordinary course of business and on fair and reasonable terms and (iii) the aggregate net amount of such Investments after the date hereof does not exceed $10,000,000;

     (i) Investments in SageBrush Pipeline LLC in an aggregate amount not exceeding $7,500,000; and

     (j) other Investments not exceeding $5,000,000 in the aggregate in any fiscal year of the Borrower.

     7.03 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:

     (a) Indebtedness under the Loan Documents;

     (b) Indebtedness in respect of the Bridge Facility and any refinancing thereof, provided that such refinancing is (i) unsecured, (ii) requires no scheduled amortization prior to the 6^th anniversary of the Closing Date and (iii) is otherwise on market terms and conditions;

     (c) Indebtedness outstanding on the date hereof and listed on Schedule 7.03 and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension and (ii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate

81

applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;

     (d) Guarantees of the Borrower or any Guarantor in respect of Indebtedness otherwise permitted hereunder of the Borrower or any Guarantor;

     (e) obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party (other than customary netting arrangements);

     (f) Indebtedness in respect of capital leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(o); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $15,000,000;

     (g) Indebtedness of the Borrower or a Subsidiary owing to the Borrower or a wholly-owned Subsidiary (other than Lariat);

     (h) Indebtedness incurred by Lariat;

     (i) Indebtedness in respect of the Citi L/Cs in an aggregate amount not exceeding $20,000,000;

     (j) other unsecured Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding; and

     (k) Indebtedness in respect of surety bonds obtained by the Borrower or a Subsidiary in the ordinary course of business and supporting other obligations undertaken by the Borrower or a Subsidiary in the ordinary course of business which other obligations do not constitute Indebtedness.

     7.04 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:

     (a) any Subsidiary may merge with (i) the Borrower, provided that the Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that when any wholly-owned Subsidiary is merging with another Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving Person;

     (b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Subsidiary; provided that if the transferor

82

in such a transaction is a wholly-owned Subsidiary, then the transferee must either be the Borrower or a wholly-owned Subsidiary;

     (c) Dispositions permitted by Section 7.05(g); and

     (d) the Borrower and its Subsidiaries may consummate the Acquisition.

     7.05 Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except:

     (a) Dispositions of obsolete or worn out property or assets, whether now owned or hereafter acquired, in the ordinary course of business;

     (b) Dispositions of inventory (including Hydrocarbons sold after severance) in the ordinary course of business;

     (c) Dispositions of equipment or real property or other asset (other than (x) Oil and Gas Properties or (y) Investments in Subsidiaries) to the extent that (i) such equipment, property or other asset is exchanged for credit against the purchase price of similar replacement equipment, property or other asset or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement equipment, property, or other asset;

     (d) Dispositions of property or assets by any Subsidiary to the Borrower or to a wholly-owned Subsidiary or by the Borrower to any wholly-owned Subsidiary; provided that if the transferor of such property or assets is a Guarantor, the transferee thereof must either be the Borrower or a Guarantor;

     (e) Dispositions permitted by Section 7.04(a), (b) or (d);

     (f) a Disposition for fair value of Oil and Gas Properties in the Piceance Basin;

     (g) Dispositions (including Casualty Events) of Oil and Gas Properties which are sold or otherwise transferred for fair consideration to Persons who are not Affiliates of Borrower (2) farmouts of undeveloped acreage and assignments in connection with such farmouts or the abandonment, farm-out, the exchange and (3) Dispositions of Oil and Gas Properties which are not included in the most recently delivered Engineering Report in the ordinary course of business, provided that (i) no Event of Default exists at the time of and after giving effect to any such sale or other transfer of Collateral (other than Defaults that will be cured upon the application of the proceeds of such sale or other transfer), (ii) the Borrower must first give notice to the Administrative Agent of any such sale, (iii) if the Oil and Gas Properties so sold or transferred, or all equity of the Subsidiary owning the Oil and Gas Properties so sold or transferred, on a cumulative basis since the then most recent Determination Date, represent more than ten percent of the total Attributed Value of all of the Proved Reserves of the Engineered Oil and Gas Properties, as determined in the most recently delivered Engineering Report, the sale or other transfer may not be made until Administrative Agent and the Lenders have made a Special Determination as contemplated in Section 2.05(b), and (iv) concurrently with such sale or other transfer the Borrower must pay in full any Borrowing Base Deficiency that results from such Special Determination; and

83

     (h) Dispositions of interest in Oil and Gas Properties in respect of Immaterial Title Deficiencies in order to discharge such Immaterial Title Deficiencies or an obligation giving rise thereto.

     7.06 Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:

     (a) each Subsidiary may make Restricted Payments to the Borrower, the Guarantors and any other Person that owns an Equity Interest in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made; provided, however, that in the case of any Restricted Payments to Lariat Services, Inc., the aggregate amount of such Restricted Payments shall not exceed (i) $1,000,000 less (ii) the aggregate amount of Investment in Lariat made pursuant to Section 7.02(c);

     (b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;

     (c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity Interests issued by it with the proceeds received from the substantially concurrent issue of new shares of its common stock or other common Equity Interests;

     (d) (i) so long as no Event of Default exists, the Borrower may pay regular cash dividends on the Preferred Stock and make cash payments pursuant to Section 6(f) of the Certificate of Designations for the Preferred Stock; (ii) so long as no Default and no Borrowing Base Deficiency exists, the Borrower may make cash payments pursuant to Section 7(a) or 9(e) of the Certificate of Designations for the Preferred Stock; and (iii) the Borrower may make payment-in-kind dividends on the Preferred Stock and issue its common stock upon conversion of the Preferred Stock; and

     (e) the Borrower and each Subsidiary may repurchase Equity Interests held by an employee, officer or director upon termination of employment; provided that the aggregate amount of such Restricted Payments shall not exceed $ 500,000.

     7.07 Change in Nature of Business. Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto.

     7.08 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate, provided that the foregoing restriction shall not apply to (i) transactions between or among the Borrower and any of its wholly-owned Subsidiaries or between and among any wholly-owned Subsidiaries or (ii) payment of customary

84

cash and non-cash compensation, including stock option and similar employee benefit plans, to directors and officers on an arm’s length basis.

     7.09 Burdensome Agreements. After the date of this Agreement, enter into any Contractual Obligation (other than (x) this Agreement or any other Loan Document and (y) the Bridge Facility and the documentation governing any permitted refinancing thereof) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to otherwise transfer property to the Borrower or any Guarantor, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of the Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person to secure any of the Loan Documents; provided, however, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under Section 7.03(f) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness or property subject to a Lien permitted hereunder which secures such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person; or amend any Contractual Obligation existing on the date of this Agreement so as to impose or make more restrictive such a limitation.

     7.10 Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

     7.11 Financial Covenants.

     (a) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than 2.5:1.0.

     (b) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as of the end of any fiscal quarter of the Borrower to be greater 4.0 : 1.0.

     (c) Consolidated Current Ratio. Permit the ratio of Consolidated Current Ratio as of the end of any fiscal quarter of the Borrower to be less than 1.0 : 1.0.

     7.12 Hedge Transactions.

     Enter into any Oil and Gas Hedge Transactions which would cause the notional volume of Hydrocarbons for each of crude oil and natural gas, calculated separately, with respect to which a settlement payment is calculated under such Oil and Gas Hedge Transactions (other than basis swaps, floors and puts on volumes hedged pursuant to Swap Contracts) to exceed eighty five percent (85%) of Borrower’s or such Subsidiary’s reasonably anticipated production from Proved Reserves during the period from the immediately preceding settlement date (or the commencement of such Hedge Transaction if there is no prior settlement date) to such settlement date.

85

ARTICLE VIII.
EVENTS OF DEFAULT AND REMEDIES

     8.01 Events of Default. Any of the following shall constitute an Event of Default:

     (a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

     (b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Section 6.03(a), 6.05(a), 6.11 or 6.12 or Article VII; or

     (c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or

     (d) Representations and Warranties. Any representation, warranty, or certification made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed made; or

     (e) Cross-Default. (i) The Borrower or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) and the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or

     (f) Insolvency Proceedings, Etc. Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any

86

receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

     (g) Inability to Pay Debts; Attachment. (i) The Borrower or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or

     (h) Judgments. There is entered against the Borrower or any Subsidiary (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 30 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

     (i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or

     (j) Invalidity of Loan Documents. Any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any material provision of any Loan Document; or any Loan Party denies that it has any material or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any material provision of any Loan Document; or

     (k) Change of Control. There occurs any Change of Control.

     (l) Collateral Documents. Any Collateral Document after delivery thereof pursuant to Section 4.01 or 6.12 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien (subject to Liens permitted by Section 7.01) on any material portion of the Collateral purported to be covered thereby;

87

     8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of Required Lenders, take any or all of the following actions:

     (a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;

     (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;

     (c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and

     (d) exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies available to it, the Lenders and the L/C Issuer under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.

     8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

     First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

     Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer (including fees and time charges for attorneys who may be employees of any Lender or the L/C Issuer) and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;

88

     Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;

     Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings and amounts payable under Swap Contracts, ratably among the Lenders, the L/C Issuer and the Lender Counterparties in proportion to the respective amounts described in this clause Fourth held by them;

     Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and

     Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.

Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.

ARTICLE IX.
ADMINISTRATIVE AGENT

     9.01 Appointment and Authority.

     (a) Each of the Lenders and the L/C Issuer hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. Except to the extent Sections 9.01(b) and 9.06 expressly contemplate rights of others, the provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and the Borrower shall not have rights as a third party beneficiary of any of such provisions.

     (b) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders (in its capacities as a Lender and potential Lender Counterparty) and the L/C Issuer hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the

89

direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto.

     9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

     9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

     (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

     (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

     (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

     The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or the L/C Issuer.

     The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this

90

Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

     9.04 Reliance by Administrative Agent.

     The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

     9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

     9.06 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has

91

accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

     Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swing Line Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and Swing Line Lender, (b) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (c) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.

     9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

     9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, the Arranger shall have no powers, duties or responsibilities under this Agreement.

92

     9.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise

     (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer and the Administrative Agent under Sections 2.03(i) and (j), 2.09 and 10.04) allowed in such judicial proceeding; and

     (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.

     Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or the L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or the L/C Issuer in any such proceeding.

     9.10 Collateral and Guaranty Matters. The Lenders and the L/C Issuer irrevocably authorize the Administrative Agent, at its option and in its discretion,

     (a) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations and obligations with respect to Swap Contracts) and the expiration or termination of all Letters of Credit, (ii) that is Disposed of or to be Disposed of as part of or in connection with any Disposition permitted hereunder or under any other Loan Document, or (iii) subject to Section 10.01, if approved, authorized or ratified in writing by the Required Lenders;

93

     (b) to subordinate or release any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i); and

     (c) to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder.

     Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.

ARTICLE X.
MISCELLANEOUS

     10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

     (a) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;

     (b) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;

     (c) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest or Letter of Credit Fees at the Default Rate;

     (d) change Section 2.14 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;

94

     (e) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender;

     (f) release all or substantially all of the value of the Guaranty without the written consent of each Lender; or

     (g) release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;

and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) Section 10.06(h) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (v) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.

     10.02 Notices; Effectiveness; Electronic Communication.

     (a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

     (i) if to the Borrower, the Administrative Agent or the L/C Issuer or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

     (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient,

95

shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

     (b) Electronic Communications. Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

     Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

     (c) The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

96

     (d) Change of Address, Etc. Each of the Borrower, the Administrative Agent, the L/C Issuer and the Swing Line Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent and the L/C Issuer and the Swing Line Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

     (e) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

     10.03 No Waiver; Cumulative Remedies. No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

     10.04 Expenses; Indemnity; Damage Waiver.

     (a) Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the L/C Issuer), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent, any Lender or the L/C Issuer, in connection with the

97

enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

     (b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

     (c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the L/C Issuer in its

98

capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.13(d).

     (d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

     (e) Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

     (f) Survival. The agreements in this Section shall survive the resignation of the Administrative Agent, the L/C Issuer and the Swing Line Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

     10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

99

     10.06 Successors and Assigns.

     (a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section, or (iv) to an SPC in accordance with the provisions of subsection (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

     (b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that any such assignment shall be subject to the following conditions:

     (i) Minimum Amounts.

     (A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

     (B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met..

100

     (ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to the Swing Line Lender’s rights and obligations in respect of Swing Line Loans;

     (iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

     (A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;

     (B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and

     (C) the consent of the L/C Issuer and the Swing Line Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment.

     (iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount, if any, required as set forth in Schedule 10.06; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

     (v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

     (vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee

101

Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

     (c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

     (d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.

     Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender.

     (e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and

102

such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.

     (f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

     (g) Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

     (h) Special Purpose Funding Vehicles. Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an “SPC”) the option to provide all or any part of any Committed Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Committed Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Committed Loan, the Granting Lender shall be obligated to make such Committed Loan pursuant to the terms hereof or, if it fails to do so, to make such payment to the Administrative Agent as is required under Section 2.13(b)(ii). Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Agreement (including its obligations under Section 3.04), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the lender of record hereunder. The making of a Committed Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Committed Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (i) with notice to, but without prior consent of the Borrower and the Administrative Agent and with the payment of a processing fee in the amount of $2,500, assign all or any portion of its right to receive payment with respect to any Committed Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information

103

relating to its funding of Committed Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC.

     (i) Resignation as L/C Issuer or Swing Line Lender after Assignment. Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, (i) upon 30 days’ notice to the Borrower and the Lenders, resign as L/C Issuer and/or (ii) upon 30 days’ notice to the Borrower, resign as Swing Line Lender.. In the event of any such resignation as L/C Issuer or Swing Line Lender, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swing Line Lender hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the resignation of Bank of America as L/C Issuer or Swing Line Lender, as the case may be. If Bank of America resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Committed Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). If Bank of America resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Committed Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c). Upon the appointment of a successor L/C Issuer and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit.

     10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or

104

(y) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.

     For purposes of this Section, “Information” means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary, provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as nonpublic and confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to confidential information of a similar nature.

     Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.

     10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

     10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude

105

voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

     10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and, except as otherwise expressly provided in the Commitment Letter, supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

     10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.

     10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

     10.13 Replacement of Lenders. If (i) any Lender requests compensation under Section 3.04, (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, (iii) any Lender is a Defaulting Lender, or (iv) any Lender is unwilling to approve an increase in the Borrowing Base or other amendment hereto which has been approved by Super-Majority Lenders but requires approval of such Lender to be effective, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this

106

Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

     (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

     (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

     (c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;

     (d) in the case of an assignment resulting from clause (iv) above, such assignment will result in effectiveness of such increase or amendment; and

     (e) such assignment does not conflict with applicable Laws.

     A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

     10.14 Governing Law; Jurisdiction; Etc.

     (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

     (b) SUBMISSION TO JURISDICTION. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO

107

THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

          (c) WAIVER OF VENUE. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

          (d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

     10.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

     10.16 No Advisory or Fiduciary Responsibility.

     In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent and the Arranger, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, the Administrative Agent and the Arranger each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its

108

Affiliates, stockholders, creditors or employees or any other Person; (iii) neither the Administrative Agent nor the Arranger has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent or the Arranger has advised or is currently advising the Borrower or any of its Affiliates on other matters) and neither the Administrative Agent nor the Arranger has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent and the Arranger and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent nor the Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent and the Arranger have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent and the Arranger with respect to any breach or alleged breach of agency or fiduciary duty.

     10.17 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.

109

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

RIATA ENERGY, INC.
(d/b/a SandRidge Energy, Inc.)
By:	/s/ Tom L. Ward
Name:	Tom L. Ward
Title:	Chairman and Chief Executive Officer

BANK OF AMERICA, N.A., as Administrative
Agent
By:	/s/ Suzanne M. Paul
Name:	Suzanne M. Paul
Title:	Vice President

BANK OF AMERICA, N.A., as a Lender, Swing Line Lender and L/C Issuer
By:	/s/ Charles W. Patterson
Name:	Charles W. Patterson
Title:	Managing Director

SCHEDULE 2.01

COMMITMENTS
AND APPLICABLE PERCENTAGES

Lender	Commitment		Applicable
			Percentage
Bank of America, N.A.	$	750,000,000		100.000000000	%
Total	$	750,000,000		100.000000000	%

SCHEDULE 5.03

GOVERNMENTAL AUTHORIZATIONS

None.

SCHEDULE 5.05

SUPPLEMENT TO INTERIM FINANCIAL STATEMENTS

(Continued on next page)

          Supplement to Interim Financial Statements: Existing Indebtedness

	6/30/2006		9/30/2006		11/13/2006		Collateral
SYMBOL ENERGY
LARCO		2,287,129.15		2,287,129.15		2,287,129.15	NA
SAGEBRUSH
BANK OF AMERICA		4,000,000.00		4,000,000.00		4,000,000.00	All Bank of America cash accounts
ROC		700,000.00		1,325,000.00		1,325,000.00	NA
PREMIUM ASSIGNMENT		10,359.97		—			NA
		4,710,359.97		5,325,000.00		5,325,000.00
ALSATE
N/P REI		7,970,907.91		7,970,907.91		7,970,907.91	NA
PREMIUM ASSIGNMENT		322,860.95		304,162.45		229,672.13	Unsecured
		8,293,768.86		8,275,070.36		8,200,580.04
HONDO HEAVY HAUL
N/P JOHN DEERE		—		—		168,012.51	John Deere 724J Loader with 9’ Forks
N/P PACCAR FINANCIAL		384,994.98		358,536.00		351,780.61	Quantity of 6 2003 Peterbilt 379-127 Vehicles
		384,994.98		358,536.00		519,793.12
LARIAT
MERRILL LYNCH #1		15,672,564.49		14,778,781.18		14,473,910.39	Rig #1 - Rig #7 and Ancillary Equipment
MERRILL LYNCH #2		2,002,641.96		1,856,607.25		1,818,373.93	Rig #13 and All Associated Equipment
MERRILL LYNCH #3		4,105,940.24		3,890,110.21		3,815,375.61	Rig #12 and All Associated Equipment
MERRILL LYNCH #4		2,109,383.64		2,000,975.86		1,963,550.55	Rig #14 and All Associated Equipment
MERRILL LYNCH #5		914,242.41		869,762.16		854,396.64	Service/Workover Rigs
MERRILL LYNCH #6		1,589,597.17		1,512,265.89		1,485,551.88	Rig #15 and All Associated Equipment
MERRILL LYNCH #7		1,837,650.55		1,749,080.20		1,718,787.04	Rig #16 and All Associated Equipment

	6/30/2006		9/30/2006		11/13/2006		Collateral
MERRILL LYNCH #8		2,318,074.35		2,207,733.29		2,169,571.35	Rig #19 and All Associated Equipment
MERRILL LYNCH #9		812,153.10		774,503.80		761,471.46	Misc Trucks & Equipment
MERRILL LYNCH #10		8,134,304.10		5,766,007.12		5,766,007.12	Rig #22 and 3 Pulling Units
MERRILL LYNCH #11		5,924,100.00		7,918,474.04		7,807,394.01	Rig #24 and All Associated Equipment
MERRILL LYNCH #12		—		7,997,535.00		7,916,205.44	Rig #26
MERRILL LYNCH #13		—		888,615.00		888,615.00	Pulling Units 11, 12, 13, & 17
MERRILL LYNCH #14		—		—		6,220,305.00	Rig #28
PREMIUM ASSIGNMENT		441,536.00		254,692.21		128,148.37	Unsecured
DAIMLER CHRYSLER #7493		1,288.60		—		0.00	NA
DAIMLER CHRYSLER #11970		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
DAIMLER CHRYSLER #11974		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #83592		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #83593		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #81856		38,941.00		35,915.54		33,867.81	2007 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #66004		83,400.00		77,119.75		72,869.43	2007 Western Star 4900 Tractor
N/P DIAMLERCHRYSLER #81858		40,320.19		37,294.73		35,246.11	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81859				38,521.62		36,474.56	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81860				38,521.62		36,474.46	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81861				39,535.67		37,501.23	2007 Sterling Acterra Tractor
N/P JOHN DEERE #2582		95,019.00		77,576.97		65,853.97	2005 330CLC Excavator
N/P JOHN DEERE CREDIT #9496		42,503.97		39,359.77		37,226.34	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6211		76,246.09		70,605.85		66,778.80	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #2526		39,847.85		36,900.15		34,900.04	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6277		70,985.96		65,734.84		62,171.82	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #64644				61,286.53		57,754.11	544H Loader
N/P JOHN DEERE CREDIT #79513		78,447.04		72,458.80		68,395.35	544H Loader
N/P JOHN DEERE CREDIT #79321		58,765.00		54,417.91		51,468.28	544H Loader

	6/30/2006		9/30/2006		11/13/2006		Collateral
N/P JOHN DEERE CREDIT #87862						72,076.66	544H Loader
JOHN DEERE CREDIT #6762		17,207.00		14,048.33		11,925.55	2005 310SG Wheel Loader Backhoe
N/P JDC #3291		6,357.00		1,600.45		0.00	NA
N/P JDC #3935		118,732.00		102,352.48		91,272.96	724J Loader
CIT GROUP		5,504.00
PACCAR #24856 & #24870				155,126.70		149,818.25	Quantity of 2 2004 Peterbilts
PACCAR		147,882.47		114,592.70		92,124.20	Kenworths
PACCAR #5780267						296,538.19	Quantity of 2 2007 Peterbilts and Quantity of 2 2004 Peterbilts
PACCAR #5783865						152,716.41	Quantity of 2 2004 Peterbilts
GMAC #9231		3,393.16		846.15
GMAC #9210		1,942.00		—			NA
		47,018,494.77		53,808,158.87		59,546,586.14
REI
BANK OF AMERICA		36,435,900.00		102,403,656.50		117,452,113.25	Oil & Gas Properties
LARCO
RIATA ENERGY		5,635,243.89		5,635,243.89		5,635,243.89	NA
RIAGRA
N/P REI		8,983,980.36		8,983,980.36		8,983,980.36	NA
JOHN DEERE		—		—		0.00	NA
		8,983,980.36		8,983,980.36		8,983,980.36
ROC
N/P REI		62,333.53		62,333.53		62,333.53	NA
PREMIUM ASSIGNMENT		6,108.00		—		0.00	NA
		68,441.53		62,333.53		62,333.53
PSEC
N/P REI		31,813,722.36		31,813,722.36		31,813,722.36	NA

	6/30/2006		9/30/2006		11/13/2006		Collateral
PREMIUM ASSIGNMENT		71,336.64		38,566.48		30,967.38	Unsecured
SUBORDINATED DEBT-REI		6,540,000.00		6,540,000.00		6,540,000.00	NA
SUBORDINATED DEBT-OUTSIDE		—
		38,425,059.00		38,392,288.84		38,384,689.74
PSPC
N/P REI		5,902,097.77		5,902,097.77		5,902,097.77	NA
HONDO
PACCAR		9,640.31		—		0.00	NA
TOTAL		158,155,110.59		231,433,495.27		252,299,546.99
LESS INTER-CO NOTES		69,895,414.97		70,520,414.97		70,520,414.97
TOTAL		88,259,695.62		160,913,080.30		181,779,132.02

SCHEDULE 5.06

LITIGATION

          ConocoPhillips Company, (Successor by merger to Conoco, Inc.), Plaintiff, vs. Riata Energy, Inc., Wes-Tex Drilling Company, L.P., Manti Resources, Inc., and Manti Longfellow, Ltd., Defendants; No. 9846; In the 112^th District Court in and for Pecos County, Tx

          Riata Energy, Inc. and Riata Piceance, LLC, Plaintiffs, V. Elliott Roosevelt, Jr., E.R. Family Limited Partnership and Ceres Resource Partners, L.P., Defendants.; No. 04-11461-E; In the 101^st Judicial District Court in and for Dallas County, Tx

          Harvey Y. Yates Company, Plaintiff, v Riata Energy, Inc. Defendant; No. 10376; In the 112^TH District Court in and for Pecos County, Tx

SCHEDULE 5.09

ENVIRONMENTAL MATTERS

None.

SCHEDULE 5.13

SUBSIDIARIES,
OTHER EQUITY INVESTMENTS
AND LOAN PARTY INFORMATION

(Continued on next page)

Riata Energy, Inc. dba SandRidge Energy, Inc. SCHEDULE 5.13

PART A AND PART B — all Subsidiaries and Equity Interests of Loan Parties

Symbol	Company Name	Address	City/State/Zip	FEIN		OWNERSHIP
REI	Riata Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118		76-0002820
SUBSIDIARY ENTITIES
	Algerita Energy, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-1400800	100%REI
AEI	Alsate Management and Investment Co	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2541245	100%REI
	Cup Of The Day #1, LLC	701 S. Tyler, Ste 102	Amarillo, TX 79201		13-4301747	100%AEI
CSLLC	Chaparral Supply, LLC	P. O. Box 1417	Ft. Stockton, Texas 79735		26-0036758	100%AEI
IEL	Integra Energy, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2887527	85%AEI
	Cholla Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		01-0557493	100%IEL
CHOLP	Cholla Pipeline, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118		26-0025092	36%IEL, 17%ROC
TPL	Transpecos Logging, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2897434	100%AEI
	Black Bayou Exploration, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-4790561	100%REI
LSI	Lariat Services, Inc.	2402 West Wall	Midland, TX 79701		75-2500702	100%REI
LARCO	Lariat Compression Company	5432 N. Highway 1053	Ft. Stockton, TX 79735		75-2545523	100%LSI
SYMENE	Symbol Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-2882968	100%LARCO
HONDO	Hondo Heavy Haul	13416 W. 1-20 East	Odessa, TX 79765		20-3568524	100%LSI
	Larclay, GP, LLC	701 S. Taylor, Suite 426	Amarillo, TX 79101		20-4727861	50%LSI
	Larclay, L.P.	701 S. Taylor, Suite 426	Amarillo, TX 79101		20-4728095	50%LSI
MCRLLC	Midcontinent Resources, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-0096928	100%REI
PSEML	PetroSource Energy Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-1237622	100%REI
PSEC	PetroSource Energy Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-2629471	99%REI, 1% PSEM
PSCO2	PSCO2, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118		76-0547903	99%PSEC, 1% PSEML
PSPC	PetroSource Production Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-1918006	99%PSEC, 1% PSEML
	PSE Holdings, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2950920	100%REI
PSEM	PSE Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-2622462	100%REI
RLC	Riagra Land & Cattle	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2569335	100%REI
RDI	Riata Drilling Company, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2563168	100%REI
RIAN	Riata Energy Operating, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-0333569	100%REI
REIPIC	Riata Piceance, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-0023468	100%REI
	Riata Wolfcamp Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-2214412	100%REI
ROC	ROC Gas Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2541148	100%REI
SBP	Sagebrush Pipeline, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-1550515	70%ROC
SMM	Sierra Madera Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		43-1969581	100%REI
SMCO2	Sierra Madera CO2 Pipeline, Ltd	1601 NW Expwy, 1600	Oklahoma City, OK 73118		47-0881558	99%REI, 1% SMM

Symbol	Company Name	Address	City/State/Zip	FEIN		OWNERSHIP
SandRidge Holdings, Inc. Acquisition		1601 NW Expwy, 1600	Oklahoma City, OK 73118		20-5878401	100% REI
NEG	NEG Oil & Gas, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		03-0573934	100% Sandridge
SUBSIDIARY ENTITIES
NEGH	NEG Holding, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		75-2958833	100%NEG
NEGO	NEG Operating, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776535	100%NEGH
NGXGP	NGX GP of Delaware LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776542	100%NEGO
NGXLP	NGX LP Of Delaware LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776545	100%NEGO
NGXELP	NGX Energy Limited Partnership	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776546	99%NGXLP, 1%NGXGP
SHANA	Shana National LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776549	100%NEGO
MIDR	Mid River, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776548	100%NEG
OFFGP	Offshore GP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776539	100%NEG
OFFLP	Offshore LP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776538	100%NEG
NOFFSH	National Offshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118		11-3758786	99%OFFLP, 1%OFFGP
ONGP	Onshore GP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		76-0833283	100%NEG
ONLP	Onshore LP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118		87-0776536	100%NEG
NONSH	National Onshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118		47-0953489	99%ONLP, 1%ONGP
GBPIPE	Galveston Bay Pipeline Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118		76-0595703	100%NONSH
GBPROC	Galveston Bay Processing Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118		76-0570422	100%NONSH

PART C — LOAN PARTIES INFORMATION

Company Name	Address	City/State/Zip	Jurisdiction	FEIN Number
Alsate Investment and Management Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2541245
Integra Energy, L.L.C.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2887527
Lariat Compression Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2545523
NEG Oil & Gas LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	03-0573934
NEG Operating LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	87-0776535
National Offshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	11-3758786
National Onshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	47-0953489
PetroSource Energy Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-2629471
PetroSource Production Company, L.P.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-1918006
Riata Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	76-0002820
ROC Gas Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2541148
Sandridge Holdings, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	20-5878401

SCHEDULE 5.22

SALE OF PRODUCTION

None.

SCHEDULE 7.01

EXISTING LIENS

Liens granted to Bank of America, N.A. on the plant and pipeline owned by SageBrush Pipeline, LLC pursuant to $4,000,000 Note (the “Note”) issued by SageBrush Pipeline, LLC as Borrower to Bank of America, N.A. as lender with a maturity of January 31, 2007.

SCHEDULE 7.03

EXISTING INDEBTEDNESS

(Continued on next page)

	6/30/2006		9/30/2006		11/13/2006		Collateral
SYMBOL ENERGY
LARCO		2,287,129.15		2,287,129.15		2,287,129.15	NA
SAGEBRUSH
BANK OF AMERICA		4,000,000.00		4,000,000.00		4,000,000.00	All Bank of America cash accounts
ROC		700,000.00		1,325,000.00		1,325,000.00	NA
PREMIUM ASSIGNMENT		10,359.97		—			NA
		4,710,359.97		5,325,000.00		5,325,000.00
ALSATE
N/P REI		7,970,907.91		7,970,907.91		7,970,907.91	NA
PREMIUM ASSIGNMENT		322,860.95		304,162.45		229,672.13	Unsecured
		8,293,768.86		8,275,070.36		8,200,580.04
HONDO HEAVY HAUL
N/P JOHN DEERE		—		—		168,012.51	John Deere 724J Loader with 9’ Forks
N/P PACCAR FINANCIAL		384,994.98		358,536.00		351,780.61	Quantity of 6 2003 Peterbilt 379-127 Vehicles
		384,994.98		358,536.00		519,793.12
LARIAT
MERRILL LYNCH #1		15,672,564.49		14,778,781.18		14,473,910.39	Rig #1 - Rig #7 and Ancillary Equipment
MERRILL LYNCH #2		2,002,641.96		1,856,607.25		1,818,373.93	Rig #13 and All Associated Equipment
MERRILL LYNCH #3		4,105,940.24		3,890,110.21		3,815,375.61	Rig #12 and All Associated Equipment
MERRILL LYNCH #4		2,109,383.64		2,000,975.86		1,963,550.55	Rig #14 and All Associated Equipment
MERRILL LYNCH #5		914,242.41		869,762.16		854,396.64	Service/Workover Rigs
MERRILL LYNCH #6		1,589,597.17		1,512,265.89		1,485,551.88	Rig #15 and All Associated Equipment
MERRILL LYNCH #7		1,837,650.55		1,749,080.20		1,718,787.04	Rig #16 and All Associated Equipment
MERRILL LYNCH #8		2,318,074.35		2,207,733.29		2,169,571.35	Rig #19 and All Associated Equipment

	6/30/2006		9/30/2006		11/13/2006		Collateral
MERRILL LYNCH #9		812,153.10		774,503.80		761,471.46	Misc Trucks & Equipment
MERRILL LYNCH #10		8,134,304.10		5,766,007.12		5,766,007.12	Rig #22 and 3 Pulling Units
MERRILL LYNCH #11		5,924,100.00		7,918,474.04		7,807,394.01	Rig #24 and All Associated Equipment
MERRILL LYNCH #12		—		7,997,535.00		7,916,205.44	Rig #26
MERRILL LYNCH #13		—		888,615.00		888,615.00	Pulling Units 11, 12, 13, & 17
MERRILL LYNCH #14		—		—		6,220,305.00	Rig #28
PREMIUM ASSIGNMENT		441,536.00		254,692.21		128,148.37	Unsecured
DAIMLER CHRYSLER #7493		1,288.60		—		0.00	NA
DAIMLER CHRYSLER #11970		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
DAIMLER CHRYSLER #11974		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #83592		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #83593		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #81856		38,941.00		35,915.54		33,867.81	2007 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #66004		83,400.00		77,119.75		72,869.43	2007 Western Star 4900 Tractor
N/P DIAMLERCHRYSLER #81858		40,320.19		37,294.73		35,246.11	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81859				38,521.62		36,474.56	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81860				38,521.62		36,474.46	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81861				39,535.67		37,501.23	2007 Sterling Acterra Tractor
N/P JOHN DEERE #2582		95,019.00		77,576.97		65,853.97	2005 330CLC Excavator
N/P JOHN DEERE CREDIT #9496		42,503.97		39,359.77		37,226.34	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6211		76,246.09		70,605.85		66,778.80	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #2526		39,847.85		36,900.15		34,900.04	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6277		70,985.96		65,734.84		62,171.82	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #64644				61,286.53		57,754.11	544H Loader
N/P JOHN DEERE CREDIT #79513		78,447.04		72,458.80		68,395.35	544H Loader
N/P JOHN DEERE CREDIT #79321		58,765.00		54,417.91		51,468.28	544H Loader

	6/30/2006		9/30/2006		11/13/2006		Collateral
N/P JOHN DEERE CREDIT #87862						72,076.66	544H Loader
JOHN DEERE CREDIT #6762		17,207.00		14,048.33		11,925.55	2005 310SG Wheel Loader Backhoe
N/P JDC #3291		6,357.00		1,600.45		0.00	NA
N/P JDC #3935		118,732.00		102,352.48		91,272.96	724J Loader
CIT GROUP		5,504.00
PACCAR #24856 & #24870				155,126.70		149,818.25	Quantity of 2 2004 Peterbilts
PACCAR		147,882.47		114,592.70		92,124.20	Kenworths
PACCAR #5780267						296,538.19	Quantity of 2 2007 Peterbilts and Quantity of 2 2004 Peterbilts
PACCAR #5783865						152,716.41	Quantity of 2 2004 Peterbilts
GMAC #9231		3,393.16		846.15
GMAC #9210		1,942.00		—			NA
		47,018,494.77		53,808,158.87		59,546,586.14
REI
BANK OF AMERICA		36,435,900.00		102,403,656.50		117,452,113.25	Oil & Gas Properties
LARCO
RIATA ENERGY		5,635,243.89		5,635,243.89		5,635,243.89	NA
RIAGRA
N/P REI		8,983,980.36		8,983,980.36		8,983,980.36	NA
JOHN DEERE		—		—		0.00	NA
		8,983,980.36		8,983,980.36		8,983,980.36
ROC
N/P REI		62,333.53		62,333.53		62,333.53	NA
PREMIUM ASSIGNMENT		6,108.00		—		0.00	NA
		68,441.53		62,333.53		62,333.53
PSEC
N/P REI		31,813,722.36		31,813,722.36		31,813,722.36	NA
PREMIUM ASSIGNMENT		71,336.64		38,566.48		30,967.38	Unsecured

	6/30/2006		9/30/2006		11/13/2006		Collateral
SUBORDINATED DEBT-REI		6,540,000.00		6,540,000.00		6,540,000.00	NA
SUBORDINATED DEBT-OUTSIDE		—
		38,425,059.00		38,392,288.84		38,384,689.74
PSPC
N/P REI		5,902,097.77		5,902,097.77		5,902,097.77	NA
HONDO
PACCAR		9,640.31		—		0.00	NA
TOTAL		158,155,110.59		231,433,495.27		252,299,546.99
LESS INTER-CO NOTES		69,895,414.97		70,520,414.97		70,520,414.97
TOTAL		88,259,695.62		160,913,080.30		181,779,132.02

SCHEDULE 10.02

ADMINISTRATIVE AGENT’S OFFICE;
CERTAIN ADDRESSES FOR NOTICES

BORROWER:

Riata Energy, Inc. (d/b/a Sandridge Energy, Inc.)
1601 Northwest Expressway, Suite 1600
Oklahoma City, OK 73118
Attention: Matt McCann
Telephone: (405) 753-5600
Telecopier: (405) 753-5988
Electronic Mail: mmccann@sdrge.com
Website Address: www.sandridgeenergy.com
U.S. Taxpayer Identification Number: 76-0002820

ADMINISTRATIVE AGENT:

Administrative Agent’s Office
(for payments and Requests for Credit Extensions):
Bank of America, N.A.
Bank of America Plaza
901 Main Street
Mail Code: TX1-492-14-14
Dallas, TX 75202-3714
Attention: Tracy F. Mackie
Telephone: (214) 209-2154
Telecopier: (214) 290-9425
Account No.: 129-2000-883
Ref: SandRidge Energy, Inc.
ABA# 026009593

Other Notices as Administrative Agent:
Bank of America, N.A.
Agency Management
231 South LaSalle Street
Mail Code: IL1-231-08-30
Chicago, IL 60697
Attention: Suzanne M. Paul
Telephone: (312) 923-1640
Telecopier: (877) 206-8435
Electronic Mail: suzanne.m.paul@bankofamerica.com

L/C ISSUER:

Bank of America, N.A.
Trade Operations
1000 West Temple Street
Mail Code: CA9-705-07-05
Los Angeles, CA 90012-1514
Attention: Tai Anh Lu
Telephone: (213) 481-7840
Telecopier: (213) 580-8442
Electronic Mail: tai_anh.lu@bankofamerica.com

SWING LINE LENDER:

Bank of America, N.A.
Bank of America Plaza
901 Main Street
Mail Code: TX1-492-14-14
Dallas, TX 75202-3714
Attention: Tracy F. Mackie
Telephone: (214) 209-2154
Telecopier: (214) 290-9425
Account No.: 129-2000-883
Ref: SandRidge Energy, Inc.
ABA# 026009593

SCHEDULE 10.06

PROCESSING AND RECORDATION FEES

     The Administrative Agent will charge a processing and recordation fee (an “Assignment Fee”) in the amount of $2,500 for each assignment; provided, however, that in the event of two or more concurrent assignments to members of the same Assignee Group (which may be effected by a suballocation of an assigned amount among members of such Assignee Group) or two or more concurrent assignments by members of the same Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group), the Assignment Fee will be $2,500 plus the amount set forth below:

Transaction	Assignment Fee
First four concurrent assignments or suballocations to members of an Assignee Group (or from members of an Assignee Group, as applicable)	-0-
Each additional concurrent assignment or suballocation to a member of such Assignee Group (or from a member of such Assignee Group, as applicable)	$500

EXHIBIT A

FORM OF COMMITTED LOAN NOTICE

Date:                     , _____

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.), a Texas corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer and Swing Line Lender.

     The undersigned hereby requests (select one):

     o A Borrowing of Committed Loans                     o A conversion or continuation of Loans

1.	On                                                                                  (a Business Day).
2.	In the amount of $                     .
3.	Comprised of                                                             .                       [Type of Committed Loan requested]
4.	For Eurodollar Rate Loans: with an Interest Period of                      months.

     The Committed Borrowing, if any, requested herein complies with the provisos to the first sentence of Section 2.01 of the Agreement.

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Committed Loan Notice

A-1

EXHIBIT B

FORM OF SWING LINE LOAN NOTICE

Date:                     , _____

To: Bank of America, N.A., as Swing Line Lender Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.), a Texas corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer and Swing Line Lender.

     The undersigned hereby requests a Swing Line Loan:

1.	On                                                              (a Business Day).
2.	In the amount of $                     .

     The Swing Line Borrowing requested herein complies with the requirements of the provisos to the first sentence of Section 2.04(a) of the Agreement.

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Swing Line Loan Notice

B-1

EXHIBIT C

FORM OF NOTE

     FOR VALUE RECEIVED, the undersigned (the “Borrower”) hereby promises to pay to                                          or registered assigns (the “Lender”), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of each Loan from time to time made by the Lender to the Borrower under that certain Credit Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among the Borrower, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer and Swing Line Lender.

     The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. Except as otherwise provided in Section 2.04(f) of the Agreement with respect to Swing Line Loans, all payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agent’s Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.

     This Note is one of the Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. This Note is also entitled to the benefits of the Guaranty and is secured by the Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

     The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

Form of Note

C-1

     THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Note

C-2

LOANS AND PAYMENTS WITH RESPECT THERETO

				Amount of
				Principal or	Outstanding
			End of	Interest	Principal
	Type of	Amount of	Interest	Paid This	Balance	Notation
Date	Loan Made	Loan Made	Period	Date	This Date	Made By

Form of Note

C-3

EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:                     ,

To:      Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.), a Texas corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer and Swing Line Lender.

     The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the of                                          the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

     1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

     1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present, in all material respects, the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

     2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements.

     3. A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and

Form of Compliance Certificate

D-1

[select one:]

     [to the best knowledge of the undersigned during such fiscal period, the Borrower performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.]

—or—

     [the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

     4. The representations and warranties of the Borrower contained in Article V of the Agreement, and any representations and warranties of any Loan Party that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.

     5. The financial covenant analyses and information set forth on Schedules 2 and 3 attached hereto are true and accurate on and as of the date of this Certificate.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of                      ,                     .

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Compliance Certificate

D-2

For the Quarter/Year ended ___________________(“Statement Date”)

SCHEDULE 2
to the Compliance Certificate
($ in 000’s)

I.	Section 7.11 (a) – Consolidated Fixed Charge Coverage Ratio.
	A.	Consolidated EBITDAX for four consecutive fiscal quarters
		ending on above date (“Subject Period”) (from Schedule 3)	$
	B.	Consolidated Fixed Charges for Subject Period:	$
	C.	Consolidated Fixed Charge Coverage Ratio (Line I.A ¸ Line I.B):	to 1
	D.	Minimum Required Consolidated Fixed Charge Coverage Ratio		2.5 to 1
II.	Section 7.11 (b) – Consolidated Leverage Ratio.
	A.	Consolidated Funded Indebtedness at Statement Date:	$
	B.	Consolidated EBITDAX for Subject Period (Line I.A.):	$
	C.	Consolidated Leverage Ratio (Line II.A ¸ Line II.B):	to 1
	D.	Maximum Permitted Consolidated Leverage Ratio		4 to 1
III.	Section 7.11 (c) – Consolidated Current Ratio.
	A.	Consolidated Current Assets at Statement Date:	$
	B.	Consolidated Current Liabilities at Statement Date:	$
	C.	Consolidated Current Ratio (Line III.A ¸ Line III.B):	to 1
	D.	Minimum Required Consolidated Current Ratio:		1 to 1

Form of Compliance Certificate

D-3

For the Quarter/Year ended ___________________(“Statement Date”)

SCHEDULE 3
to the Compliance Certificate
($ in 000’s)

Consolidated EBITDAX
(in accordance with the definition of Consolidated EBITDAX
as set forth in the Agreement)

					Twelve
Consolidated	Quarter	Quarter	Quarter	Quarter	Months
EBITDA	Ended	Ended	Ended	Ended	Ended
Consolidated Net Income
+ income or franchise taxes
+ interest expense
+ depreciation expense
+ amortization expense
+ exploration expense
+ non-cash loss on change in fair value of derivative instruments
+ other non-cash expenses
- non-cash gain on change in fair value of derivative instruments
- income tax credits
- interest income

Form of Compliance Certificate

D-4

					Twelve
Consolidated	Quarter	Quarter	Quarter	Quarter	Months
EBITDA	Ended	Ended	Ended	Ended	Ended
- other non-cash income
= Consolidated EBITDAX

Form of Compliance Certificate

D-5

EXHIBIT E

ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each]¹ Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each]² Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]³ hereunder are several and not joint.]⁴ Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

     For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including, without limitation, the Letters of Credit and the Swing Line Loans included in such facilities⁵) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims,

1	For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2	For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3	Select as appropriate.
4	Include bracketed language if there are either multiple Assignors or multiple Assignees.
5	Include all applicable subfacilities.

Form of Assignment and Assumption

E-1

malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

1.	Assignor[s]:
2.	Assignee[s]:
	[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]]
3.	Borrower(s):
4.	Administrative Agent: Bank of America, N.A., as the administrative agent under the Credit Agreement
5.	Credit Agreement: Credit Agreement, dated as of November 21, 2006 among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer, and Swing Line Lender
6.	Assigned Interest[s]: 6

			Aggregate		Percentage
			Amount of	Amount of	Assigned of
		Facility	Commitment/Loans	Commitment/Loans	Commitment/		CUSIP
Assignor[s]7	Assignee[s]8	Assigned9	for all Lenders10	Assigned	Loans11		Number
			$	$		%
			$	$		%
			$	$		%

[7. Trade Date: __________________]¹²

6	The reference to “Loans” in the table should be used only if the Credit Agreement provides for Term Loans.
7	List each Assignor, as appropriate.
8	List each Assignee, as appropriate.
9	Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Revolving Credit Commitment”, “Term Loan Commitment”, etc.).
10	Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
11	Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

Form of Assignment and Assumption

E-2

Effective Date: ___, 20 ___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

     The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR [NAME OF ASSIGNOR]
By:
	Title:
ASSIGNEE [NAME OF ASSIGNEE]
By:
	Title:

[Consented to and]¹³ Accepted:

BANK OF AMERICA, N.A., as

  Administrative Agent, L/C Issuer and Swing Line Lender

By:
	Title:

Consented to:¹⁴

RIATA ENERGY, INC.
(d/b/a SandRidge Energy, Inc.)

By:
	Title:

12	To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.
13	To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
14	To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

Form of Assignment and Assumption

E-3

ANNEX 1 TO ASSIGNMENT AND ASSUMPTION

[___________________]¹⁵

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

     1. Representations and Warranties.

     1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

     1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section ___thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without

¹⁵ Describe Credit Agreement at option of Administrative Agent.

Annex A-1

reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

     2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.

     3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York [confirm that choice of law provision parallels the Credit Agreement].

Annex A-2

EXHIBIT F

FORM OF GUARANTY

SEE TAB 4

Form of Opinion of Counsel to the Loan Parties

G-1

EXHIBIT G

FORM OF OPINION OF COUNSEL TO THE LOAN PARTIES

SEE TAB 11

Form of Opinion of Counsel to the Loan Parties

G-1

EXHIBIT H

PLEDGE AND SECURITY AGREEMENT

SEE TAB 3

Appendix V to Form

I-1

EXHIBIT I

MORTGAGES

SEE TAB 16

Appendix V to Form

I-1

EX-10.7

Exhibit 10.7

BRIDGE LOAN AGREEMENT

Dated as of November 21, 2006

among

RIATA ENERGY, INC.
(d/b/a SandRidge Energy, Inc.)
as the Borrower,

BANK OF AMERICA, N.A.,
as Administrative Agent

and

The Other Lenders Party Hereto

BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE SECURITIES (USA) LLC
GOLDMAN SACHS CREDIT PARTNERS L.P.
LEHMAN BROTHERS INC.
Lead Arrangers and Bookrunners

TABLE OF CONTENTS

Section	Page
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS		1
1.01 Defined Terms		1
1.02 Other Interpretive Provisions		22
1.03 Accounting Terms		23
1.04 Petroleum Terms		23
1.05 Rounding		24
1.06 Times of Day		24
ARTICLE II. THE COMMITMENTS AND LOANS		24
2.01 Loans		24
2.02 Borrowings, Conversions and Continuations of Loans		24
2.03 Prepayments		25
2.04 Repayment of Loans		27
2.05 Interest		27
2.06 Fees		28
2.07 Computation of Interest and Fees		28
2.08 Evidence of Debt		28
2.09 Payments Generally; Administrative Agent’s Clawback		28
2.10 Sharing of Payments by Lenders		30
ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY		31
3.01 Taxes		31
3.02 Illegality		33
3.03 Inability to Determine Rates		33
3.04 Increased Costs; Reserves on Eurodollar Rate Loans		33
3.05 Compensation for Losses		35
3.06 Mitigation Obligations; Replacement of Lenders		35
3.07 Survival		36
ARTICLE IV. CONDITIONS PRECEDENT TO LOANS		36
ARTICLE V. REPRESENTATIONS AND WARRANTIES		39
5.01 Existence, Qualification and Power		39
5.02 Authorization; No Contravention		39
5.03 Governmental Authorization; Other Consents		39
5.04 Binding Effect		40
5.05 Financial Statements; No Material Adverse Effect		40
5.06 Litigation		41
5.07 No Default		41
5.08 Ownership of Property; Liens		41
5.09 Environmental Compliance		41
5.10 Insurance		42
5.11 Taxes		42
5.12 ERISA Compliance		42
5.13 Subsidiaries; Equity Interests; Loan Parties		43
5.14 Margin Regulations; Investment Company Act		43
5.15 Disclosure		43
5.16 Compliance with Laws		44

i

Section	Page
5.17 Solvency		44
5.18 Casualty, Etc.		44
5.19 Labor Matters		44
ARTICLE VI. AFFIRMATIVE COVENANTS		44
6.01 Financial Statements		44
6.02 Certificates; Other Information		45
6.03 Notices		48
6.04 Payment of Obligations		49
6.05 Preservation of Existence, Etc.		49
6.06 Maintenance of Properties		49
6.07 Maintenance of Insurance		49
6.08 Compliance with Laws		49
6.09 Books and Records		49
6.10 Inspection Rights		49
6.11 Use of Proceeds		50
6.12 Covenant to Guarantee Obligations		50
6.13 Compliance with Environmental Laws		50
6.14 [Reserved]		51
6.15 Use of Proceeds of the Permanent Securities		51
6.16 Exchange Notes		51
6.17 Change of Control		52
6.18 Registration Rights		53
ARTICLE VII. NEGATIVE COVENANTS		53
7.01 Liens		53
7.02 Investments		55
7.03 Indebtedness		56
7.04 Fundamental Changes		57
7.05 Dispositions		57
7.06 Restricted Payments		58
7.07 Change in Nature of Business		59
7.08 Transactions with Affiliates		59
7.09 Burdensome Agreements		59
7.10 Use of Proceeds		59
7.11 Financial Covenants		60
7.12 Hedge Transactions		60
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES		60
8.01 Events of Default		60
8.02 Remedies Upon Event of Default		62
8.03 Application of Funds		62
ARTICLE IX. ADMINISTRATIVE AGENT		63
9.01 Appointment and Authority		63
9.02 Rights as a Lender		63
9.03 Exculpatory Provisions		64
9.04 Reliance by Administrative Agent		64
9.05 Delegation of Duties		65
9.06 Resignation of Administrative Agent		65
9.07 Non-Reliance on Administrative Agent and Other Lenders		66
9.08 No Other Duties, Etc.		66

ii

Section	Page
9.09 Administrative Agent May File Proofs of Claim		66
9.10 Guaranty Matters		67
ARTICLE X. MISCELLANEOUS		67
10.01 Amendments, Etc.		67
10.02 Notices; Effectiveness; Electronic Communication		68
10.03 No Waiver; Cumulative Remedies		70
10.04 Expenses; Indemnity; Damage Waiver		70
10.05 Payments Set Aside		71
10.06 Successors and Assigns		72
10.07 Treatment of Certain Information; Confidentiality		75
10.08 Right of Setoff		76
10.09 Interest Rate Limitation		76
10.10 Counterparts; Integration; Effectiveness		77
10.11 Survival of Representations and Warranties		77
10.12 Severability		77
10.13 Replacement of Lenders		77
10.14 Governing Law; Jurisdiction; Etc.		78
10.15 Waiver of Jury Trial		79
10.16 No Advisory or Fiduciary Responsibility		79
10.17 USA PATRIOT Act Notice		80

iii

SCHEDULES
	2.01	Commitments and Applicable Percentages
	5.03	Governmental Authorizations
	5.05	Supplement to Interim Financial Statements
	5.06	Litigation
	5.09	Environmental Matters
	5.13	Subsidiaries; Other Equity Investments and Loan Parties
	7.01	Existing Liens
	7.03	Existing Indebtedness
	10.02	Administrative Agent’s Office; Certain Addresses for Notices
	10.06	Processing and Recordation Fees
EXHIBITS
		Form of
	A	Loan Notice
	B	Note
	C	Compliance Certificate
	D	Assignment and Assumption
	E	Guaranty
	F	Opinion of Counsel to the Loan Parties

iv

BRIDGE LOAN AGREEMENT

     This BRIDGE LOAN AGREEMENT (“Agreement”) is entered into as of November 21, 2006 among RIATA ENERGY, INC., a Texas corporation (d/b/a SandRidge Energy, Inc.) (the “Borrower”), each LENDER from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and BANK OF AMERICA, N.A., as Administrative Agent, and BANC OF AMERICA SECURITIES LLC, CREDIT SUISSE SECURITIES (USA) LLC, GOLDMAN SACHS CREDIT PARTNERS L.P. and LEHMAN BROTHERS INC., as Lead Arrangers and Bookrunners.

PRELIMINARY STATEMENTS:

     Capitalized terms used but not defined in these Preliminary Statements shall have respective meanings set forth for such terms in Section 1.01 hereof.

     Pursuant to the Purchase and Sale Agreement dated November 21, 2006 (the “Acquisition Agreement”) by and among SandRidge Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Borrower (“Buyer”) , American Real Estate Partners, L.P., a Delaware limited partnership, American Real Estate Holdings Limited Partnership, a Delaware limited partnership, AREP Oil & Gas Holdings LLC, a Delaware limited liability company, AREP O & G Holdings LLC, a Delaware limited liability company (collectively, the “Seller”) and NEG Oil & Gas LLC, a Delaware limited liability company (the “Target”) , Buyer has agreed to acquire (the “Acquisition”) all of the membership interests of Target for not more than $1,269.0 million in cash, plus additional consideration in the form of common equity of the Borrower.

     The Borrower intends to finance the Acquisition, the costs and expenses related to the Transaction, the repayment of certain existing indebtedness of the Borrower and the Target and the Borrower’s and its Subsidiaries’ ongoing working capital and other general corporate purposes after consummation of the Acquisition from the following sources: (a) at least $500.0 million in cash proceeds to be received from the issuance and sale of convertible preferred equity (the “Preferred Stock”), (b) at least $244.0 million of common equity of the Target currently held by the Seller to be rolled over (directly or indirectly) into common equity of the Borrower; (c) up to $150.0 million under a revolving senior secured credit facility (the “Senior Credit Facility”) and (d) up to $850.0 million of senior unsecured loans under the bridge facility provided under this Agreement.

     The Borrower has requested that the Lenders provide a bridge loan facility, and the Lenders are willing to do so on the terms and conditions set forth herein.

     In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS

     1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

1

     “Acquisition” has the meaning specified in the Preliminary Statements.

     “Acquisition Agreement” has the meaning specified in the Preliminary Statements.

     “Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

     “Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.

     “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

     “Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

     “Aggregate Commitments” means the Commitments of all the Initial Lenders.

     “Agreement” means this Bridge Loan Agreement.

     “Applicable Rate” means (i) with respect to Eurodollar Rate Loans, the sum of 4.50% plus the Incremental Margin, if any, and (ii) with respect to Base Rate Loans, the sum of 3.50% plus the Incremental Margin, if any.

     “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

     “Arranger” means each of Banc of America Securities LLC, Credit Suisse Securities (USA) LLC, Goldman Sachs Credit Partners L.P. and Lehman Brothers Inc. in its capacity as lead arranger and book manager in respect of this Agreement.

     “Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

     “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.06(b), and accepted by the Administrative Agent, in substantially the form of Exhibit D or any other form approved by the Administrative Agent.

     “Attributable Indebtedness” means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.

2

     “Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2005, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.

     “Bank of America” means Bank of America, N.A. and its successors.

     “Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

     “Base Rate Loan” means a Loan that bears interest based on the Base Rate.

     “Borrower” has the meaning specified in the introductory paragraph hereto.

     “Borrower Existing Credit Agreement” means that certain First Amended and Restated Master Credit Agreement dated as of January 12, 2006, among the Borrower (under its former name of Riata Energy, Inc.), Bank of America , N.A. and certain subsidiaries of Borrower from time to time party thereto as guarantors,

     “Borrower Materials” has the meaning specified in Section 6.02.

     “Borrowing” means a borrowing consisting of simultaneous Initial Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Initial Lenders pursuant to Section 2.01.

     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

     “Cash Equivalents” means any of the following types of Investments, to the extent owned by the Borrower or any of its Subsidiaries:

     (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

     (b) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or

3

is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 90 days from the date of acquisition thereof;

     (c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and

     (d) Investments, classified in accordance with GAAP as current assets of the Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

     “Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Oil and Gas Property of the Borrower or any of its Subsidiaries having a fair market value in excess of $500,000.

     “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

     “CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

     “CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

     “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

     “Change of Control” means an event or series of events by which:

     (a) at any time prior to the creation of a Public Market, the Ward/Mitchell Group shall cease to own and control legally and beneficially (free and clear of all Liens), either directly or indirectly, equity securities in the Borrower representing more than 30% of the combined voting power of all of equity securities entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that the Ward/Mitchell Group has the right to acquire pursuant to any option right (as defined in clause (b) below)); or

4

     (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) other than the Ward/Mitchell Group becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of more than a Control Percentage of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such “person” or “group” has the right to acquire pursuant to any option right); for this purpose, “Control Percentage” means (i) prior to the creation of the Public Market, the percentage of which the Ward/Mitchell Group is the beneficial owner (determined as provided above) and (ii) at any time after the creation of a Public Market, the greater of 30% and the percentage in (i); or

     (c) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).

     “Change of Control Offer” has the meaning set forth in Section 6.17.

     “Change of Control Payment” has the meaning set forth in Section 6.17.

     “Change of Control Payment Date” has the meaning set forth in Section 6.17.

     “Closing Date” means the date of the Borrowing hereunder, as specified by the Borrower in its Loan Notice.

     “Citi L/Cs” means letters of credit outstanding under the Target Existing Credit Agreements.

5

     “Citi Payoff Documents” means documents executed and delivered in connection with the termination of the Target Existing Credit Agreements which shall be satisfactory in form and substance to the Administrative Agent.

     “Code” means the Internal Revenue Code of 1986.

     “Commitment” means, as to each Initial Lender, its obligation to make an Initial Loan to the Borrower pursuant to Section 2.01, in the amount set forth opposite such Lender’s name on Schedule 2.01.

     “Commitment Letter” means the letter agreement so denominated dated November 20, 2006 among the Borrower, the Administrative Agent, the Arranger and the other parties thereto.

     “Compliance Certificate” means a certificate substantially in the form of Exhibit C.

     “Consolidated” refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person’s Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries.

     “Consolidated Current Assets” means, for any period, the aggregate amount of all assets of Borrower and its Consolidated Subsidiaries which would be properly classified as current assets in accordance with GAAP plus any Available Borrowing Base (as defined in the Senior Credit Facility), but excluding any unrealized assets resulting from compliance with the Financial Accounting Standards Board’s Statement 133 concerning mark-to-market requirements on hedging transactions.

     “Consolidated Current Liabilities” means, for any period, the aggregate amount of all liabilities of Borrower and its Consolidated Subsidiaries which would be properly classified as current liabilities in accordance with GAAP, but excluding current maturities under the Senior Credit Agreement, all amounts outstanding pursuant to this Agreement and any unrealized liabilities resulting from compliance with the Financial Accounting Standards Board’s Statement 133 concerning mark-to-market requirements on hedging transactions.

     “Consolidated Current Ratio” means, as of any date of determination, the ratio of (a) Consolidated Current Assets as of such date to (b) Consolidated Current Liabilities as of such date.

     “Consolidated EBITDAX” means for any period, the Consolidated Net Income of Borrower for such period; plus each of the following (without duplication) determined for Borrower and its Consolidated Subsidiaries on a Consolidated basis for such period: (a) any provision for (or less any benefit from) income or franchise taxes included in determining Consolidated Net Income; (b) any interest expense deducted in determining Consolidated Net Income; (c) any depreciation, depletion, amortization or exploration expense deducted in determining Consolidated Net Income; (d) any non-cash loss on change in fair value of derivative instruments deducted in determining Consolidated Net Income; and (e) any other non-cash charge, expense or loss deducted in determining Consolidated Net Income; and minus each

6

of the following (without duplication) determined for Borrower and its Consolidated Subsidiaries on a Consolidated basis for such period, to the extent included in determining such Consolidated Net Income for such period: (a) any non-cash gain on change in fair value of derivative instruments; (b) any interest income included in determining Consolidated Net Income and (c) any other non-cash income or gains; provided however, that in determining Consolidated Net Income for the purposes of this definition for any period in which Borrower or any of its Consolidated Subsidiaries has acquired or acquires additional Consolidated Subsidiaries (whether by purchase, merger or otherwise) or has acquired or disposed of or acquires or disposes of producing Oil and Gas Properties, (1) the Consolidated Net Income of such acquired Consolidated Subsidiaries shall be included in such calculation on a pro forma basis as if they had been owned by Borrower and its Consolidated Subsidiaries throughout such period, (2) the revenues attributable to the oil and gas production from such acquired Oil and Gas Properties during such period, less the direct operating expenses and severance and ad valorem taxes incurred with respect to such properties during such period, shall be included in such calculation on a pro forma basis as if they had been owned by Borrower and its Consolidated Subsidiaries throughout such period, and (3) the revenues attributable to the oil and gas production from producing Oil and Gas Properties disposed of during such period, less the direct operating expenses and severance and ad valorem taxes incurred with respect to such properties during such period, shall be deducted in such calculation on a pro forma basis as if they had not been owned by Borrower and its Consolidated Subsidiaries throughout such period. Pro forma adjustments made in connection with Subsidiaries or Oil and Gas Properties acquired or disposed of shall be consistent with Article 11 of Regulation S-X and certified by the Borrower’s chief financial officer.

     “Consolidated Fixed Charges” means, for any period, the sum of (a) Consolidated Interest Charges for such period, (b) the aggregate amount of scheduled principal payments made during such period in respect of Long-Term Indebtedness of the Borrower and its Consolidated Subsidiaries (except payments made by the Borrower or any Consolidated Subsidiary to the Borrower or any Consolidated Subsidiary), and (c) the aggregate amount of principal payments (except scheduled principal payments) made during such period in respect of Long-Term Indebtedness of the Borrower and its Consolidated Subsidiaries (other than the Loans), but in the case of any principal payment other than scheduled principal payments, only to the extent that such payment reduced any scheduled principal payments that would have become due within one year after the date of such payment.

     “Consolidated Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter, the ratio of (a) Consolidated EBITDAX for the period of the four prior fiscal quarters ending on such date to (b) Consolidated Fixed Charges for such period.

     “Consolidated Funded Indebtedness” means, as of any date of determination, for the Borrower and its Consolidated Subsidiaries on a Consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business), (d) Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations, (e) without duplication, all Guarantees with

7

respect to outstanding Indebtedness of the types specified in clauses (a) through (d) above of Persons other than the Borrower or any Consolidated Subsidiary, and (f) all Indebtedness of the types referred to in clauses (a) through (e) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which the Borrower or a Consolidated Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to the Borrower or such Consolidated Subsidiary.

     “Consolidated Interest Charges” means, for any period, for the Borrower and its Consolidated Subsidiaries on a Consolidated basis, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses of the Borrower and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP (but excluding amortization of debt discount and expense in connection with the Transaction), (b) to the extent not reflected in (a), plus the net amount payable under Swap Contracts in respect of interest rates (or minus the net amount receivable under Swap Contracts in respect of interest rates) plus (c) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period under capital leases that is treated as interest in accordance with GAAP.

     “Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDAX for the period of the four fiscal quarters most recently ended.

     “Consolidated Net Income” means, for any period, the net income (or loss) of Borrower and its Consolidated Subsidiaries for such period determined in accordance with GAAP, provided that the following shall be excluded in calculating Consolidated Net Income and Consolidated EBITDAX: (i) any extraordinary items of gain or loss, (ii) any gain or loss from the sale of assets other than in the ordinary course of business, (iii) any non-cash income, gains, losses or charges resulting from the requirements of SFAS 133 or 143 and (iv) any professional fees related to the Transaction.

     “Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

     “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

     “Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

8

     “Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

     “Default Rate” means (a) the Base Rate plus (b) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that (i) with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (ii) the Default Rate shall in no event be less than the Minimum Rate.

     “Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith. The issuance of Equity Interests by any Subsidiary to any Person other than the Borrower or a wholly-owned Subsidiary shall be deemed a Disposition by the Borrower of its direct or indirect Equity Interest in such Subsidiary to the extent of the resulting dilution.

     “Dollar” and “$” mean lawful money of the United States.

     “Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

     “Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)).

     “Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

     “Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

     “Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

     “Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights

9

for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

     “Equity Issuance” means the issuance of the Preferred Stock.

     “ERISA” means the Employee Retirement Income Security Act of 1974.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

     “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

     “Eurodollar Rate” means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

10

     “Eurodollar Rate Loan” means a Loan that bears interest at a rate based on the Eurodollar Rate.

     “Event of Default” has the meaning specified in Section 8.01.

     “Exchange Note” means a note of the Borrower issued pursuant to the Exchange Note Indenture.

     “Exchange Note Indenture” means the indenture to be entered into to give effect to the exchange right of the Lenders pursuant to Section 6.16, having terms and conditions substantially the same as those applicable to the Extended Loans, except (i) as otherwise contemplated by Section 6.16 (ii) covenants (including mandatory repurchase offers) and events of default will be as proposed by the Arrangers for the Permanent Securities and reasonably acceptable to the Borrower and (iii) as otherwise agreed by the Borrower and the Required Lenders, and such other terms and provisions not materially inconsistent therewith as may be customary for an indenture governing debt securities of such nature.

     “Exchange Request” has the meaning set forth in Section 6.16(b)

     “Excluded Taxes” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a).

     “Existing Credit Agreements” mean collectively the Borrower Existing Credit Agreement and the Target Existing Credit Agreements.

     “Extended Loans” has the meaning set forth in Section 2.01(b).

     “Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole

11

multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

     “Fee Letter” means the letter agreement so denominated dated November 20, 2006 among the Borrower, the Administrative Agent, the Arranger and the other parties thereto.

     “Final Maturity Date” means the sixth anniversary of the Closing Date.

     “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

     “FRB” means the Board of Governors of the Federal Reserve System of the United States.

     “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

     “GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

     “Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

     “Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether

12

or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

     “Guarantors” means, collectively, (i) NEG Oil & Gas LLC, ROC Gas Company, National Onshore LP, National Offshore LP, NEG Operating LLC, Lariat Compression Company, Alsate Management and Investment Company, Integra Energy, L.L.C., Petrosource Energy Company, L.P., Petrosource Production Company, L.P. and SandRidge Holdings, Inc. and (ii) each Person which becomes a Guarantor after the Closing Date pursuant to Section 6.12.

     “Guaranty” means the Guaranty made by the Guarantors in favor of the Administrative Agent and the Lenders, substantially in the form of Exhibit E.

     “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

     “Hedge Transaction” means any commodity, interest rate, currency or other swap, option, collar, futures contract or other contract pursuant to which a Person hedges risks related to commodity prices, interest rates, currency exchange rates, securities prices or financial market conditions. Hedge Transactions expressly include Oil and Gas Hedge Transactions.

     “Hydrocarbons” means oil, gas, casinghead gas, drip gasolines, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith, and all products, by-products and all other substances derived therefrom or the processing thereof, and all other minerals and substances, including, but not limited to, sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium, and any and all other minerals, ores, or substances of value, and the products and proceeds therefrom, including, without limitation, all gas resulting from the insitu combustion of coal or lignite.

     “Immaterial Title Deficiencies” has the meaning set forth in the Senior Credit Facility.

     “Incremental Margin” means (i) prior to the date that is six months after the Closing Date, 0%, and (ii) on and after such date that is six months after the Closing Date 0.50% plus, for each further period of three months that shall have elapsed subsequent to such six month date, 0.25%.

     “Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

13

     (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

     (b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

     (c) net obligations of such Person under any Swap Contract;

     (d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 90 days after the date on which such trade account payable was created);

     (e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

     (f) capital leases and Synthetic Lease Obligations;

     (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person (other than the Preferred Stock), valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

     (h) all Guarantees of such Person in respect of any of the foregoing.

     For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

     “Indemnified Taxes” means Taxes other than Excluded Taxes.

     “Indemnitees” has the meaning specified in Section 10.04(b).

     “Information” has the meaning specified in Section 10.07.

     “Initial Lenders” means Banc of America Bridge LLC, Credit Suisse, Cayman Islands Branch, Goldman Sachs Credit Partners L.P. and Lehman Commercial Paper Inc.

     “Initial Loan” has the meaning set forth in Section 2.01(a).

14

     “Initial Maturity Date” means the first anniversary of the Closing Date.

     “Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Initial Maturity Date or the Final Maturity Date, as applicable; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Initial Maturity Date or the Final Maturity Date, as applicable.

     “Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date three months thereafter provided that:

     (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

     (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

     (iii) no Interest Period shall extend beyond the Final Maturity Date.

     “Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Borrower’s internal controls over financial reporting, in each case as described in the Securities Laws.

     “Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

     “IRS” means the United States Internal Revenue Service.

     “Lariat” means Lariat Services, Inc., a Texas corporation and a wholly-owned Subsidiary of the Borrower.

     “Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable

15

administrative orders, licenses, authorizations and permits of, and agreements with, any Governmental Authority.

     “Lead Arranger” means Banc of America Securities LLC.

     “Lender” has the meaning specified in the introductory paragraph hereto.

     “Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

     “Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

     “Loan” means an Initial Loan or an Extended Loan.

     “Loan Documents” means this Agreement, the Notes, the Fee Letter, the Guaranty, the Exchange Note Indenture and Exchange Notes.

     “Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

     “Loan Parties” means, collectively, the Borrower and each Guarantor.

     “Long-Term Indebtedness” means any Indebtedness that, in accordance with GAAP, constitutes (or, when incurred, constituted) a long-term liability.

     “Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), results of operations or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of (i) the rights and remedies of the Administrative Agent or any Lender under any Loan Document or (ii) the ability of the Loan Parties to perform their obligations under the Loan Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

     “Minimum Rate” means a rate per annum equal to the sum of 9.00% plus the Incremental Margin.

     “MNPI” has the meaning specified in Section 6.02.

     “Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is

16

obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

     “Net Cash Proceeds” means:

(a) with respect to any Disposition by the Borrower or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by the Borrower or such Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith and (D) the Swap Termination Value, if any, associated with such transaction; provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds; and

(b) with respect to the sale or issuance of any Equity Interests by the Borrower or any of its Subsidiaries (or parent holding company), or the incurrence or issuance of any Indebtedness by the Borrower or any of its Subsidiaries, the excess of (i) the sum of the cash and Cash Equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by the Borrower or such Subsidiary in connection therewith.

     “Note” means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit B.

     “Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

     “Oil and Gas Business” means the business of acquiring, exploring, or developing and operating Oil and Gas Properties and the production, marketing, processing and transporting of Hydrocarbons therefrom.

     “Oil and Gas Hedge Transaction” means a Hedge Transaction pursuant to which any Person hedges the price to be received by it for future production of Hydrocarbons.

     “Oil and Gas Properties” means all oil, gas and/or mineral leases, oil, gas or mineral properties, mineral servitudes and/or mineral rights of any kind (including, without limitation,

17

mineral fee interests, lease interests, farmout interests, overriding royalty and royalty interests, net profits interests, oil payment interests, production payment interests and other types of mineral interests), and all oil and gas gathering, treating, storage, processing and handling assets.

     “Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

     “Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

     “Participant” has the meaning specified in Section 10.06(d).

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “PCAOB” means the Public Company Accounting Oversight Board.

     “Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

     “Permanent Securities” means the senior unsecured notes or any other debt securities or term loans of the Borrower to be issued after the Closing Date for the purpose of refinancing all or a portion of the outstanding Loans.

     “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

     “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

     “Platform” has the meaning specified in Section 6.02.

     “Preferred Stock” has the meaning set forth in the Preliminary Statements.

18

     “Public Market” shall exist if (a) a Public Offering has been consummated and (b) any Equity Interests of the Borrower have been distributed by means of an effective registration statement under the Securities Act of 1933.

     “Public Offering” means a public offering of the Equity Interests of the Borrower pursuant to an effective registration statement under the Securities Act of 1933.

     “Public-Side Lender” has the meaning specified in Section 6.02.

     “Refinancing Fee” means a fee payable to each Lender equal to 2.0% of the aggregate outstanding principal amount of the Initial Loans of such Lender repaid, repurchased, redeemed or otherwise acquired or retired for value, in whole or in part, other than with the proceeds of (i) an issuance of Permanent Securities, (ii) the contemplated initial public offering of equity securities of the Borrower following the consummation of the Acquisition, (iii) an asset sale or (iv) the Senior Credit Facility. The Refinancing Fee shall be payable on the date of each such repayment, repurchase, redemption, acquisition or retirement for value.

     “Register” has the meaning specified in Section 10.06(c).

     “Registered Public Accounting Firm” has the meaning specified in the Securities Laws and shall be independent of the Borrower as prescribed by the Securities Laws.

     “Related Documents” means the Acquisition Agreement, and the documentation for the Equity Issuance.

     “Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

     “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

     “Required Lenders” means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the Commitments shall have or shall have been terminated, Lenders holding in the aggregate more than 50% of the outstanding principal amount of the Loans.

     “Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and, solely for purposes of notices given pursuant to Article II, any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

     “Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of the

19

Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower’s stockholders, partners or members (or the equivalent Person thereof).

     “Rollover Fee” means a fee payable to each Lender equal to 2.0% of the aggregate principal amount of any Extended Loans made by such Lender on the Initial Maturity Date, payable in full on the Initial Maturity Date.

     “Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

     “SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

     “Securities Laws” means the Securities Act of 1933 and regulations thereunder, the Securities Exchange Act of 1934 and regulations thereunder, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.

     “Seller” has the meaning specified in the Preliminary Statements.

     “Senior Credit Facility” has the meaning specified in the Preliminary Statements.

     “Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

     “Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

20

     “Super-Majority Lenders” means, as of any date of determination, Lenders holding in the aggregate 75% or more of the Total Outstandings.

     “Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

     “Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

     “Syndication Completion Date” means the earlier of (i) the date on which the Bridge Lead Arranger notifies the Lenders that the Bridge Lead Arranger has completed its primary syndication of the Initial Loans to its satisfaction but in any event not later than 60 days after the initial launch of the syndication on IntraLinks or (ii) the 180^th day after the Closing Date.

     “Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

     “Target” has the meaning specified in the Preliminary Statements.

     “Target Existing Credit Agreements” means (i) that certain Credit Agreement dated as of December 20, 2005, among the Target (under its former name of AREP OIL & GAS LLC), Citicorp USA, Inc., as Administrative Agent, Bear Stearns Corporate Lending Inc., as the Syndication Agent and certain financial institutions from time to time party thereto as lenders and (ii) that certain Amended and Restated Credit Agreement, dated as of December 20, 2005, by and among NEG Operating LLC, a Delaware limited liability company, as borrower, NEG

21

Oil & Gas Sub LLC (as assignee of Target), a Delaware limited liability company, as lender and administrative agent, and Citicorp USA, Inc., as Collateral Agent.

     “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

     “Threshold Amount” means $2,500,000.

     “Transaction” means, collectively, the Acquisition, the Equity Issuance, the entering into and funding of the bridge loan facility under this Agreement, the entering into and funding of the Senior Credit Facility, the refinancing of certain outstanding Indebtedness of the Borrower and the Target under the Existing Credit Agreements, and all related transactions and the payment of the fees and expenses incurred in connection with the consummation of the foregoing.

     “Type” means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

     “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

     “United States” and “U.S.” mean the United States of America.

     “Well Participation Program” means that the Well Participation Program effective as of June 8, 2006 by and among the Borrower and certain executive officers of the Borrower, as in effect on the Closing Date.

     “Ward/Mitchell Group” means (i) each of Tom L. Ward (“Ward”) and N. Malone Mitchell III (“Mitchell”); (ii) the wife of either of them; (iii) a lineal descendant of either of them; (iv) the estate of either of them; (v) any trust of which at least one of the trustees is Ward or Mitchell, or the principal beneficiaries of which are any one or more of the Persons in (i)-(iv); (vi) any Person which is Controlled by any one or more of the persons in (i)-(v); and (vii) any group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of which each of Ward and Mitchell is a member.

     1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

     (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document)

22

shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

     (b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

     (c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

     1.03 Accounting Terms. (a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

     (b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

     1.04 Petroleum Terms.

23

     As used herein, the terms “proved reserves,” “proved developed reserves,” “proved developed producing reserves,” “proved developed nonproducing reserves,” and “proved undeveloped reserves” have the meaning given such terms from time to time and at the time in question by the Society of Petroleum Engineers of the American Institute of Mining Engineers.

     1.05 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

     1.06 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Central time (daylight or standard, as applicable).

ARTICLE II.
THE COMMITMENTS AND LOANS

     2.01 Loans. (a) Subject to the terms and conditions set forth herein, each Initial Lender severally agrees to make a single term loan (an “Initial Loan”) to the Borrower on the Closing Date in the amount of such Initial Lender’s Commitment. The Commitments are not revolving in nature and shall terminate at the close of business on the Closing Date.

     (b) Each Lender severally agrees, if the Initial Loans have not been repaid prior to the Initial Maturity Date, that the then outstanding principal amount of each of its Initial Loans shall be automatically converted into a loan (individually, an “Extended Loan” and collectively, the “Extended Loans”) to the Borrower on the Initial Maturity Date in an aggregate principal amount equal to the then outstanding principal amount of such Initial Loan or Loans upon satisfaction of the following conditions: (i) no Default shall have occurred and be continuing; (ii) the Borrower shall have paid, or caused to be paid, in full all fees then due pursuant to Section 2.06; (iii) any Note requested pursuant to Section 2.08 to evidence Extended Loans shall have been duly issued; and (iv) no order, decree or injunction from any Governmental Authority enjoining the conversion of any Initial Loan into an Extended Loan shall be in effect. Upon the conversion of the Initial Loans into Extended Loans, each Lender shall cancel on its records a principal amount of the Initial Loans held by such Lender corresponding to the principal amount of the Extended Loans issued to such Lender, which corresponding principal amount of the Initial Loans shall be satisfied by the conversion of such Initial Loans into Extended Loans in accordance with this Section 2.01(b).

     2.02 Borrowings, Conversions and Continuations of Loans.

     (a) The Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of

24

any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each conversion or continuation of Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) in the case of a conversion or continuation, the principal amount of Loans to be converted or continued, and (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans.

     (b) Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its ratable share of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of the Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Closing Date. Upon satisfaction of the conditions set forth in Article IV, the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower.

     (c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.

     (d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

     (e) After giving effect to all Borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than five Interest Periods in effect with respect to Loans.

     2.03 Prepayments.

25

     (a) Optional. The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty, but subject to the Refinancing Fee, if applicable; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. three Business Days prior to any date of prepayment and (ii) any partial prepayment shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05.

     (b) Mandatory.

          (i) If the Borrower or any of its Subsidiaries Disposes of any property (other than any Disposition of any property permitted by Section 7.05(g)) which results in the realization by such Person of Net Cash Proceeds, the Borrower shall, subject to the prior application of such Net Cash Proceeds pursuant to the provisions of the Senior Credit Facility regarding the application of such Net Cash Proceeds, prepay an aggregate principal amount of Loans equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by such Person; provided that, the proceeds of any Disposition permitted by Section 7.05(g) shall not constitute Net Cash Proceeds to the extent that (A) such proceeds are reinvested in replacement properties or assets, or other productive properties or assets, acquired by the Borrower or a Subsidiary of a kind then used or usable in the business of the applicable Person within 180 days from the date of receipt thereof or (B) if the applicable Borrower or Subsidiary intends to acquire replacement properties or assets, or other productive properties or assets, with such proceeds as part of a like-kind exchange under Section 1031 of the Code, the potential replacement properties or assets are identified by such Borrower or Subsidiary within 180 days from the date the ownership to the sold assets is transferred to the buyer of such property and the proceeds from such property are reinvested to acquire such replacement properties or assets within 180 days from the date the ownership to the sold assets is transferred to the buyer of such property; provided further that, the proceeds of any Casualty Event shall not constitute Net Cash Proceeds to the extent that such proceeds are reinvested in replacement properties or assets, or other productive properties or assets, acquired by the Borrower or a Guarantor of a kind then used or usable in the business of the applicable Person within 180 days from the date of receipt thereof.; and

          (ii) Upon the incurrence or issuance subsequent to the Closing Date by the Borrower or any of its Subsidiaries of any Indebtedness (other than Indebtedness expressly permitted to be incurred or issued pursuant to Section 7.03 (b)-(k)) or the issuance subsequent to the Closing Date by the Borrower or any of its Subsidiaries (or by any direct or indirect parent holding company of which the Borrower is a wholly-owned Subsidiary) of any Equity Interests (other than any such issuance to the Borrower or a wholly owned Subsidiary), the Borrower shall

26

prepay an aggregate principal amount of Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by the Borrower or such Subsidiary.

     (c) Applications. Prepayments made pursuant to this Section 2.03 shall be applied ratably to the Loans of the Lenders.

     2.04 Repayment of Loans.

     (a) Subject to Section 2.01(b), the Initial Loans will mature on the Initial Maturity Date and, to the extent then unpaid, will be converted into Extended Loans or become due and payable pursuant to Section 2.01(b).

     (b) The Extended Loans will mature on the Final Maturity Date.

     2.05 Interest.

     (a) Subject to the provisions of subsections (b) and (c) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

     (b) Subject to the provisions of subsection (c) below, the rate of interest applicable to the Loans shall at no time be less than the Minimum Rate or greater than 11.00% per annum.

     (c) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

     (ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

     (iii) Upon the request of the Required Lenders, while any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

     (iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

     (v) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after

27

judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

     2.06 Fees. The Borrower shall pay to the Administrative Agent, the Arrangers and the Lenders, as applicable, for their own respective accounts fees in the amounts and at the times specified in the Fee Letter, including, if applicable, the Rollover Fee and the Refinancing Fee. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

     2.07 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

     2.08 Evidence of Debt.

     The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.

     2.09 Payments Generally; Administrative Agent’s Clawback.

     (a) General. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its ratable share of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee

28

shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

     (b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Administrative Agent such Lender’s share of the Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in the Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

     (ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

     A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

     (c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the Initial Loans set forth in Article IV are

29

not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

     (d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or to make its payment under Section 10.04(c).

     (e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

     2.10 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Loans made by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Loans and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:

     (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

     (ii) the provisions of this Section shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans

     to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).

     The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

30

ARTICLE III.
TAXES, YIELD PROTECTION AND ILLEGALITY

     3.01 Taxes.

     (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

     (b) Payment of Other Taxes by the Borrower. Without limiting the provisions of subsection (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

     (c) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or, such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

     (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

     (e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by

31

applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

     Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

     (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

     (ii) duly completed copies of Internal Revenue Service Form W-8ECI,

     (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

     (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

     (f) Treatment of Certain Refunds. If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

32

     3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.

     3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.

     3.04 Increased Costs; Reserves on Eurodollar Rate Loans.

     (a) Increased Costs Generally. If any Change in Law shall:

     (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e));

     (ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender); or

33

     (iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

     (b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, such Lender, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

     (c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender, the amount shown as due on any such certificate within 10 days after receipt thereof.

     (d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

     (e) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such

34

additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.

     3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

     (a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

     (b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or

     (c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13;

including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

     3.06 Mitigation Obligations; Replacement of Lenders.

     (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

     (b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any additional amount to any Lender or any

35

Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 10.13.

     3.07 Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

ARTICLE IV.
CONDITIONS PRECEDENT TO LOANS

     The obligation of each Initial Lender to make its Initial Loan hereunder is subject to satisfaction of the following conditions precedent:

     (a) The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

     (i) executed counterparts of this Agreement and the Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;

     (ii) a Note executed by the Borrower in favor of each Lender requesting a Note;

     (iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

     (iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

     (v) a favorable opinion of Vinson and Elkins LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit F and such other matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;

     (vi) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies, or an exhibit, of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such

36

consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

     (vii) a certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in paragraphs (xx) and (xxi) below have been satisfied and (B) that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect;

     (viii) certificates attesting to the Solvency of each Loan Party before and after giving effect to the Transaction and the incurrence of indebtedness related thereto, from its chief financial officer;

     (ix) such reports and audits prepared by the Borrower or any of its Affiliates or any advisor engaged by the Borrower or any of its Affiliates with respect to the Target and its Subsidiaries as the Administrative Agent may reasonably request; and

     (x) certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Lenders, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall reasonably request;

     (xi) the following financial information: (A) audited consolidated financial statements of each of the Borrower and the Target for the three fiscal years ended most recently prior to the Acquisition, unaudited consolidated financial statements of each of the Borrower and the Target for any interim quarterly periods that have ended since the most recent of such audited financial statements, and pro forma financial statements of the Borrower giving effect to the Transaction for the most recently completed fiscal year and the period commencing with the end of the most recently completed fiscal year and ending with the most recently completed quarter, which in each case, (1) shall be satisfactory in form and substance to the Lead Arranger and the Lenders, (2) shall not be materially inconsistent with the Information heretofore provided to the Lenders, and (3) shall meet the requirements of Regulation S-X under the Securities Act of 1933, as amended, and all other accounting rules and regulations of the SEC promulgated thereunder applicable to a registration statement under such Act on Form S-1; (B) forecasts prepared by management of the Borrower, each in form satisfactory to the Administrative Agent and the Lenders, of balance sheets, income statements and cash flow statements for the first year following the Closing Date and for each year commencing with the first fiscal year following the Closing Date for the term of this Agreement; and (C) evidence satisfactory to the Administrative Agent that (1) Consolidated EBITDAX for the twelve-month period ended June 30, 2006 calculated on a pro forma basis giving effect to the Transaction was not less than $290,000,000, (2) the ratio of Consolidated Funded Indebtedness at the Closing Date to Consolidated EBITDAX for the twelve months ended June 30, 2006 (which ratio shall be calculated reflecting the Transaction on a pro forma basis) was not greater than 3.3:1.0 and (3) the pro forma financial statements delivered pursuant to clause (A) above and the forecasts delivered pursuant to clause (B) above were prepared in good faith on the basis of the

37

assumptions stated therein, which assumptions are fair in light of the then existing conditions, and, in the case of each of (1), (2) and (3) above, and the chief financial officer of the Borrower shall have provided the Administrative Agent and the Lenders a written certification to that effect.

     (xii) evidence of (x) the receipt by the Borrower of not less than $500,000,000 cash proceeds from the Preferred Stock and (y) the effectiveness of the Senior Credit Facility;

     (xiii) such other certificates, documents, or opinions as the Administrative Agent or the Required Lenders reasonably may require;

     (xiv) any fees required to be paid on or before the Closing Date shall have been paid;

     (xv) unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent);

     (xvi) the Closing Date shall have occurred on or before November 22, 2006;

     (xvii) all applicable waiting periods (including, without limitation, the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1975) shall have expired or terminated without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on any of the Borrower, the Target, their respective Subsidiaries or the Transaction or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable that in the judgment of the Lead Arranger could have such effect;

     (xviii) the Acquisition shall have been consummated substantially in accordance with the terms of the Acquisition Agreement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein, other than waivers or amendments that could not reasonably be expected to have a Material Adverse Effect, and in compliance with all applicable requirements of Law;

     (xix) there shall have been no change, occurrence or development since June 30, 2006 that could reasonably be expected to have a Material Adverse Effect;

     (xx) the representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case

38

they shall be true and correct as of such earlier date, and except that for purposes of this Article IV, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01;

          (xxi) no Default shall exist, or would result from the Initial Loans or from the application of the proceeds thereof.

     Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Article IV, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

     The Borrower represents and warrants to the Administrative Agent and the Lenders that:

     5.01 Existence, Qualification and Power. Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and (as of the Closing Date only) Related Documents to which it is a party and consummate the Transaction, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

     5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document and (as of the Closing Date only) Related Document to which such Person is or is to be a party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation that is material to the Loan Parties to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

     5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan

39

Document or Related Document, or for the consummation of the Transaction, except for (i) the authorizations, approvals, actions, notices and filings listed on Schedule 5.03, all of which have been duly obtained, taken, given or made and are in full force and effect, (ii) routine authorizations, approvals, actions, notices and filings in the ordinary course of business (e.g. tax filings, annual reports, environmental filings, etc. ); (iii) any necessary authorizations, approvals, actions, notices and filings (including the filing of a shelf registration statement) necessary in order to comply with Sections 6.16 and 6.18 and (iv) authorizations, approvals and consents necessary in connection with the Borrower’s mineral class leases with the general land office of State of Texas. All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any Governmental Authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them.

     5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

     5.05 Financial Statements; No Material Adverse Effect. (a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

     (b) The unaudited consolidated balance sheet of the Borrower and its Subsidiaries dated September 30, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. Schedule 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness.

     (c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

     (d) The consolidated pro forma balance sheet of the Borrower and its Subsidiaries as at June 30, 2006, and the related consolidated pro forma statements of income and cash flows of the Borrower and its Subsidiaries for the twelve months then ended, certified by the chief

40

financial officer or treasurer of the Borrower, copies of which have been furnished to each Lender, fairly present the consolidated pro forma financial condition of the Borrower and its Subsidiaries as at such date and the consolidated pro forma results of operations of the Borrower and its Subsidiaries for the period ended on such date, in each case giving effect to the Transaction, all in accordance with GAAP (except for the absence of footnotes and subject to year-end audit adjustments).

     (e) The consolidated forecasted balance sheets, statements of income and cash flows of the Borrower and its Subsidiaries delivered pursuant to Article IV or Section 6.01(c) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were reasonable in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower’s reasonable estimate of its future financial condition and performance.

     5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower after due and diligent investigation, threatened, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement, any other Loan Document, any Related Document or the consummation of the Transaction, or (b) except as specifically disclosed in Schedule 5.06 (the “Disclosed Litigation”), either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and there has been no change in the status, or financial effect on any Loan Party or any Subsidiary thereof, of the matters described in Schedule 5.06 that could reasonably be expected to have a Material Adverse Effect.

     5.07 No Default. Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

     5.08 Ownership of Property; Liens. (a) Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

     (b) The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens permitted by Section 7.01.

     5.09 Environmental Compliance. (a) The Loan Parties and their respective Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that, except as specifically disclosed in Schedule 5.09, such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

          (b) As of the Closing Date and except (i) as otherwise set forth in Schedule 5.09 or (ii) to the extent the same could not, individually or in the aggregate,

41

reasonably be expected to have a Material Adverse Effect, none of the properties currently or formerly owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the National Priorities List under 42 USC § 9605(a)(8)(B) or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries; and Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries in quantities or in a manner as to create Environmental Liability.

          (c) As of the Closing Date and except (i) as otherwise set forth in Schedule 5.09 or (ii) to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law that is reasonably expected to result in material Environmental Liability to any Loan Party or any of its Subsidiaries; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material Environmental Liability to any Loan Party or any of its Subsidiaries.

     5.10 Insurance. The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Subsidiary operates.

     5.11 Taxes. The Borrower and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.

     5.12 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws except for such events of noncompliance which could not, in the aggregate, reasonably be expected to result in a Material Adverse Effect.

     (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

42

     (c) Except to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

     5.13 Subsidiaries; Equity Interests; Loan Parties. As of the Closing Date, no Loan Party has any Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are (in the case of corporate securities) fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except those permitted under the Loan Documents or permitted by Section 7.01. As of the Closing Date, no Loan Party has any equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13. Set forth on Part (c) of Schedule 5.13 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its incorporation, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation. As of the Closing Date, the copy of the charter of each Loan Party and each amendment thereto provided pursuant to Article IV(iv) is a true and correct copy of each such document, each of which is valid and in full force and effect.

     5.14 Margin Regulations; Investment Company Act. (a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

     (b) None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

     5.15 Disclosure. The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished in writing by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains as of the date so furnished any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial

43

information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

     5.16 Compliance with Laws. Each Loan Party and each Subsidiary thereof is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     5.17 Solvency. Each Loan Party is, individually and together with its Subsidiaries on a Consolidated basis, Solvent.

     5.18 Casualty, Etc. Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

     5.19 Labor Matters.

          There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date and neither the Borrower nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

ARTICLE VI.

AFFIRMATIVE COVENANTS

     So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03) cause each Subsidiary to:

     6.01 Financial Statements. Deliver to the Administrative Agent and the Lenders as contemplated by the penultimate paragraph of Section 6.02:

     (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of a Registered Public Accounting Firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any “going concern” or like

44

qualification or exception or any qualification or exception as to the scope of such audit or with respect to the absence of any material misstatement and (ii) commencing at such time as the Borrower is required to prepare the same for SEC reporting purposes, an opinion of such Registered Public Accounting Firm independently assessing the Borrower’s internal controls over financial reporting in accordance with Item 308 of the SEC Regulation S-K, PCAOB Auditing Standard No. 2, and Section 404 of Sarbanes-Oxley expressing a conclusion that contains no statement that there is a material weakness in such internal controls, except for such material weaknesses as to which the Required Lenders do not object, and such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries;

     (b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of the Borrower’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and

     (c) as soon as available, but in any event within 90 days after the end of each fiscal year (commencing April 1, 2007) of the Borrower, an annual business plan and budget of the Borrower and its Subsidiaries on a Consolidated basis, including forecasts prepared by management of the Borrower, in form satisfactory to the Administrative Agent and the Required Lenders, of consolidated balance sheets and statements of income or operations of the Borrower and its Subsidiaries on a monthly basis for the immediately following fiscal year.

As to any information contained in materials furnished pursuant to Section 6.02(d), the Borrower shall not be separately required to furnish such information under clause (a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in clauses (a) and (b) above at the times specified therein.

     6.02 Certificates; Other Information. Deliver to the Administrative Agent and the Lenders as contemplated by the penultimate paragraph of this Section 6.02:

     (a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the fiscal quarter ended December 31, 2006), a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of the Borrower;

     (b) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of

45

directors (or the audit committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them;

     (c) promptly after the same are available, copies of all annual, regular, periodic and special reports, registration statements and proxy statements which the Borrower may file or be required to file with the SEC under Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

     (d) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;

     (e) [reserved];

     (f) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof;

     (g) not later than five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of all notices, requests and other documents (including amendments, waivers and other modifications) so received under or pursuant to any Related Document or instrument, indenture, loan or credit or similar agreement regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents and such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request;

     (h) promptly after the assertion or occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could reasonably be expected to have a Material Adverse Effect;

     (i) [reserved];

     (j) as soon as available, but in any event within 30 days after the Closing Date, a duly completed Compliance Certificate (on a pro forma basis) as of the last day of the fiscal quarter of the Borrower ended on September 30, 2006, signed by a Responsible Officer of the Borrower; and

     (k) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan

46

Documents, as the Administrative Agent or any Lender may from time to time reasonably request.

     Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

     The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger will make available to the Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) either by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) or by delivery or electronic communication to the applicable Lenders and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities except as contemplated below) (each, a “Public-Side Lender”). The Borrower hereby agrees that so long as the Borrower is the issuer of any outstanding debt or equity securities that are registered or issued pursuant to a private offering or is actively contemplating issuing any such securities (x) all Borrower Materials that are to be posted on the Platform shall be clearly and conspicuously marked “PUBLIC-SIDE” which, at a minimum, shall mean that the words “PUBLIC-SIDE” shall appear prominently on the first page thereof; (y) by marking Borrower Materials “PUBLIC-SIDE,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that (A) prior to the creation of a Public Market, Lenders shall treat such Borrower Materials as containing material non-public information with respect to the Borrower and its Subsidiaries (“MNPI”), and the Borrower shall be deemed to have represented to the Lenders that it expects such Borrower Materials will cease to be MNPI at the time of creation of a Public Market and (B) to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); and (z) any Borrower Materials that are not marked

47

“PUBLIC-SIDE” as contemplated above shall be treated as containing MNPI, shall not be posted on the Platform and shall be available to Lenders only upon request therefor (which request may apply generally to all such Borrower Materials). Any such request shall constitute a confirmation from the applicable Lender that it has compliance procedures for dealing with such MNPI, and that it will use and maintain such information only in compliance with those procedures, its contractual obligations and applicable law, including federal and state securities laws.

     Each Public-Side Lender shall designate individuals or advisors authorized to act on behalf of the Public-Side Lender to receive Borrower Materials not designated as “PUBLIC-SIDE” pursuant to the immediately preceding paragraph, including any notices pursuant to Section 6.03.

     6.03 Notices. Promptly notify the Administrative Agent and each Lender:

     (a) of the occurrence of any Default;

     (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;

     (c) of the occurrence of any ERISA Event;

     (d) of any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary;

     (e) of the determination by the Registered Public Accounting Firm providing the opinion required (but only if required) under Section 6.01(a)(ii) (in connection with its preparation of such opinion) or the Borrower’s determination at any time of the occurrence or existence of any Internal Control Event; and

     (f) of the (i) occurrence of any Disposition of property or assets for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.03(b)(i), and (ii) incurrence or issuance of any Indebtedness or Equity Interests for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.03(b)(ii).

     Each notice pursuant to this Section 6.03 (other than Section 6.03(f)) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

48

     6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property, except, in the case of (a) or (b), for such amounts that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

     6.06 Maintenance of Properties. (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

     6.07 Maintenance of Insurance. Maintain (at its own expense) insurance with financially sound and reputable insurance companies, as well as insurance in such amounts, with such limitations or deductibles, against such risks, and in such form as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations.

     6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

     6.09 Books and Records. (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be.

     6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to

49

discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

     6.11 Use of Proceeds. The Borrower shall apply the proceeds of the Credit Extensions to (i) partially finance the Acquisition, (ii) refinance the Borrower’s existing senior secured revolving credit facility under the Borrower Existing Credit Agreement, (iii) refinance the Target’s existing credit facilities under the Target Existing Credit Agreements, (iv) pay certain fees and expenses incurred in connection with the Acquisition and entering into this Agreement, (v) provide working capital for the Borrower and its Subsidiaries including the issuance of letters of credit, capital expenditures, and other lawful corporate purposes, and (vi) finance permitted acquisitions by the Borrower and its Subsidiaries of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties.

     6.12 Covenant to Guarantee Obligations. Upon the formation or acquisition of any new direct or indirect Subsidiary (excluding any CFC or any Subsidiary that is held directly or indirectly by a CFC) by any Loan Party, then the Borrower shall, at the Borrower’s expense:

          (i) within 20 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), cause such Subsidiary, and cause each direct and indirect parent (except, if applicable, Lariat, L.L.C., Cholla Pipeline, L.P. or Sagebrush Pipeline, LLC) of such Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a guaranty or guaranty supplement, in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties’ obligations under the Loan Documents, and

          (ii) within 60 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clause (i) above, and as to such other matters as the Administrative Agent may reasonably request.

     6.13 Compliance with Environmental Laws. Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all material Environmental Permits necessary for its current operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance in all material respects with the requirements of all applicable Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is not required by applicable Environmental Laws or being contested in good faith and by

50

proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

     6.14 [Reserved]

     6.15 Use of Proceeds of the Permanent Securities.

     The Borrower will use the net proceeds received from the sale of the Permanent Securities to repay the Loans.

     6.16 Exchange Notes.

     The Borrower will, as promptly as practicable on or after the Initial Maturity Date, (i) select a bank or trust company reasonably acceptable to the Required Lenders to act as Exchange Note Trustee, (ii) enter into the Exchange Note Indenture, and (iii) cause counsel to the Borrower to deliver to the Administrative Agent an executed legal opinion in form and substance customary for a transaction of that type to be mutually agreed upon by the Borrower and the Administrative Agent (including, without limitation, with respect to due authorization, execution and delivery; validity; and enforceability of the documents referred to in clause (ii) above.

     (b) The Borrower will, within 15 Business Days following the written request (the “Exchange Request”) of the holders of any Loans at any time after the Initial Maturity Date (provided that after giving effect thereto, not less than $100,000,000 aggregate principal amount of Exchange Notes would be outstanding).

          (i) execute and deliver, cause each other Loan Party to execute and deliver, and cause the Exchange Note Trustee to execute and deliver, the Exchange Note Indenture if such Exchange Note Indenture has not previously been executed and delivered; and

          (ii) execute and deliver to such holder or beneficial owner in accordance with the Exchange Note Indenture an Exchange Note bearing interest as set forth therein (which, at the election of such holder or beneficial owner, may be fixed at a rate not higher than the rate then applicable to such Loan) in exchange for such Loan dated the date of the issuance of such Exchange Note, payable to the order of such holder or owner, as the case may be, in the same principal amount as such Loan (or portion thereof) being exchanged.

               The Exchange Request shall specify the principal amount of the Loans to be exchanged pursuant to this Section which shall be at least $5,000,000 and integral multiples of $1,000,000 in excess thereof or the entire remaining aggregate principal amount of the Loans of such Lender. Such Lender may elect in its Exchange Request that the rate of interest applicable to the Exchange Notes to be issued to it be fixed at the rate applicable to the Extended Loans at the time of issuance of such Exchange Notes, in which event such Exchange Notes shall bear interest at such fixed rate and, notwithstanding the provisions of Section 2.03(a), such Exchange Notes will not be subject to optional redemption or prepayment until the fourth anniversary of the Closing Date and will thereafter be optionally redeemable at par plus accrued interest plus a premium equal to one half of the fixed interest rate applicable thereto, declining ratably to par on the date that is one year prior to the Final Maturity Date. Loans delivered to the Borrower under this Section in exchange for Exchange Notes shall be canceled by the Borrower, and the

51

corresponding amount of the Loan deemed repaid and the Exchange Notes shall be governed by and construed in accordance with the terms of the Exchange Note Indenture.

               The Exchange Note Trustee shall at all times be a corporation organized and doing business under the laws of the United States or the State of New York, in good standing and having its principal offices in the Borough of Manhattan, in The City of New York, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has a combined capital and surplus of not less than $500,000,000.

     6.17 Change of Control.

     If a Change of Control occurs, each Lender will have the right to require the Borrower to prepay all of such Lender’s Loans at a purchase price in cash equal to 101% of the principal amount of such Lender’s Loans, plus accrued and unpaid interest to the date of prepayment.

     No later than the date that is 60 days after any Change of Control, the Borrower will mail a notice (the “Change of Control Offer”) to each Lender, with a copy to the Administrative Agent:

               (1) stating that a Change of Control has occurred or may occur and that such Lender has the right to require the Borrower to prepay such Lender’s Loans at a purchase price in cash equal to 101% of the principal amount plus accrued and unpaid interest to, but not including, the date of prepayment (subject to the right of Lenders of record on a record date to receive interest on the relevant Interest Payment Date) (the “Change of Control Payment”);

               (2) stating the prepayment date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”);

               (3) describing the circumstances and relevant facts regarding the transaction or transactions that constitute the Change of Control;

               (4) describing the procedures determined by the Borrower, consistent with this Agreement, that a Lender must follow in order to have its Loans prepaid; and

               (5) if such notice is mailed prior to the occurrence of a Change of Control, stating that the Change of Control Offer is conditional on the occurrence of such Change of Control.

               On the Change of Control Payment Date, if the Change of Control shall have occurred, the Borrower will, to the extent lawful pay to the Administrative Agent for application to the repayment of all Loans properly tendered pursuant to the Change of Control Offer an amount equal to the Change of Control Payment in respect of all Loans so tendered.

               The Borrower will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth herein applicable to a Change of

52

Control Offer made by the Borrower and purchases all Loans validly tendered and not withdrawn under such Change of Control Offer.

     6.18 Registration Rights.

     Within 365 days after the Closing Date the Borrower shall file a shelf registration statement with the Securities and Exchange Commission and the Borrower shall use its best efforts to cause such shelf registration statement to be declared effective by the Initial Maturity Date and keep such shelf registration statement effective, with respect to resales of the Exchange Notes, for as long as it is required by the holders to resell the Exchange Notes. Upon failure to comply with the foregoing requirements (a “Registration Default”), the Borrower shall pay liquidated damages to each holder of Exchange Notes with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to one-half of one percent (0.50%) per annum on the principal amount of Exchange Notes held by such holder. The amount of the liquidated damages will increase by an additional one-half of one percent (0.50%) per annum on the principal amount of Exchange Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages for all Registration Defaults of 1.5% per annum.

ARTICLE VII.

NEGATIVE COVENANTS

     So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly:

     7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names the Borrower or any of its Subsidiaries as debtor, or assign any accounts or other right to receive income, other than the following:

     (a) Liens pursuant to the Senior Credit Facility and any refinancing thereof permitted by Section 7.03(b);

     (b) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as contemplated by Section 7.03(c), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.03(c);

     (c) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

     (d) operators’, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of

53

more than 90 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;

     (e) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

     (f) Liens to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

     (g) (i) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person and (ii) Immaterial Title Deficiencies;

     (h) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);

     (i) Liens on pipelines and pipeline facilities that arise by operation of law or other like Liens arising by operation of law in the ordinary course of business and incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that do not constitute Indebtedness and that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;

     (j) customary contractual Liens under operating lease agreements or which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out and farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for obligations that do not constitute Indebtedness and that are not delinquent or that are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto;

     (k) Permitted Encumbrances (as defined in the Senior Credit Facility);

     (l) Liens existing on assets at the time of acquisition thereof, or Liens existing on assets of an Person at the time such Person became a Subsidiary, which in each case were not created in contemplation thereof;

54

     (m) UCC financing statements filed in connection with an operating lease under which the Borrower or a Subsidiary is the lessee;

     (n) Liens on assets of Lariat securing obligations of Lariat;

     (o) Liens securing Indebtedness permitted under Section 7.03(f); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition; and

     (p) Liens created by the Citi Payoff Documents securing reimbursement obligations in respect of the Citi L/Cs; provided that the aggregate amount of cash collateral pledged thereunder shall not exceed $20,000,000.

     7.02 Investments. Make any Investments, except:

     (a) Investments held by the Borrower or such Subsidiary in the form of Cash Equivalents;

     (b) advances to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed $500,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;

     (c) Investments of the Borrower in any now existing or hereafter acquired wholly-owned Subsidiary and Investments of any Subsidiary in the Borrower or in another now existing or hereafter acquired wholly-owned Subsidiary; provided, however, that (i) in the case of any Investments in Lariat, the aggregate amount of such Investment shall not exceed (x) $1,000,000 less (y) the aggregate amount of Restricted Payments made to Lariat pursuant to Section 7.06(a) and (ii) in the case of an Investment constituting the acquisition from a third party of a Person which thereby becomes a wholly-owned Subsidiary, such Investment is permitted pursuant to another clause of this Section 7.02;

     (d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

     (e) Investments in Oil and Gas Properties (or in Persons substantially all of whose assets consist of Oil and Gas Properties and which become wholly-owned Subsidiaries pursuant to such Investment);

     (f) Guarantees permitted by Section 7.03;

     (g) Investments received in connection with bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

55

     (h) Investments (including, without limitation, capital contributions) in general or limited partnerships or other types of entities (each a “venture”) entered into by the Borrower or a Subsidiary with others in the ordinary course of business; provided that (i) any such venture is engaged exclusively in oil and gas exploration, development, production, processing and related activities, including transportation, (ii) the interest in such venture is acquired in the ordinary course of business and on fair and reasonable terms and (iii) the aggregate net amount of such Investments after the date hereof does not exceed $15,000,000;

     (i) Investments in SageBrush Pipeline LLC in an aggregate amount not exceeding $7,500,000; and

     (j) other Investments not exceeding $6,000,000 in the aggregate in any fiscal year of the Borrower.

     7.03 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:

     (a) Indebtedness under the Loan Documents, and any refinancing thereof, provided that such refinancing is (i) unsecured, (ii) requires no scheduled amortization prior to the 6^th anniversary of the Closing Date and (iii) is otherwise on market terms and conditions;

     (b) Indebtedness under the Senior Credit Facility, and any refinancing thereof, provided that the aggregate principal amount thereof may at no time exceed the lesser of (i) $750,000,000 and (ii) the amount of the Borrowing Base as determined in accordance with the provisions of the Senior Credit Facility;

     (c) Indebtedness outstanding on the date hereof and listed on Schedule 7.03 and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension and (ii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;

     (d) Guarantees of the Borrower or any Guarantor in respect of Indebtedness otherwise permitted hereunder of the Borrower or any Guarantor;

     (e) obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably

56

anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party (other than customary netting arrangements);

     (f) Indebtedness in respect of capital leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(o); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed 17,500,000;

     (g) Indebtedness of the Borrower or a Subsidiary owing to the Borrower or a wholly-owned Subsidiary (other than Lariat);

     (h) Indebtedness incurred by Lariat;

     (i) Indebtedness in respect of the Citi L/Cs in an aggregate amount not exceeding $20,000,000;

     (j) other unsecured Indebtedness in an aggregate principal amount not to exceed $12,000,000 at any time outstanding; and

     (k) Indebtedness in respect of surety bonds obtained by the Borrower or a Subsidiary in the ordinary course of business and supporting other obligations undertaken by the Borrower or a Subsidiary in the ordinary course of business which other obligations do not constitute Indebtedness.

     7.04 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:

     (a) any Subsidiary may merge with (i) the Borrower, provided that the Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that when any wholly-owned Subsidiary is merging with another Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving Person;

     (b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Subsidiary; provided that if the transferor in such a transaction is a wholly-owned Subsidiary, then the transferee must either be the Borrower or a wholly-owned Subsidiary;

     (c) Dispositions permitted by Section 7.05(g); and

     (d) the Borrower and its Subsidiaries may consummate the Acquisition.

     7.05 Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except:

57

     (a) Dispositions of obsolete or worn out property or assets, whether now owned or hereafter acquired, in the ordinary course of business;

     (b) Dispositions of inventory (including Hydrocarbons sold after severance) in the ordinary course of business;

     (c) Dispositions of equipment or real property or other asset (other than (x) Oil and Gas Properties or (y) Investments in Subsidiaries) to the extent that (i) such equipment, property or other asset is exchanged for credit against the purchase price of similar replacement equipment, property or other asset or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement equipment, property, or other asset;

     (d) Dispositions of property or assets by any Subsidiary to the Borrower or to a wholly-owned Subsidiary or by the Borrower to any wholly-owned Subsidiary; provided that if the transferor of such property or assets is a Guarantor, the transferee thereof must either be the Borrower or a Guarantor;

     (e) Dispositions permitted by Section 7.04(a), (b) or (d);

     (f) a Disposition for fair value of Oil and Gas Properties in the Piceance Basin;

     (g) Dispositions (including Casualty Events) of Oil and Gas Properties which are sold or otherwise transferred for fair consideration to Persons who are not Affiliates of Borrower and (2) farmouts of undeveloped acreage and assignments in connection with such farmouts or the abandonment, farm-out, the exchange, provided that no Event of Default exists at the time of any such sale (other than Defaults that will be cured upon the application of the proceeds of such sale or other transfer); and

     (h) Dispositions of interest in Oil and Gas Properties in respect of Immaterial Title Deficiencies in order to discharge such Immaterial Title Deficiencies or an obligation giving rise thereto.

     7.06 Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:

     (a) each Subsidiary may make Restricted Payments to the Borrower, the Guarantors and any other Person that owns an Equity Interest in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made; provided, however, that in the case of any Restricted Payments to Lariat Services, Inc., the aggregate amount of such Restricted Payments shall not exceed (i) $1,000,000 less (ii) the aggregate amount of Investment in Lariat made pursuant to Section 7.02(c);

     (b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;

58

     (c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity Interests issued by it with the proceeds received from the substantially concurrent issue of new shares of its common stock or other common Equity Interests;

     (d) (i) so long as no Event of Default exists, the Borrower may pay regular cash dividends on the Preferred Stock and make cash payments pursuant to Section 6(f) of the Certificate of Designations for the Preferred Stock; (ii) so long as no Default exists, the Borrower may make cash payments pursuant to Section 7(a) or 9(e) of the Certificate of Designations for the Preferred Stock; and (iii) the Borrower may make payment-in-kind dividends on the Preferred Stock and issue its common stock upon conversion of the Preferred Stock; and

     (e) the Borrower and each Subsidiary may repurchase Equity Interests held by an employee upon termination of employment; provided that the aggregate amount of such Restricted Payments shall not exceed $ 500,000.

     7.07 Change in Nature of Business. Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto.

     7.08 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate, provided that the foregoing restriction shall not apply to (i) transactions between or among the Borrower and any of its wholly-owned Subsidiaries or between and among any wholly-owned Subsidiaries or (ii) payment of customary cash and non-cash compensation, including stock option and similar employee benefit plans, to directors and officers on an arm’s length basis.

     7.09 Burdensome Agreements. After the date of this Agreement, enter into any Contractual Obligation (other than (x) this Agreement or any other Loan Document, (y) the Senior Credit Facility and (z) the documentation governing any permitted refinancing hereof and thereof) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to otherwise transfer property to the Borrower or any Guarantor, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of the Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person to secure any of the Loan Documents; provided, however, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under Section 7.03(f) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness or property subject to a Lien permitted hereunder which secures such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person; or amend any Contractual Obligation existing on the date of this Agreement so as to impose or make more restrictive such a limitation.

     7.10 Use of Proceeds. Use the proceeds of any Loan, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within

59

the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

     7.11 Financial Covenants.

     (a)  Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than 2.0:1.0.

     (b) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio at any time to be greater than 4.5:1.0.

     (c) Consolidated Current Ratio. Permit the Consolidated Current Ratio at any time to be less than 0.9:1.0.

     7.12 Hedge Transactions.

     Enter into any Oil and Gas Hedge Transactions which would cause the notional volume of Hydrocarbons for each of crude oil and natural gas, calculated separately, with respect to which a settlement payment is calculated under such Oil and Gas Hedge Transactions (other than basis swaps, floors and puts on volumes hedged pursuant to Swap Contracts) to exceed eighty five percent (85%) of Borrower’s or such Subsidiary’s reasonably anticipated production from Proved Reserves during the period from the immediately preceding settlement date (or the commencement of such Hedge Transaction if there is no prior settlement date) to such settlement date.

ARTICLE VIII.

EVENTS OF DEFAULT AND REMEDIES

     8.01 Events of Default. Any of the following shall constitute an Event of Default:

     (a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within three days after the same becomes due, any interest on any Loan, or any fee due hereunder, or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

     (b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Section 6.03(a), 6.05(a), 6.11 or 6.12 or Article VII; or

     (c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or

     (d) Representations and Warranties. Any representation, warranty, or certification made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any

60

other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed made; or

     (e) Cross-Default. (i) The Borrower or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) and the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or

     (f) Insolvency Proceedings, Etc. Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

     (g) Inability to Pay Debts; Attachment. (i) The Borrower or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or

     (h) Judgments. There is entered against the Borrower or any Subsidiary (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are

61

commenced by any creditor upon such judgment or order, or (B) there is a period of 30 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

     (i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or

     (j) Invalidity of Loan Documents. Any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any material provision of any Loan Document; or any Loan Party denies that it has any material or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any material provision of any Loan Document.

     8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of Required Lenders, take any or all of the following actions:

     (a) declare the commitment of each Lender to make Loans to be terminated, whereupon such commitments and obligation shall be terminated;

     (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

     (d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Administrative Agent or any Lender.

     8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

62

     First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

     Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lender) and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;

     Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

     Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and

     Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.

ARTICLE IX.
ADMINISTRATIVE AGENT

     9.01Appointment and Authority.

     Each of the Lenders hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. Except to the extent Sections 9.01(b) and 9.06 expressly contemplate rights of others, the provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall not have rights as a third party beneficiary of any of such provisions.

     9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

63

     9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

          (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

          (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

          (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

     The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower or a Lender.

     The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

     9.04 Reliance by Administrative Agent.

     The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise

64

authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender, unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

     9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

     9.06 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

65

     9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

     9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Arrangers shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except (i) in its capacity, as applicable, as the Administrative Agent or a Lender hereunder or (ii) as expressly provided herein or therein.

     9.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise

          (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.06 and 10.04) allowed in such judicial proceeding; and

          (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.06 and 10.04.

     Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

66

9.10 Guaranty Matters. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder.

     Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.

ARTICLE X.
MISCELLANEOUS

     10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

     (a) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;

     (b) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;

     (c) reduce the principal of, or the rate of interest specified herein on, any Loan or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;

     (d) change Section 2.10 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;

     (e) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender; or

67

     (f) release all or substantially all of the value of the Guaranty without the written consent of each Lender.

and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.

     10.02 Notices; Effectiveness; Electronic Communication.

     (a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

          (i) if to the Borrower or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

          (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

     (b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

     Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such

68

notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

     (c) The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower, any Lender, or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

     (d) Change of Address, Etc. Each of the Borrower and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

     (e) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

69

     10.03 No Waiver; Cumulative Remedies.

     No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

     10.04 Expenses; Indemnity; Damage Waiver.

     (a) Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent or any Lender in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

     (b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof) and each Lender and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that

70

such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

     (c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s ratable share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.09(d).

     (d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

     (e) Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

     (f) Survival. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

     10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required

71

(including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

     10.06 Successors and Assigns.

     (a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section or, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

     (b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

          (i) Minimum Amounts.

          (A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment or the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

          (B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with

72

respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless the Administrativ Agent otherwise consents (each such consent not to be) unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met..

          (ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned;

          (iii) Required Consents. No consent shall be required for any assignment except (x) to the extent required by subsection (b)(i)(B) of this Section and (y) subsequent to the Syndication Completion Date, the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.

          (iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount, if any, required as set forth in Schedule 10.06; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

          (v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

          (vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

          (vii) No Assignment During Syndication. Except pursuant to transactions arranged by the Bridge Lead Arranger, no Lender may sell or assign (other than to an Affiliate) any portion of its interest in the Initial Loans until the Syndication Completion Date

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning

73

Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

     (c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

     (d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent (except as set forth below), sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (iv) prior to the Syndication Completion Date, no such participation may be granted by any Lender except to an Affiliate of such Lender.

     Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.03 as though it were a Lender.

     (e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the

74

participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.

     (f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

     (g) Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

     (h) Notice to Lead Arranger. The Lead Arranger shall be notified of any assignment or participation (except to an Affiliate of the transferor Lender) until the 180^th day after the Closing Date.

     10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent or any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.

75

     For purposes of this Section, “Information” means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary, provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as nonpublic and confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to confidential information of a similar nature.

     Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.

     10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

     10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

76

     10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and, except as otherwise expressly provided in the Commitment Letter, supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Article IV, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

     10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Loans, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

     10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

     10.13 Replacement of Lenders. If (i) any Lender requests compensation under Section 3.04 or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or (iii) any Lender is unwilling to approve an amendment hereto which has been approved by Super Majority Lenders but requires approval of such Lender to be effective, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

     (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

77

     (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

     (c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;

     (d) in the case of an assignment resulting from clause (iv) above, such assignment will result in effectiveness of such increase or amendment; and

     (e) such assignment does not conflict with applicable Laws.

     A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

     10.14 Governing Law; Jurisdiction; Etc.

     (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

     (b) SUBMISSION TO JURISDICTION. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

     (c) WAIVER OF VENUE. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO

78

THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

     (d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

     10.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

     10.16 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent and the Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each of the Administrative Agent and the Arrangers is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person; (iii) neither the Administrative Agent nor any Arranger has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent or any Arranger has advised or is currently advising the Borrower or any of its Affiliates on other matters) and neither the Administrative Agent nor any Arranger has any obligation to the Borrower or any of its Affiliates with respect to the

79

transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent and the Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent nor any Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent and the Arrangers have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent and any Arranger with respect to any breach or alleged breach of agency or fiduciary duty.

10.17 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.

80

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

RIATA ENERGY, INC.
(d/b/a SandRidge Energy, Inc.)
By:	/s/ Matthew McCann
Name:	Matthew McCann
Title:	Vice President, Legal

BANK OF AMERICA, N.A., as
Administrative Agent
By:	/s/ Jeffrey J. McLane
Name:	Jeffrey J. McLane
Title:	Principal
BANC OF AMERICA BRIDGE LLC, as a
Lender
By:	/s/ Jeffrey J. McLane
Name:	Jeffrey J. McLane
Title:	Principal
BANC OF AMERICA SECURITIES LLC, as
Lead Arranger and Bookrunner
By:	/s/ Jeffrey J. McLane
Name:	Jeffrey J. McLane
Title:	Principal

CREDIT SUISSE SECURITIES (USA) LLC, as
Lead Arranger and Bookrunner
By:	/s/ Timothy Perry
Name:	Timothy Perry
Title:	Managing Director
CREDIT SUISSE, CAYMAN ISLANDS
BRANCH, as a Lender
By:	/s/ SoVonna Day Goins
Name:	SoVonna Day Goins
Title:	Director
By:	/s/ Adam Forchheimer
Name:	Adam Forchheimer
Title:	Vice President

GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Lead Arranger, Bookrunner and a Lender
By:	/s/ Bruce H. Mendelsohn
Name:	Bruce H. Mendelsohn
Title:	Authorized Signatory

LEHMAN BROTHERS INC., as Lead Arranger
and Bookrunner
By:	/s/ Frank P. Turner
Name:	Frank P. Turner
Title:	Vice President
LEHMAN COMMERCIAL PAPER INC., as a Lender
By:	/s/ Frank P. Turner
Name:	Frank P. Turner
Title:	Vice President

SCHEDULE 2.01
COMMITMENTS

Lender	Commitment
Banc of America Bridge LLC	$	212,500,000
Credit Suisse, Cayman Islands Branch	$	212,500,000
Goldman Sachs Credit Partners L.P.	$	212,500,000
Lehman Commercial Paper Inc.	$	212,500,000
Total	$	850,000,000

SCHEDULE 5.03

GOVERNMENTAL AUTHORIZATIONS

None.

SCHEDULE 5.05

SUPPLEMENT TO INTERIM FINANCIAL STATEMENTS

(Continued on next page)

Supplement to Interim Financial Statements: Existing Indebtedness

	6/30/2006		9/30/2006		11/13/2006		Collateral
SYMBOL ENERGY
LARCO		2,287,129.15		2,287,129.15		2,287,129.15	NA
SAGEBRUSH
BANK OF AMERICA		4,000,000.00		4,000,000.00		4,000,000.00	All Bank of America cash accounts
ROC		700,000.00		1,325,000.00		1,325,000.00	NA
PREMIUM ASSIGNMENT		10,359.97		—			NA
		4,710,359.97		5,325,000.00		5,325,000.00
ALSATE
N/P REI		7,970,907.91		7,970,907.91		7,970,907.91	NA
PREMIUM ASSIGNMENT		322,860.95		304,162.45		229,672.13	Unsecured
		8,293,768.86		8,275,070.36		8,200,580.04
HONDO HEAVY HAUL
N/P JOHN DEERE		—		—		168,012.51	John Deere 724J Loader with 9' Forks
N/P PACCAR FINANCIAL		384,994.98		358,536.00		351,780.61	Quantity of 6 2003 Peterbilt 379-127 Vehicles
		384,994.98		358,536.00		519,793.12
LARIAT
MERRILL LYNCH #1		15,672,564.49		14,778,781.18		14,473,910.39	Rig #1 - Rig #7 and Ancillary Equipment
MERRILL LYNCH #2		2,002,641.96		1,856,607.25		1,818,373.93	Rig #13 and All Associated Equipment
MERRILL LYNCH #3		4,105,940.24		3,890,110.21		3,815,375.61	Rig #12 and All Associated Equipment
MERRILL LYNCH #4		2,109,383.64		2,000,975.86		1,963,550.55	Rig #14 and All Associated Equipment
MERRILL LYNCH #5		914,242.41		869,762.16		854,396.64	Service/Workover Rigs
MERRILL LYNCH #6		1,589,597.17		1,512,265.89		1,485,551.88	Rig #15 and All Associated Equipment
MERRILL LYNCH #7		1,837,650.55		1,749,080.20		1,718,787.04	Rig #16 and All Associated Equipment

	6/30/2006		9/30/2006		11/13/2006		Collateral
MERRILL LYNCH #8		2,318,074.35		2,207,733.29		2,169,571.35	Rig #19 and All Associated Equipment
MERRILL LYNCH #9		812,153.10		774,503.80		761,471.46	Misc Trucks & Equipment
MERRILL LYNCH #10		8,134,304.10		5,766,007.12		5,766,007.12	Rig #22 and 3 Pulling Units
MERRILL LYNCH #11		5,924,100.00		7,918,474.04		7,807,394.01	Rig #24 and All Associated Equipment
MERRILL LYNCH #12		—		7,997,535.00		7,916,205.44	Rig #26
MERRILL LYNCH #13		—		888,615.00		888,615.00	Pulling Units 11, 12, 13, & 17
MERRILL LYNCH #14		—		—		6,220,305.00	Rig #28
PREMIUM ASSIGNMENT		441,536.00		254,692.21		128,148.37	Unsecured
DAIMLER CHRYSLER #7493		1,288.60		—		0.00	NA
DAIMLER CHRYSLER #11970		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
DAIMLER CHRYSLER #11974		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #83592		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #83593		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #81856		38,941.00		35,915.54		33,867.81	2007 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #66004		83,400.00		77,119.75		72,869.43	2007 Western Star 4900 Tractor
N/P DIAMLERCHRYSLER #81858		40,320.19		37,294.73		35,246.11	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81859				38,521.62		36,474.56	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81860				38,521.62		36,474.46	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81861				39,535.67		37,501.23	2007 Sterling Acterra Tractor
N/P JOHN DEERE #2582		95,019.00		77,576.97		65,853.97	2005 330CLC Excavator
N/P JOHN DEERE CREDIT #9496		42,503.97		39,359.77		37,226.34	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6211		76,246.09		70,605.85		66,778.80	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #2526		39,847.85		36,900.15		34,900.04	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6277		70,985.96		65,734.84		62,171.82	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #64644				61,286.53		57,754.11	544H Loader
N/P JOHN DEERE CREDIT #79513		78,447.04		72,458.80		68,395.35	544H Loader

	6/30/2006		9/30/2006		11/13/2006		Collateral
N/P JOHN DEERE CREDIT #79321		58,765.00		54,417.91		51,468.28	544H Loader
N/P JOHN DEERE CREDIT #87862						72,076.66	544H Loader
JOHN DEERE CREDIT #6762		17,207.00		14,048.33		11,925.55	2005 310SG Wheel Loader Backhoe
N/P JDC #3291		6,357.00		1,600.45		0.00	NA
N/P JDC #3935		118,732.00		102,352.48		91,272.96	724J Loader
CIT GROUP		5,504.00
PACCAR #24856 & #24870				155,126.70		149,818.25	Quantity of 2 2004 Peterbilts
PACCAR		147,882.47		114,592.70		92,124.20	Kenworths
PACCAR #5780267						296,538.19	Quantity of 2 2007 Peterbilts and Quantity of 2 2004 Peterbilts
PACCAR #5783865						152,716.41	Quantity of 2 2004 Peterbilts
GMAC #9231		3,393.16		846.15
GMAC #9210		1,942.00		—			NA
		47,018,494.77		53,808,158.87		59,546,586.14
REI
BANK OF AMERICA		36,435,900.00		102,403,656.50		117,452,113.25	Oil & Gas Properties
LARCO
RIATA ENERGY		5,635,243.89		5,635,243.89		5,635,243.89	NA
RIAGRA
N/P REI		8,983,980.36		8,983,980.36		8,983,980.36	NA
JOHN DEERE		—		—		0.00	NA
		8,983,980.36		8,983,980.36		8,983,980.36
ROC
N/P REI		62,333.53		62,333.53		62,333.53	NA
PREMIUM ASSIGNMENT		6,108.00		—		0.00	NA
		68,441.53		62,333.53		62,333.53
PSEC
N/P REI		31,813,722.36		31,813,722.36		31,813,722.36	NA

	6/30/2006		9/30/2006		11/13/2006		Collateral
PREMIUM ASSIGNMENT		71,336.64		38,566.48		30,967.38	Unsecured
SUBORDINATED DEBT-REI		6,540,000.00		6,540,000.00		6,540,000.00	NA
SUBORDINATED DEBT-OUTSIDE		—
		38,425,059.00		38,392,288.84		38,384,689.74
PSPC
N/P REI		5,902,097.77		5,902,097.77		5,902,097.77	NA
HONDO
PACCAR		9,640.31		—		0.00	NA
TOTAL		158,155,110.59		231,433,495.27		252,299,546.99
LESS INTER-CO NOTES		69,895,414.97		70,520,414.97		70,520,414.97
TOTAL		88,259,695.62		160,913,080.30		181,779,132.02

SCHEDULE 5.06

LITIGATION

     ConocoPhillips Company, (Successor by merger to Conoco, Inc.), Plaintiff, vs. Riata Energy, Inc., Wes-Tex Drilling Company, L.P., Manti Resources, Inc., and Manti Longfellow, Ltd., Defendants; No. 9846; In the 112^th District Court in and for Pecos County, Tx

     Riata Energy, Inc. and Riata Piceance, LLC, Plaintiffs, V. Elliott Roosevelt, Jr., E.R. Family Limited Partnership and Ceres Resource Partners, L.P., Defendants.; No. 04-11461-E; In the 101^st Judicial District Court in and for Dallas County, Tx

     Harvey Y. Yates Company, Plaintiff, v Riata Energy, Inc. Defendant; No. 10376; In the 112^TH District Court in and for Pecos County, Tx

SCHEDULE 5.09

ENVIRONMENTAL MATTERS

None.

SCHEDULE 5.13

SUBSIDIARIES,
OTHER EQUITY INVESTMENTS
AND LOAN PARTY INFORMATION

(Continued on next page)

Riata Energy, Inc. dba SandRidge Energy, Inc. SCHEDULE 5.13

PART A AND PART B — all Subsidiaries and Equity Interests of Loan Parties

Symbol	Company Name	Address	City/State/Zip	FEIN	OWNERSHIP
REI	Riata Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0002820
SUBSIDIARY ENTITIES
	Algerita Energy, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1400800	100%REI
AEI	Alsate Management and Investment Co	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2541245	100%REI
	Cup Of The Day #1, LLC	701 S. Tyler, Ste 102	Amarillo, TX 79201	13-4301747	100%AEI
CSLLC	Chaparral Supply, LLC	P. O. Box 1417	Ft. Stockton, Texas 79735	26-0036758	100%AEI
IEL	Integra Energy, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2887527	85%AEI
	Cholla Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	01-0557493	100%IEL
CHOLP	Cholla Pipeline, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	26-0025092	36%IEL, 17%ROC
TPL	Transpecos Logging, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2897434	100%AEI
	Black Bayou Exploration, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-4790561	100%REI
LSI	Lariat Services, Inc.	2402 West Wall	Midland, TX 79701	75-2500702	100%REI
LARCO	Lariat Compression Company	5432 N. Highway 1053	Ft. Stockton, TX 79735	75-2545523	100%LSI
SYMENE	Symbol Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2882968	100%LARCO
HONDO	Hondo Heavy Haul	13416 W. 1-20 East	Odessa, TX 79765	20-3568524	100%LSI
	Larclay, GP, LLC	701 S. Taylor, Suite 426	Amarillo, TX 79101	20-4727861	50%LSI
	Larclay, L.P.	701 S. Taylor, Suite 426	Amarillo, TX 79101	20-4728095	50%LSI
MCRLLC	Midcontinent Resources, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-0096928	100%REI
PSEML	PetroSource Energy Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1237622	100%REI
PSEC	PetroSource Energy Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2629471	99%REI, 1% PSEM
PSCO2	PSCO2, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0547903	99%PSEC, 1% PSEML
PSPC	PetroSource Production Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1918006	99%PSEC, 1% PSEML
	PSE Holdings, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2950920	100%REI
PSEM	PSE Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2622462	100%REI
RLC	Riagra Land & Cattle	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2569335	100%REI
RDI	Riata Drilling Company, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2563168	100%REI
RIAN	Riata Energy Operating, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-0333569	100%REI
REIPIC	Riata Piceance, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-0023468	100%REI
	Riata Wolfcamp Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2214412	100%REI
ROC	ROC Gas Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2541148	100%REI
SBP	Sagebrush Pipeline, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1550515	70%ROC
SMM	Sierra Madera Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	43-1969581	100%REI
SMCO2	Sierra Madera CO2 Pipeline, Ltd	1601 NW Expwy, 1600	Oklahoma City, OK 73118	47-0881558	99%REI, 1% SMM

Symbol	Company Name	Address	City/State/Zip	FEIN	OWNERSHIP
SandRidge Holdings, Inc. Acquisition		1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-5878401	100% REI
NEG	NEG Oil & Gas, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	03-0573934	100% Sandridge
SUBSIDIARY ENTITIES
NEGH	NEG Holding, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2958833	100%NEG
NEGO	NEG Operating, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776535	100%NEGH
NGXGP	NGX GP of Delaware LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776542	100%NEGO
NGXLP	NGX LP Of Delaware LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776545	100%NEGO
NGXELP	NGX Energy Limited Partnership	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776546	99%NGXLP, 1%NGXGP
SHANA	Shana National LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776549	100%NEGO
MIDR	Mid River, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776548	100%NEG
OFFGP	Offshore GP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776539	100%NEG
OFFLP	Offshore LP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776538	100%NEG
NOFFSH	National Offshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	11-3758786	99%OFFLP, 1%OFFGP
ONGP	Onshore GP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0833283	100%NEG
ONLP	Onshore LP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776536	100%NEG
NONSH	National Onshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	47-0953489	99%ONLP, 1%ONGP
GBPIPE	Galveston Bay Pipeline Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0595703	100%NONSH
GBPROC	Galveston Bay Processing Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0570422	100%NONSH

PART C — LOAN PARTIES INFORMATION

Company Name	Address	City/State/Zip	Jurisdiction	FEIN Number
Alsate Investment and Management Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2541245
Integra Energy, L.L.C.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2887527
Lariat Compression Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2545523
NEG Oil & Gas LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	03-0573934
NEG Operating LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	87-0776535
National Offshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	11-3758786
National Onshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	47-0953489
PetroSource Energy Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-2629471
PetroSource Production Company, L.P.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-1918006
Riata Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	76-0002820
ROC Gas Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2541148
Sandridge Holdings, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	20-5878401

SCHEDULE 7.01

EXISTING LIENS

Liens granted to Bank of America, N.A. on the plant and pipeline owned by SageBrush Pipeline, LLC pursuant to $4,000,000 Note (the “Note”) issued by SageBrush Pipeline, LLC as Borrower to Bank of America, N.A. as lender with a maturity of January 31, 2007.

SCHEDULE 7.03

EXISTING INDEBTEDNESS

(Continued on next page)

	6/30/2006		9/30/2006		11/13/2006		Collateral
SYMBOL ENERGY
LARCO		2,287,129.15		2,287,129.15		2,287,129.15	NA
SAGEBRUSH
BANK OF AMERICA		4,000,000.00		4,000,000.00		4,000,000.00	All Bank of America cash accounts
ROC		700,000.00		1,325,000.00		1,325,000.00	NA
PREMIUM ASSIGNMENT		10,359.97		—			NA
		4,710,359.97		5,325,000.00		5,325,000.00
ALSATE
N/P REI		7,970,907.91		7,970,907.91		7,970,907.91	NA
PREMIUM ASSIGNMENT		322,860.95		304,162.45		229,672.13	Unsecured
		8,293,768.86		8,275,070.36		8,200,580.04
HONDO HEAVY HAUL
N/P JOHN DEERE		—		—		168,012.51	John Deere 724J Loader with 9’ Forks
N/P PACCAR FINANCIAL		384,994.98		358,536.00		351,780.61	Quantity of 6 2003 Peterbilt 379-127 Vehicles
		384,994.98		358,536.00		519,793.12
LARIAT
MERRILL LYNCH #1		15,672,564.49		14,778,781.18		14,473,910.39	Rig #1 - Rig #7 and Ancillary Equipment
MERRILL LYNCH #2		2,002,641.96		1,856,607.25		1,818,373.93	Rig #13 and All Associated Equipment
MERRILL LYNCH #3		4,105,940.24		3,890,110.21		3,815,375.61	Rig #12 and All Associated Equipment
MERRILL LYNCH #4		2,109,383.64		2,000,975.86		1,963,550.55	Rig #14 and All Associated Equipment
MERRILL LYNCH #5		914,242.41		869,762.16		854,396.64	Service/Workover Rigs
MERRILL LYNCH #6		1,589,597.17		1,512,265.89		1,485,551.88	Rig #15 and All Associated Equipment
MERRILL LYNCH #7		1,837,650.55		1,749,080.20		1,718,787.04	Rig #16 and All Associated Equipment
MERRILL LYNCH #8		2,318,074.35		2,207,733.29		2,169,571.35	Rig #19 and All Associated Equipment

	6/30/2006		9/30/2006		11/13/2006		Collateral
MERRILL LYNCH #9		812,153.10		774,503.80		761,471.46	Misc Trucks & Equipment
MERRILL LYNCH #10		8,134,304.10		5,766,007.12		5,766,007.12	Rig #22 and 3 Pulling Units
MERRILL LYNCH #11		5,924,100.00		7,918,474.04		7,807,394.01	Rig #24 and All Associated Equipment
MERRILL LYNCH #12		—		7,997,535.00		7,916,205.44	Rig #26
MERRILL LYNCH #13		—		888,615.00		888,615.00	Pulling Units 11, 12, 13, & 17
MERRILL LYNCH #14		—		—		6,220,305.00	Rig #28
PREMIUM ASSIGNMENT		441,536.00		254,692.21		128,148.37	Unsecured
DAIMLER CHRYSLER #7493		1,288.60		—		0.00	NA
DAIMLER CHRYSLER #11970		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
DAIMLER CHRYSLER #11974		26,034.00		22,765.18		20,565.14	2005 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #83592		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #83593		88,728.22		81,834.37		77,168.77	2007 Western Star 4900 Tractor
N/P DIAMLER CHRYSLER #81856		38,941.00		35,915.54		33,867.81	2007 Sterling Acterra Tractor
N/P DIAMLER CHRYSLER #66004		83,400.00		77,119.75		72,869.43	2007 Western Star 4900 Tractor
N/P DIAMLERCHRYSLER #81858		40,320.19		37,294.73		35,246.11	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81859				38,521.62		36,474.56	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81860				38,521.62		36,474.46	2007 Sterling Acterra Tractor
N/P DIAMLERCHRYSLER #81861				39,535.67		37,501.23	2007 Sterling Acterra Tractor
N/P JOHN DEERE #2582		95,019.00		77,576.97		65,853.97	2005 330CLC Excavator
N/P JOHN DEERE CREDIT #9496		42,503.97		39,359.77		37,226.34	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6211		76,246.09		70,605.85		66,778.80	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #2526		39,847.85		36,900.15		34,900.04	850C Long Track Crawler Dozer
N/P JOHN DEERE CREDIT #6277		70,985.96		65,734.84		62,171.82	1050C Crawler Dozer
N/P JOHN DEERE CREDIT #64644				61,286.53		57,754.11	544H Loader
N/P JOHN DEERE CREDIT #79513		78,447.04		72,458.80		68,395.35	544H Loader
N/P JOHN DEERE CREDIT #79321		58,765.00		54,417.91		51,468.28	544H Loader
N/P JOHN DEERE CREDIT #87862						72,076.66	544H Loader

	6/30/2006		9/30/2006		11/13/2006		Collateral
JOHN DEERE CREDIT #6762		17,207.00		14,048.33		11,925.55	2005 310SG Wheel Loader Backhoe
N/P JDC #3291		6,357.00		1,600.45		0.00	NA
N/P JDC #3935		118,732.00		102,352.48		91,272.96	724J Loader
CIT GROUP		5,504.00
PACCAR #24856 & #24870				155,126.70		149,818.25	Quantity of 2 2004 Peterbilts
PACCAR		147,882.47		114,592.70		92,124.20	Kenworths
PACCAR #5780267						296,538.19	Quantity of 2 2007 Peterbilts and Quantity of 2 2004 Peterbilts
PACCAR #5783865						152,716.41	Quantity of 2 2004 Peterbilts
GMAC #9231		3,393.16		846.15
GMAC #9210		1,942.00		—			NA
		47,018,494.77		53,808,158.87		59,546,586.14
REI
BANK OF AMERICA		36,435,900.00		102,403,656.50		117,452,113.25	Oil & Gas Properties
LARCO
RIATA ENERGY		5,635,243.89		5,635,243.89		5,635,243.89	NA
RIAGRA
N/P REI		8,983,980.36		8,983,980.36		8,983,980.36	NA
JOHN DEERE		—		—		0.00	NA
		8,983,980.36		8,983,980.36		8,983,980.36
ROC
N/P REI		62,333.53		62,333.53		62,333.53	NA
PREMIUM ASSIGNMENT		6,108.00		—		0.00	NA
		68,441.53		62,333.53		62,333.53
PSEC
N/P REI		31,813,722.36		31,813,722.36		31,813,722.36	NA
PREMIUM ASSIGNMENT		71,336.64		38,566.48		30,967.38	Unsecured
SUBORDINATED DEBT-REI		6,540,000.00		6,540,000.00		6,540,000.00	NA

	6/30/2006		9/30/2006		11/13/2006		Collateral
SUBORDINATED DEBT-OUTSIDE		—
		38,425,059.00		38,392,288.84		38,384,689.74
PSPC
N/P REI		5,902,097.77		5,902,097.77		5,902,097.77	NA
HONDO
PACCAR		9,640.31		—		0.00	NA
TOTAL		158,155,110.59		231,433,495.27		252,299,546.99
LESS INTER-CO NOTES		69,895,414.97		70,520,414.97		70,520,414.97
TOTAL		88,259,695.62		160,913,080.30		181,779,132.02

SCHEDULE 10.02

ADMINISTRATIVE AGENT’S OFFICE;
CERTAIN ADDRESSES FOR NOTICES

BORROWER:

Riata Energy, Inc. (d/b/a Sandridge Energy, Inc.)

1601 Northwest Expressway, Suite 1600

Oklahoma City, OK 73118

Attention: Matt McCann

Telephone: (405) 753-5600

Telecopier: (405) 753-5988

Electronic Mail: mmccann@sdrge.com

Website Address:      www.sandridgeenergy.com

U.S. Taxpayer Identification Number: 76-0002820

ADMINISTRATIVE AGENT:

Administrative Agent’s Office
(for payments and Requests for Credit Extensions):
Bank of America, N.A.
One Independence Center
101 North Tryon Street
Mail Code: NC1-001-04-39
Charlotte, NC 28255-001
Attention: Melissa Mullis
Telephone: (704) 386-9372
Telecopier: (704) 286-2445
Account No.: 1366212250600
Ref: SandRidge Energy, Inc.
ABA# 026009593

Other Notices as Administrative Agent:
Bank of America, N.A.
Agency Management
231 South LaSalle Street
Mail Code: IL1-231-08-30
Chicago, IL 60697
Attention: Suzanne M. Paul
Telephone: (312) 923-1640
Telecopier: (877) 206-8435
Electronic Mail: suzanne.m.paul@bankofamerica.com

SCHEDULE 10.06

PROCESSING AND RECORDATION FEES

     The Administrative Agent will charge a processing and recordation fee (an “Assignment Fee”) in the amount of $2,500 for each assignment; provided, however, that in the event of two or more concurrent assignments to members of the same Assignee Group (which may be effected by a suballocation of an assigned amount among members of such Assignee Group) or two or more concurrent assignments by members of the same Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group), the Assignment Fee will be $2,500 plus the amount set forth below:

Transaction	Assignment Fee
First four concurrent assignments or suballocations to members of an Assignee Group (or from members of an Assignee Group, as applicable)		-0-
Each additional concurrent assignment or suballocation to a member of such Assignee Group (or from a member of such Assignee Group, as applicable)	$	500

EXHIBIT A

FORM OF LOAN NOTICE

Date:                                         ,                     

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Bridge Loan Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.), a Texas corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

     The undersigned hereby requests (select one):

     o A Borrowing of Initial Loans                      o A conversion or continuation of Loans

1.	On		(a Business Day).
2.	In the amount of $.
3.	Comprised of .
		[Type of Loan requested]
4.	For Eurodollar Rate Loans: with an Interest Period of                      months.

     The Borrowing, if any, requested herein complies with the provisos to the first sentence of Section 2.01 of the Agreement.

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Loan Notice

A-1

EXHIBIT B

FORM OF NOTE

     FOR VALUE RECEIVED, the undersigned (the “Borrower”) hereby promises to pay to                                          or registered assigns (the “Lender”), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of each Loan owed by the Borrower to the Lender under that certain Bridge Loan Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among the Borrower, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

     The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agent’s Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.

     This Note is one of the Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. This Note is also entitled to the benefits of the Guaranty. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans owing to the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

     The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

Form of Note

B-1

     THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Note

B-2

LOANS AND PAYMENTS WITH RESPECT THERETO

				Amount of
				Principal or	Outstanding
			End of	Interest	Principal
	Type of	Amount of	Interest	Paid This	Balance	Notation
Date	Loan	Loan	Period	Date	This Date	Made By

Form of Note

B-3

EXHIBIT C

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:                     ,

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of November 21, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Riata Energy, Inc. (d/b/a SandRidge Energy, Inc.), a Texas corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

     The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the                                                             of the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

     1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

     1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present, in all material respects, the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

     2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements.

     3. A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and

[select one:]

Form of Compliance Certificate

C-1

     [to the best knowledge of the undersigned during such fiscal period, the Borrower performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.]

—or—

     [the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

     4. The representations and warranties of the Borrower contained in Article V of the Agreement, and any representations and warranties of any Loan Party that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.

     5. The financial covenant analyses and information set forth on Schedules 2 and 3 attached hereto are true and accurate on and as of the date of this Certificate.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of                                          ,                     

RIATA ENERGY, INC.

(d/b/a SandRidge Energy, Inc.)

By:

Name:

Title:

Form of Compliance Certificate

C-2

For the Quarter/Year ended                                         (“Statement Date”)

SCHEDULE 2
to the Compliance Certificate
($ in 000’s)

I.	Section 7.11 (a) – Consolidated Fixed Charge Coverage Ratio.
	A.	Consolidated EBITDAX for four consecutive fiscal quarters
		ending on above date (“Subject Period”) (from Schedule 3)	$
	B.	Consolidated Fixed Charges for Subject Period:	$
	C.	Consolidated Fixed Charge Coverage Ratio (Line I.A ¸
		Line I.B):			to 1
	D.	Minimum Required Consolidated Fixed Charge
		Coverage Ratio		2.0 to 1
II.	Section 7.11 (b) – Consolidated Leverage Ratio.
	A.	Consolidated Funded Indebtedness at Statement Date:	$
	B.	Consolidated EBITDAX for Subject Period (Line I.A.):	$
	C.	Consolidated Leverage Ratio (Line II.A ¸ Line II.B):			to 1
	D.	Maximum Permitted Consolidated Leverage Ratio		4.5 to 1
III.	Section 7.11 (c) – Consolidated Current Ratio.
	A.	Consolidated Current Assets at Statement Date:	$
	B.	Consolidated Current Liabilities at Statement Date:	$
	C.	Consolidated Current Ratio (Line III.A ¸ Line III.B):			to 1
	D.	Minimum Required Consolidated Current Ratio:		0.9 to 1

Form of Compliance Certificate

C-3

For the Quarter/Year ended                     (“Statement Date ”)

SCHEDULE 3
to the Compliance Certificate
($ in 000’s)

Consolidated EBITDAX
(in accordance with the definition of Consolidated EBITDAX
as set forth in the Agreement)

					Twelve
Consolidated	Quarter	Quarter	Quarter	Quarter	Months
EBITDA	Ended	Ended	Ended	Ended	Ended
Consolidated Net Income
+ income or franchise taxes
+ interest expense
+ depreciation expense
+ amortization expense
+ exploration expense
+ non-cash loss on change in fair value of derivative instruments
+ other non-cash expenses
- non-cash gain on change in fair value of derivative instruments
- income tax credits

Form of Compliance Certificate

C-4

					Twelve
Consolidated	Quarter	Quarter	Quarter	Quarter	Months
EBITDA	Ended	Ended	Ended	Ended	Ended
- interest income
- other non-cash income
= Consolidated EBITDAX

Form of Compliance Certificate

C-4

EXHIBIT D

ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (this “Assignment and Assumption ”) is dated as of the Effective Date set forth below and is entered into by and between [the][each]¹ Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each]² Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]³ hereunder are several and not joint.]⁴ Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

     For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as

1	For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2	For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3	Select as appropriate.
4	Include bracketed language if there are either multiple Assignors or multiple Assignees.

Form of Assignment and Assumption

D-1

[ the][an] “Assigned Interest”).Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

1.	Assignor[s]:
2.	Assignee[s]:
	[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]]
3.	Borrower(s):
4.	Administrative Agent: Bank of America, N.A., as the administrative agent under the Credit
	Agreement
5.	Credit Agreement: [Bridge Loan Agreement, dated as of [________, ______], among
	[_________________], the Lenders from time to time party thereto, and Bank of America, N.A.,
	as Administrative Agent.
6.	Assigned Interest[s]:5

			Aggregate	Amount of	Percentage
			Amount of	Commitment	Assigned of
		Facility	Commitment/Loans	/Loans	Commitment/		CUSIP
Assignor[s]6	Assignee[s]7	Assigned8	for all Lenders9	Assigned	Loans10		Number
			$	$		%
			$	$		%
			$	$		%

[7. Trade Date: __________________]¹¹

5	The reference to “Loans” in the table should be used only if the Credit Agreement provides for Term Loans.
6	List each Assignor, as appropriate.
7	List each Assignee, as appropriate.
8	Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Revolving Credit Commitment”, “Term Loan Commitment”, etc.).
9	Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
10	Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
11	To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.

Form of Assignment and Assumption

D-2

Effective Date:                    , 20      [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

     The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR [NAME OF ASSIGNOR]
By:
	Title:

ASSIGNEE [NAME OF ASSIGNEE]
By:
	Title:

[Consented to and]¹² Accepted:

BANK OF AMERICA, N.A., as
 Administrative Agent

By:
	Title:

Consented to:¹³

RIATA ENERGY, INC.
(d/b/a SandRidge Energy, Inc.)

By:
	Title:

12	To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
13	To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

Form of Assignment and Assumption

D-3

ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
[                              ] ¹⁴

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

          1. Representations and Warranties.

          1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

          1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section ___thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into

¹⁴ Describe Credit Agreement at option of Administrative Agent.

Form of Assignment and Assumption

D-4

this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

          2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.

          3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York [confirm that choice of law provision parallels the Credit Agreement].

Form of Assignment and Assumption

D-5

EXHIBIT E

FORM OF GUARANTY

SEE TAB 5

Form of Guaranty

E-1

EXHIBIT F

OPINION OF COUNSEL TO THE LOAN PARTIES

SEE TAB 12

Appendix V to Form

F-1

EX-10.8

Exhibit 10.8

CREDIT AGREEMENT

Dated as of March 22, 2007

among

SANDRIDGE ENERGY, INC.
as the Borrower,

BANK OF AMERICA, N.A.,

as Administrative Agent

and

The Other Lenders Party Hereto

BANC OF AMERICA SECURITIES LLC
Lead Arranger

DEUTSCHE BANK SECURITIES INC.
GOLDMAN SACHS CREDIT PARTNERS L.P.
LEHMAN BROTHERS INC.
Co-Arrangers

TABLE OF CONTENTS

Section		Page
ARTICLE I.	DEFINITIONS AND ACCOUNTING TERMS		1
1.01	Defined Terms		1
1.02	Other Interpretive Provisions		36
1.03	Accounting Terms		37
1.04	Petroleum Terms		37
1.05	Rounding		37
1.06	Times of Day		37
ARTICLE II.	THE COMMITMENTS AND LOANS		37
2.01	Loans		37
2.02	Borrowings, Conversions and Continuations of Loans		38
2.03	Prepayments		39
2.04	Repayment of Loans		40
2.05	Interest		40
2.06	Fees		41
2.07	Computation of Interest and Fees		42
2.08	Evidence of Debt		42
2.09	Payments Generally; Administrative Agent’s Clawback		42
2.10	Sharing of Payments by Lenders		44
ARTICLE III.	TAXES, YIELD PROTECTION AND ILLEGALITY		44
3.01	Taxes		44
3.02	Illegality		46
3.03	Inability to Determine Rates		47
3.04	Increased Costs; Reserves on Eurodollar Rate Loans		47
3.05	Compensation for Losses		48
3.06	Mitigation Obligations; Replacement of Lenders		49
3.07	Survival		49
ARTICLE IV.	CONDITIONS PRECEDENT TO LOANS		50
ARTICLE V.	REPRESENTATIONS AND WARRANTIES		52
5.01	Existence, Qualification and Power		52
5.02	Authorization; No Contravention		52
5.03	Governmental Authorization; Other Consents		52
5.04	Binding Effect		53
5.05	Financial Statements; No Material Adverse Effect		53
5.06	Litigation		53
5.07	No Default		54
5.08	Ownership of Property; Liens		54
5.09	Environmental Compliance		54
5.10	Insurance		55
5.11	Taxes		55
5.12	ERISA Compliance		55
5.13	Subsidiaries; Equity Interests; Loan Parties		55
5.14	Margin Regulations; Investment Company Act		56
5.15	Disclosure		56
5.16	Compliance with Laws		56

i

Section		Page
5.17	Solvency		56
5.18	Casualty, Etc.		56
5.19	Labor Matters		57
ARTICLE VI.	AFFIRMATIVE COVENANTS		57
6.01	Financial Statements		57
6.02	Certificates; Other Information		58
6.03	Notices		60
6.04	Payment of Obligations		61
6.05	Preservation of Existence, Etc.		61
6.06	Maintenance of Properties		61
6.07	Maintenance of Insurance		61
6.08	Compliance with Laws		62
6.09	Books and Records		62
6.10	Inspection Rights		62
6.11	Use of Proceeds		62
6.12	Covenant to Guarantee Obligations		62
6.13	Compliance with Environmental Laws		62
6.14	[Reserved]		63
6.15	Exchange Notes		63
6.16	Change of Control		64
ARTICLE VII.	NEGATIVE COVENANTS		65
7.01	Liens		65
7.02	Indebtedness		65
7.03	Consolidation, Merger and Sale of Assets		69
7.04	Asset Sales		71
7.05	Restricted Payments		72
7.06	Change in Nature of Business		76
7.07	Transactions with Affiliates		76
7.08	Burdensome Agreements		77
7.09	Designation of Unrestricted Subsidiaries		79
7.10	Payments for Consent		81
7.11	Sale Leaseback Transactions		81
ARTICLE VIII.	EVENTS OF DEFAULT AND REMEDIES		82
8.01	Events of Default		82
8.02	Remedies Upon Event of Default		83
8.03	Application of Funds		84
ARTICLE IX.	ADMINISTRATIVE AGENT		84
9.01	Appointment and Authority		84
9.02	Rights as a Lender		84
9.03	Exculpatory Provisions		85
9.04	Reliance by Administrative Agent		86
9.05	Delegation of Duties		86
9.06	Resignation of Administrative Agent		86
9.07	Non-Reliance on Administrative Agent and Other Lenders		87
9.08	No Other Duties, Etc.		87
9.09	Administrative Agent May File Proofs of Claim		87
9.10	Guaranty Matters		88
ARTICLE X.	MISCELLANEOUS		88

ii

Section		Page
10.01	Amendments, Etc.		88
10.02	Notices; Effectiveness; Electronic Communication		89
10.03	No Waiver; Cumulative Remedies		91
10.04	Expenses; Indemnity; Damage Waiver		91
10.05	Payments Set Aside		93
10.06	Successors and Assigns		93
10.07	Treatment of Certain Information; Confidentiality		97
10.08	Right of Setoff		98
10.09	Interest Rate Limitation		98
10.10	Counterparts; Integration; Effectiveness		98
10.11	Survival of Representations and Warranties		98
10.12	Severability		99
10.13	Replacement of Lenders		99
10.14	Governing Law; Jurisdiction; Etc.		100
10.15	Waiver of Jury Trial		100
10.16	No Advisory or Fiduciary Responsibility		101
10.17	USA PATRIOT Act Notice		102

iii

SCHEDULES
2.01	Commitments and Applicable Percentages
5.03	Governmental Authorizations
5.05	Supplement to Interim Financial Statements
5.06	Litigation
5.09	Environmental Matters
5.13	Subsidiaries; Other Equity Investments and Loan Parties
10.02	Administrative Agent’s Office; Certain Addresses for Notices
10.06	Processing and Recordation Fees
EXHIBITS
	Form of
A	Loan Notice
B	Compliance Certificate
C	Assignment and Assumption
D	Guaranty
E	Opinion of Counsel to the Loan Parties

iv

CREDIT AGREEMENT

     This CREDIT AGREEMENT (“Agreement”) is entered into as of March 22, 2007 among SANDRIDGE ENERGY, INC., a Delaware corporation (the “Borrower”), each LENDER from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and BANK OF AMERICA, N.A., as Administrative Agent, and BANC OF AMERICA SECURITIES LLC, as Lead Arranger, DEUTSCHE BANK SECURITIES INC., GOLDMAN SACHS CREDIT PARTNERS L.P. and LEHMAN BROTHERS INC., as Co-Arrangers (collectively, the “Co-Arrangers” and individually, a “Co-Arranger”).

     In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS

     1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

     “Acquired Debt” means Indebtedness of a Person (1) existing at the time such Person becomes a Restricted Subsidiary or (2) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, as the case may be. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Restricted Subsidiary, as the case may be.

     “Additional Assets” means (i) any assets or property (other than cash, Cash Equivalents or securities) used in the Oil and Gas Business or any business ancillary thereto, (ii) Investments in any other Person engaged in the Oil and Gas Business or any business ancillary thereto (including the acquisition from third parties of Capital Stock of such Person) as a result of which such other Person becomes a Restricted Subsidiary, (iii) the acquisition from third parties of Capital Stock of a Restricted Subsidiary or (iv) Permitted Business Investments.

     “Adjusted Consolidated Net Tangible Assets” means (without duplication), as of the date of determination, the remainder of:

     (i) the sum of

     (a) discounted future net revenues from proved oil and gas reserves of the Borrower and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state, federal or foreign income taxes, as estimated in a reserve report prepared as of the end of the Borrower’s most recently completed fiscal year, which reserve report is prepared or reviewed by independent petroleum engineers as to reserves accounting for at least 80% of all such discounted future net revenues and by the Borrower’s petroleum engineers with respect to any other reserves covered by such report, as increased by, as of the date of determination, the estimated discounted future net revenues from (1) estimated proved oil and gas reserves acquired since such year-end, which reserves were

1

not reflected in such year-end reserve report, and (2) estimated increases in proved oil and gas reserves since such year-end due to exploration, development or exploitation activities or due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report), and decreased by, as of the date of determination, the estimated discounted future net revenues from (3) estimated proved oil and gas reserves reflected in such year-end report produced or disposed of since such year-end and (4) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since such year-end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report); provided that, in the case of each of the determinations made pursuant to clauses (1) through (4), such increases and decreases shall be as estimated by the Borrower’s petroleum engineers, unless there is a Material Change as a result of such acquisitions, dispositions or revisions, in which event the discounted future net revenues utilized for purposes of this clause (i)(a) shall be confirmed in writing an independent petroleum engineer, plus

     (b) the capitalized costs that are attributable to oil and gas properties of the Borrower and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Borrower’s books and records as of a date no earlier than the date of the Borrower’s latest annual or quarterly financial statements, plus

     (c) the Net Working Capital on a date no earlier than the date of the Borrower’s latest annual or quarterly financial statements, plus

     (d) the greater of (1) the net book value on a date no earlier than the date of the Borrower’s latest annual or quarterly financial statements and (2) the appraised value, as estimated by independent appraisers, of other tangible assets (including, without duplication, Investments in unconsolidated Restricted Subsidiaries) of the Borrower and its Restricted Subsidiaries, as of the date no earlier than the date of the Borrower’s latest audited financial statements (provided that the Borrower shall not be required to obtain such appraisal of such assets if no such appraisal has been performed),

minus (ii) the sum of

     (a) minority interests, plus

     (b) any net gas balancing liabilities of the Borrower and its Restricted Subsidiaries reflected in the Borrower’s latest audited Consolidated financial statements, plus

     (c) to the extent included in (i)(a) above, the discounted future net revenues, calculated in accordance with SEC guidelines (utilizing the prices utilized in the Borrower’s year-end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Borrower and its Restricted

2

Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto) plus

     (d) the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (i)(a) above, would be necessary to fully satisfy the payment obligations of the Borrower and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).

     If the Borrower changes its method of accounting from the full cost method to the successful efforts method or a similar method of accounting, “Adjusted Consolidated Net Tangible Assets” will continue to be calculated as if the Borrower were still using the full cost method of accounting.

     “Administrative Agent” means Bank of America, N.A. in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

     “Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.

     “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

     “Affiliate” means, with respect to any specified Person: (1) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (2) any other Person that owns, directly or indirectly, 10% or more of the Voting Stock of such specified Person (or any of such specified Person’s direct or indirect parent’s Voting Stock); or (3) any other Person 10% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition and the representation and warranty set forth in Section 5.14(b), “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

     “Aggregate Commitments” means the Commitments of all the Initial Lenders.

     “Agreement” means this Credit Agreement.

     “Applicable Fixed Rate” has the meaning set forth in Section 2.05(a).

     “Applicable Floating Rate Margin” has the meaning set forth in Section 2.05(b).

3

     “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

     “Asset Sale” means any sale, issuance, conveyance, transfer, lease or other disposition (including, without limitation, by way of merger or consolidation, Production Payments and Reserve Sales or a Sale Leaseback Transaction) (collectively, a “transfer”), directly or indirectly, in one or a series of related transactions, of:

     (1) any Capital Stock of any Restricted Subsidiary;

     (2) all or substantially all of the properties and assets of any division or line of business of the Borrower or any Restricted Subsidiary; or

     (3) any other properties, assets or rights of the Borrower or any Restricted Subsidiary other than in the ordinary course of business.

For the purposes of this definition, the term “Asset Sale” shall not include:

     (A) any transfer of properties and assets (including any Capital Stock of a Restricted Subsidiary) that is governed by Section 7.03,

     (B) any transfer of properties and assets that is by the Borrower to any Restricted Subsidiary, or by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary in accordance with the terms of this Agreement,

     (C) any transfer of properties and assets that would be within the definition of a “Permitted Investment” or a “Restricted Payment” and, in the latter case, would be permitted to be made as a Restricted Payment (and shall be deemed a Restricted Payment) under Section 7.05,

     (D) the transfer of Cash Equivalents, inventory, accounts receivable, surplus or obsolete equipment or other property (excluding the disposition of oil and gas in place and other interests in real property unless made in connection with a Permitted Business Investment),

     (E) the abandonment, assignment (including any assignments made pursuant to the Well Participation Program), lease, sublease or farm-out of oil and gas properties, or the forfeiture or other disposition of such properties, pursuant to operating agreements or other instruments or agreements that, in each case, are entered into in the ordinary course of business in a manner that is customary in the Oil and Gas Business,

     (F) the transfer of Property received in settlement of debts owing to such Person as a result of foreclosure, perfection or enforcement of any Lien or debt, which debts were owing to such Person in the ordinary course of its business,

     (G) any Production Payments and Reserve Sales, provided that any such Production Payments and Reserve Sales (other than incentive compensation programs on

4

terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical services to the Borrower or a Restricted Subsidiary), shall have been created, incurred, issued, assumed or guaranteed in connection with the acquisition or financing of, and within 90 days after the acquisition of, the Property that is subject thereto,

     (H) the licensing or sublicensing of intellectual property or other general intangibles to the extent that such license does not prohibit the licensor from using the intellectual property and licenses, leases or subleases of other property,

     (I) the creation or incurrence of any Lien,

     (J) the surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind,

     (K) the sale or other disposition (whether or not in the ordinary course of business) of oil and gas properties, provided at the time of such sale or other disposition such properties do not have associated with them any proved reserves or

     (L) any transfer of assets the Fair Market Value of which in the aggregate does not exceed $5,000,000 in any transaction or series of related transactions.

     “Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

     “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.06(b)) and accepted by the Administrative Agent, in substantially the form of Exhibit C or any other form approved by the Administrative Agent.

     “Attributable Indebtedness” in respect of a Sale Leaseback Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale Leaseback Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended).

     “Audited Financial Statements” means the audited Consolidated balance sheet of the Borrower and its Restricted Subsidiaries for the fiscal year ended December 31, 2005, and the related Consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.

     “Bank of America” means Bank of America, N.A. and its successors.

     “Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and

5

desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

     “Base Rate Loan” means a Floating Rate Loan that bears interest based on the Base Rate.

     “Borrower” has the meaning specified in the introductory paragraph hereto, until a successor Person shall have become such pursuant to the applicable provisions of this Agreement, and thereafter “Borrower” shall mean such successor Person.

     “Borrower Materials” has the meaning specified in Section 6.02.

     “Borrowing” means a borrowing consisting of simultaneous Initial Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Initial Lenders pursuant to Section 2.01.

     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

     “Capital Lease Obligation” of any Person means any obligation of such Person and its Restricted Subsidiaries on a Consolidated basis under any capital lease of (or other agreement conveying the right to use) real or personal property which, in accordance with GAAP, is required to be recorded as a capitalized lease obligation.

     “Capital Stock” of any Person means any and all shares, units, interests, participations, rights in or other equivalents (however designated) of such Person’s capital stock, other equity interests whether now outstanding or issued after the date hereof, partnership interests (whether general or limited), limited liability company interests, any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, including any Preferred Stock, and any rights (other than debt securities convertible into Capital Stock), warrants or options exchangeable for or convertible into such Capital Stock.

     “Cash Equivalents” means

     (1) any evidence of Indebtedness issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof,

     (2) deposits, time deposit accounts, certificates of deposit, money market deposits or acceptances of any financial institution having capital and surplus in excess of $500,000,000 that is a member of the Federal Reserve System and whose senior unsecured debt is rated at least “A-1” by S&P or at least “P-1” by Moody’s,

6

     (3) commercial paper with a maturity of 365 days or less issued by a corporation (other than an Affiliate or Subsidiary of the Borrower) organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and rated at least “A-1” by S&P and at least “P-1” by Moody’s,

     (4) repurchase agreements and reverse repurchase agreements relating to Indebtedness of a type described in clause (1) above that are entered into with a financial institution described in clause (2) above and mature within 365 days from the date of acquisition,

     (5) deposits and certificates of deposit with any commercial bank not meeting the qualifications specified in clause (2) above, provided all such deposits do not exceed $1,000,000 in the aggregate at any one time and

     (6) money market funds which invest substantially all of their assets in securities described in the preceding clauses (1) through (4).

     “CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

     “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

     “Change of Control” means the occurrence of any of the following events:

     (1) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than the Ward Group is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have beneficial ownership of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total outstanding Voting Stock of the Borrower (measured by voting power rather than the number of shares);

     (2) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Borrower (together with any new directors whose election to such board or whose nomination for election by the stockholders of the Borrower was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of such board of directors then in office;

     (3) the Borrower consolidates with or merges with or into any Person, or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any such Person, or any such Person consolidates with or merges into or with the Borrower, in any such event pursuant to a transaction in which the outstanding Voting

7

Stock of the Borrower is converted into or exchanged for cash, securities or other property, other than any such transaction where

     (A) the outstanding Voting Stock of the Borrower is changed into or exchanged for Voting Stock of the surviving Person which is not Disqualified Stock and

     (B) immediately after such transaction, no “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total outstanding Voting Stock (measured by voting power rather than the number of shares) of the surviving Person; or

     (4) the Borrower is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with the provisions of Section 7.03.

For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring Voting Stock of the Borrower will be deemed to be a transfer of such portion of such Voting Stock as corresponds to the portion of the equity of such entity that has been so transferred.

     “Change of Control Offer” has the meaning set forth in Section 6.16.

     “Change of Control Payment” has the meaning set forth in Section 6.16.

     “Change of Control Payment Date” has the meaning set forth in Section 6.16.

     “Closing Date” means the date of the Borrowing hereunder, as specified by the Borrower in its Loan Notice.

     “Co-Arranger” and “Co-Arrangers” have the meaning specified in the introductory paragraph hereto.

     “Code” means the Internal Revenue Code of 1986.

     “Commitment” means, as to each Initial Lender, its obligation to make an Initial Loan to the Borrower pursuant to Section 2.01, in the amount set forth opposite such Lender’s name on Schedule 2.01.

     “Compliance Certificate” means a certificate substantially in the form of Exhibit B.

     “Consolidated Fixed Charge Coverage Ratio” of any Person means, for any period, the ratio of

8

     (a) without duplication, the sum of Consolidated Net Income, and in each case to the extent deducted in computing such Consolidated Net Income for such period, Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash Charges for such period, of such Person and its Restricted Subsidiaries on a Consolidated basis, all determined in accordance with GAAP, less all non-cash items increasing Consolidated Net Income for such period, less (to the extent included in determining Consolidated Net Income) the sum of (a) the amount of deferred revenues that are amortized during the period and are attributable to reserves that are subject to Volumetric Production Payments and (b) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments, and less all cash payments during such period relating to non-cash charges that were added back to Consolidated Net Income in determining the Consolidated Fixed Charge Coverage Ratio in any prior period to

     (b) without duplication, the sum of Consolidated Interest Expense for such period,

in each case after giving pro forma effect to, without duplication,

     (1) the incurrence of the Indebtedness giving rise to the need to make such calculation and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, on the first day of such period;

     (2) the incurrence, repayment or retirement of any other Indebtedness by the Person and its Restricted Subsidiaries since the first day of such period as if such Indebtedness was incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average daily balance of such Indebtedness during such period);

     (3) in the case of Acquired Debt or any acquisition occurring at the time of the incurrence of such Indebtedness, the related acquisition, assuming such acquisition had been consummated on the first day of such period; and

     (4) any acquisition or disposition by such Person and its Restricted Subsidiaries of any company or any business or any assets out of the ordinary course of business, whether by merger, stock purchase or sale or asset purchase or sale, or any related repayment of Indebtedness, in each case since the first day of such period, assuming such acquisition or disposition had been consummated on the first day of such period;

provided that

     (1) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not

9

outstanding for any part of the period for which the computation is being made but which bears, at the option of such Person, a fixed or floating rate of interest, shall be computed by applying at the option of such Person either the fixed or floating rate, and

     (2) in making such computation, the Consolidated Interest Expense of such Person attributable to interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period.

     “Consolidated Income Tax Expense” of any Person means, for any period, the provision for federal, state, local and foreign income taxes (including state franchise taxes accounted for as income taxes in accordance with GAAP) of such Person and its Restricted Subsidiaries for such period as determined, on a Consolidated basis, in accordance with GAAP.

     “Consolidated Interest Expense” of any Person means, without duplication, for any period, the sum of

     (a) the interest expense, less interest income, of such Person and its Restricted Subsidiaries for such period, on a Consolidated basis, excluding any interest attributable to Dollar-Denominated Production Payments but including, without limitation,

     (1) amortization of debt discount (excluding amortization of capitalized debt issuance costs),

     (2) the net cash costs associated with Interest Rate Agreements (including amortization of discounts),

     (3) the interest portion of any deferred payment obligation,

     (4) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing and

     (5) accrued interest, minus

     (b) to the extent included in (a) above, write-offs of deferred financing costs of such Person and its Restricted Subsidiaries during such period and any charge related to, or any premium paid in connection with, paying any such Indebtedness of such Person and its Restricted Subsidiaries prior to its Stated Maturity, plus

     (c) (1) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period and

     (2) all capitalized interest of such Person and its Restricted Subsidiaries plus

10

     (d) the interest expense under any Guaranteed Debt of such Person and any Restricted Subsidiary to the extent not included under any other clause hereof, whether or not paid by such Person or its Restricted Subsidiaries, plus

     (e) dividend payments by the Person with respect to Disqualified Stock and of any Restricted Subsidiary with respect to Preferred Stock (except, in either case, dividends paid solely in Qualified Capital Stock of such Person or such Restricted Subsidiary, as the case may be).

     “Consolidated Net Income” of any Person means, for any period, the Consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period on a Consolidated basis as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income (or loss), by excluding, without duplication,

     (1) all extraordinary gains or losses net of taxes (less all fees and expenses relating thereto),

     (2) the portion of net income (or loss) of such Person and its Restricted Subsidiaries on a Consolidated basis allocable to minority interests in unconsolidated Persons or Unrestricted Subsidiaries to the extent that cash dividends or distributions have not actually been received by such Person or one of its Consolidated Restricted Subsidiaries,

     (3) any gain or loss, net of taxes, realized upon the termination of any employee pension benefit plan,

     (4) gains or losses, net of taxes (less all fees and expenses relating thereto), in respect of dispositions of assets other than in the ordinary course of the Oil and Gas Business (including, without limitation, dispositions pursuant to Sale Leaseback Transactions, but excluding transactions such as farmouts, sales of leasehold inventory and sales of undivided interests in drilling prospects),

     (5) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders,

     (6) any write-downs of non-current assets, provided that any ceiling limitation write-downs under SEC guidelines shall be treated as capitalized costs, as if such write-downs had not occurred,

     (7) any cumulative effect of a change in accounting principles, and

     (8) all deferred financing costs written off, and premiums paid, in connection with any early extinguishment of Indebtedness.

11

     “Consolidated Non-cash Charges” of any Person means, for any period, the aggregate depreciation, depletion, amortization and exploration expense and other non-cash charges of such Person and its Restricted Subsidiaries on a Consolidated basis for such period, as determined in accordance with GAAP (excluding any non-cash charge which requires an accrual or reserve for cash charges for any future period but including, without limitation, any non-cash charge arising from any grant of Capital Stock, options to acquire Capital Stock, or other equity based awards).

     “Consolidation” and “Consolidated” mean, with respect to any Person, the consolidation of the accounts of such Person and each of its Subsidiaries if and to the extent the accounts of such Person and each of its Subsidiaries would normally be consolidated with those of such Person, all in accordance with GAAP.

     “Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

     “Credit Facility” means, one or more debt facilities (including, without limitation, the Senior Credit Facility), commercial paper facilities or other debt instruments, indentures or agreements, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to the lenders or to special purpose entities formed to borrow from the lenders against such receivables), letters of credit or other debt obligations, in each case, as amended, restated, modified, renewed, refunded, restructured, supplemented, replaced or refinanced from time to time in whole or in part from time to time, including without limitation any amendment increasing the amount of Indebtedness incurred or available to be borrowed thereunder, extending the maturity of any Indebtedness incurred thereunder or contemplated thereby or deleting, adding or substituting one or more parties thereto (whether or not such added or substituted parties are banks or other institutional lenders).

     “Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

     “Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

     “Default Rate” means:

     (a) with respect to any Fixed Rate Loan, the Applicable Fixed Rate plus 2% per annum; and

     (b) with respect to any Floating Rate Loan or any other amount, (i) the Base Rate plus (ii) the Applicable Floating Rate Margin, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Floating Rate Margin) otherwise applicable to such Loan plus 2% per annum.

12

     “Disinterested Director” means, with respect to any transaction or series of related transactions, a member of the board of directors of the Borrower who does not have any material direct or indirect financial interest (other than as a shareholder or employee of the Borrower or any Subsidiary) in or with respect to such transaction or series of related transactions.

     “Disqualified Stock” means (i) the Series A Preferred Stock and (ii) any other Capital Stock that, either by its terms or by the terms of any security into which it is convertible or exchangeable or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the final Stated Maturity of the principal of the Loans or is redeemable at the option of the holder thereof at any time prior to such final Stated Maturity (other than upon a change of control of or sale of assets by the Borrower in circumstances where the holders of the Loans would have similar rights), or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity at the option of the holder thereof.

     “Dollar” and “$” mean lawful money of the United States.

     “Dollar-Denominated Production Payment” means a production payment required to be recorded as a borrowing in accordance with GAAP, together with all undertakings and obligations in connection therewith.

     “Eligible Assignee” means any Person that (a) meets the requirements to be an assignee under Sections 10.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)) and (b) is a “qualified institutional buyer” within the meaning of Rule 144A.

     “Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

     “Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Restricted Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

     “Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

     “Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership

13

or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

     “ERISA” means the Employee Retirement Income Security Act of 1974.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

     “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

     “Eurodollar Rate” means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

     “Eurodollar Rate Loan” means a Floating Rate Loan that bears interest at a rate based on the Eurodollar Rate.

     “Event of Default” has the meaning specified in Section 8.01.

14

     “Excess Proceeds” means any Net Available Cash from an Asset Sale not applied in accordance with Section 7.04(b) within 365 days from the date of such Asset Sale.

     “Exchange Notes” means the Initial Exchange Notes and the Second Exchange Notes.

     “Exchanged Properties” means properties or assets or Capital Stock representing an equity interest in or assets used or useful in the Oil and Gas Business, received by the Borrower or a Restricted Subsidiary in a substantially concurrent purchase and sale, trade or exchange as a portion of the total consideration for other such properties or assets.

     “Excluded Taxes” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a).

     “Existing Agreement” means that certain Bridge Loan Agreement dated as of November 21, 2006, among the Borrower (under its former name of Riata Energy, Inc.), Bank of America, N.A. and the other lenders from time to time party thereto.

     “Fair Market Value” means, with respect to any asset or property, the sale value that would be obtained in an arm’s-length free market transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Fair Market Value of an asset or property in excess of $10,000,000 shall be determined by the board of directors of the Borrower acting in good faith, in which event it shall be evidenced by a resolution of the board of directors.

     “Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

15

     “Final Maturity Date” means the Fixed Rate Maturity Date and the Floating Rate Maturity Date in the case of Fixed Rate Loans and Floating Rate Loans, respectively.

     “Fixed Rate Borrowing” means a borrowing consisting of simultaneous Fixed Rate Loans made by each of the Fixed Rate Lenders pursuant to Section 2.01(a).

     “Fixed Rate Commitment” means, as to each Fixed Rate Lender, its obligation to make Fixed Rate Loans to the Borrower pursuant to Section 2.01(a) in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Fixed Rate Lender’s name on Schedule 2.01 under the caption “Fixed Rate Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Fixed Rate Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

     “Fixed Rate Facility” means, at any time, (a) on or prior to the Closing Date, the aggregate amount of the Fixed Rate Commitments at such time and (b) thereafter, the aggregate principal amount of the Fixed Rate Loans of all Fixed Rate Lenders outstanding at such time.

     “Fixed Rate Lender” means (a) at any time on or prior to the Closing Date, any Lender that has a Fixed Rate Commitment at such time and (b) at any time after the Closing Date, any Lender that holds Fixed Rate Loans at such time.

     “Fixed Rate Loan” means an advance made by any Fixed Rate Lender under the Fixed Rate Facility, together with any increases in principal amount of such Loans as a payment of PIK Interest pursuant to Section 2.05(a).

     “Fixed Rate Maturity Date” means April 1, 2015.

     “Floating Rate Borrowing” means a borrowing consisting of simultaneous Floating Rate Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Floating Rate Lenders pursuant to Section 2.01(b).

     “Floating Rate Commitment” means, as to each Floating Rate Lender, its obligation to make Floating Rate Loans to the Borrower pursuant to Section 2.01(b) in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Floating Rate Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Floating Rate Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

     “Floating Rate Facility” means, at any time, (a) on or prior to the Closing Date, the aggregate amount of the Floating Rate Commitments at such time and (b) thereafter, the aggregate principal amount of the Floating Rate Loans of all Floating Rate Lenders outstanding at such time.

     “Floating Rate Lender” means at any time, (a) on or prior to the Closing Date, any Lender that has a Floating Rate Commitment at such time and (b) at any time after the Closing Date, any Lender that holds Floating Rate Loans at such time.

16

     “Floating Rate Loan” means an advance made by any Floating Rate Lender under the Floating Rate Facility.

     “Floating Rate Maturity Date” means April 1, 2014.

     “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

     “Foreign Subsidiary” means any Restricted Subsidiary of the Borrower that (x) is not organized under the laws of the United States of America or any State thereof or the District of Columbia, or (y) was organized under the laws of the United States of America or any State thereof or the District of Columbia that has no material assets other than Capital Stock of one or more foreign entities of the type described in clause (x) above and is not a guarantor of Indebtedness under a Credit Facility.

     “FRB” means the Board of Governors of the Federal Reserve System of the United States.

     “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

     “GAAP” means generally accepted accounting principles in the United States which are in effect from time to time.

     “Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

     “Guarantee” means the guarantee by any Guarantor of the obligations of the Borrower under this Agreement, including the obligations to pay principal of, premium, if any, and interest when due and payable on the Loans, and all other amounts due or to become due under or in connection with this Agreement, the Loans and the performance of all other obligations to the Administrative Agent and the Lenders under this Agreement and the Loans, according to the respective terms thereof.

     “Guaranteed Debt” of any Person means, without duplication, all Indebtedness of any other Person referred to in the definition of Indebtedness below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement, made primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss,

17

     (1) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness,

     (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services,

     (3) to supply funds to, or in any other manner invest in, the debtor (including any agreement to pay for property or services without requiring that such property be received or such services be rendered),

     (4) to maintain working capital or equity capital of the debtor, or otherwise to maintain the net worth, solvency or other financial condition of the debtor or to cause such debtor to achieve certain levels of financial performance or

     (5) otherwise to assure a creditor against loss;

provided that the term “guarantee” shall not include endorsements for collection or deposit, in either case in the ordinary course of business.

     “Guarantors” means, collectively, (i) NEG Oil & Gas LLC, ROC Gas Company, National Onshore LP, National Offshore LP, NEG Operating LLC, Lariat Services, Inc., Lariat Compression Company, SandRidge Operating Company, Integra Energy, L.L.C., PetroSource Energy Company, LP, PetroSource Production Company, L.P. and SandRidge Holdings, Inc. and (ii) each Person which becomes a Guarantor after the Closing Date pursuant to Section 6.12.

     “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

     “Immaterial Subsidiary” means any Subsidiary with total assets of less than $500,000, as determined in accordance with its latest financial statements.

     “Incremental Margin” means (i) prior to May 31, 2008, 0%, (ii) from May 31, 2008 through but excluding the 90-day anniversary thereof, 0.25% and (iii) thereafter, 0.50%; provided that the Incremental Margin shall be 0% on any date on and after the Initial Exchange Date.

     “Indebtedness” means, with respect to any Person, without duplication,

     (1) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any Trade Accounts Payable and other accrued current liabilities arising in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit issued under letter of credit facilities, acceptance facilities or other similar facilities,

18

     (2) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments,

     (3) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding Trade Accounts Payable,

     (4) all obligations under or in respect of currency exchange contracts, oil, gas or other hydrocarbon price hedging arrangements and Interest Rate Agreements of such Person (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time),

     (5) all Capital Lease Obligations of such Person,

     (6) the Attributable Indebtedness of such Person related to any Sale Leaseback Transaction,

     (7) all Indebtedness referred to in clauses (1) through (6) above of other Persons and all dividends of other Persons, to the extent the payment of such Indebtedness or dividends is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien, upon or with respect to property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness,

     (8) all Guaranteed Debt of such Person,

     (9) all Disqualified Stock issued by such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends,

     (10) all Preferred Stock of any Restricted Subsidiary of the Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends,

     (11) with respect to any Production Payment and Reserve Sale, any warranties or guaranties of production or payment by such Person with respect to such Production Payment and Reserve Sale but excluding other contractual obligations of such Person with respect to such Production Payment and Reserve Sale and

     (12) any amendment, supplement, modification, deferral, renewal, extension, refunding or refinancing of any liability of the types referred to in clauses (1) through (11) above.

     For purposes hereof, the “maximum fixed repurchase price” of any Disqualified Stock or Preferred Stock which does not have a fixed repurchase price shall be calculated in accordance

19

with the terms of such Disqualified Stock or Preferred Stock as if it were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Stock or Preferred Stock, such Fair Market Value to be determined in good faith by the board of directors of the issuer of such Disqualified Stock or Preferred Stock. Subject to clause (11) of the preceding sentence, Production Payments and Reserve Sales shall not be deemed to be Indebtedness.

     “Indemnified Taxes” means Taxes other than Excluded Taxes.

     “Indemnitee” has the meaning specified in Section 10.04(b).

     “Information” has the meaning specified in Section 10.07.

     “Initial Exchange” has the meaning set forth in Section 6.15.

     “Initial Exchange Date” has the meaning set forth in Section 6.15.

     “Initial Exchange Note” means a note of the Borrower issued pursuant to the Initial Exchange Note Indenture.

     “Initial Exchange Note Indenture” means the collective reference to one or more indentures to be entered into to give effect to the exchange right of the Lenders pursuant to Section 6.15, having economic terms (including interest rate, maturity and prepayment provisions) and negative covenants substantially the same as those applicable to the Loans, except as otherwise contemplated by Section 6.15 and as modified to reflect customary provisions for notes issued in an offering pursuant to Rule 144A by similar issuers, all as proposed by the Lead Arranger for the Exchange Notes and reasonably acceptable to the Borrower.

     “Initial Lenders” means Banc of America Bridge LLC, Goldman Sachs Credit Partners L.P., Lehman Commercial Paper Inc. and Deutsche Bank AG, New York Branch.

     “Initial Loan” means a Loan made by an Initial Lender on the Closing Date pursuant to Section 2.01.

     “Interest Payment Date” means the first Business Day of each April, July, October and January, beginning with July 2007, and the Initial Exchange Date or the Final Maturity Date, as applicable.

     “Interest Period” means, as to each Loan, (i) in the case of the first Interest Period, the period beginning on the Closing Date and ending on the first Interest Payment Date and (ii) in the case of each subsequent Interest Period, the period beginning on the last day of the immediately preceding Interest Period and ending on the next succeeding Interest Payment Date.

     “Interest Rate Agreements” means one or more of the following agreements which shall be entered into from time to time by one or more financial institutions: interest rate protection

20

agreements (including, without limitation, interest rate swaps, caps, floors, collars and similar agreements) and/or other types of interest rate hedging agreements.

     “Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Borrower’s internal controls over financial reporting, in each case as described in the Securities Laws.

     “Investment” means, with respect to any Person, directly or indirectly, any advance, loan (including guarantees), or other extension of credit or capital contribution to any other Person (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities issued or owned by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. “Investment” shall exclude direct or indirect advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the Borrower’s or any Restricted Subsidiary’s balance sheet, endorsements for collection or deposit arising in the ordinary course of business and extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. If the Borrower of any Restricted Subsidiary of the Borrower sells or otherwise disposes of any Capital Stock of any direct or indirect Subsidiary of the Borrower such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Borrower (other than the sale of all of the outstanding Capital Stock of such Subsidiary), the Borrower will be deemed to have made an Investment on the date of such sale or disposition equal to the Fair Market Value of the Borrower’s Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 7.05.

     “Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, licenses, authorizations and permits of, and agreements with, any Governmental Authority.

     “Lead Arranger” means Banc of America Securities LLC.

     “Lender” has the meaning specified in the introductory paragraph hereto.

     “Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

     “Lien” means any mortgage or deed of trust, charge, pledge, lien (statutory or otherwise), privilege, security interest, assignment, deposit, arrangement, hypothecation, claim, preference, priority or other encumbrance for security purposes upon or with respect to any property of any kind (including any conditional sale, capital lease or other title retention agreement, any leases in the nature thereof, and any agreement to give any security interest), real or personal, movable or

21

immovable, now owned or hereafter acquired. A Person will be deemed to own subject to a Lien any property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease Obligation or other title retention agreement. References herein to Liens allowed to exist upon any particular item of Property shall also be deemed (whether or not stated specifically) to allow Liens to exist upon any accessions, improvements or additions to such property, upon any contractual rights relating primarily to such Property, and upon any proceeds of such Property or of such accessions, improvements, additions or contractual rights.

     “Liquid Securities” means securities (i) of an issuer that is not an Affiliate of the Borrower, (ii) that are publicly traded on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market and (iii) as to which the Borrower is not subject to any restrictions on sale or transfer (including any volume restrictions under Rule 144 under the Securities Act or any other restrictions imposed by the Securities Act) or as to which a registration statement under the Securities Act covering the resale thereof is in effect for as long as the securities are held; provided that securities meeting the requirements of clauses (i), (ii) and (iii) above shall be treated as Liquid Securities from the date of receipt thereof until and only until the earlier of (a) the date on which such securities are sold or exchanged for cash or Cash Equivalents and (b) 360 days following the date of receipt of such securities. If such securities are not sold or exchanged for cash or Cash Equivalents within 360 days of receipt thereof, for purposes of determining whether the transaction pursuant to which the Borrower or a Restricted Subsidiary received the securities was in compliance with the provisions of Section 7.04, such securities shall be deemed not to have been Liquid Securities at any time.

     “Loan” means a Fixed Rate Loan or a Floating Rate Loan, and “Loans” means any combination of the foregoing.

     “Loan Documents” means this Agreement and the Guaranty.

     “Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

     “Loan Parties” means, collectively, the Borrower and each Guarantor.

     “Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), results of operations or condition (financial or otherwise) of the Borrower and its Restricted Subsidiaries taken as a whole; (b) a material impairment of (i) the rights and remedies of the Administrative Agent or any Lender under any Loan Document or (ii) the ability of the Loan Parties to perform their obligations under the Loan Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

     “Material Change” means an increase or decrease (except to the extent resulting from changes in prices) of more than 30% during a fiscal quarter in the estimated discounted future net revenues from proved oil and gas reserves of the Borrower and its Restricted Subsidiaries,

22

calculated in accordance with clause (i)(a) of the definition of Adjusted Consolidated Net Tangible Assets; provided, however, that the following will be excluded from the calculation of Material Change: (i) any acquisitions during the quarter of oil and gas reserves with respect to which the discounted future net revenues from proved oil and gas reserves have been estimated or confirmed by independent petroleum engineers and (ii) any dispositions of properties and assets during such quarter that were disposed of in compliance with Section 7.04.

     “Midstream Assets” means (i) assets used primarily for gathering, transmission, storage, processing or treatment of natural gas, natural gas liquids or other hydrocarbons or carbon dioxide and (ii) equity interests of any Person that has no substantial assets other than assets referred to in clause (i).

     “MNPI” has the meaning specified in Section 6.02.

     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

     “Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

     “Net Available Cash” from an Asset Sale or Sale Leaseback Transaction means cash proceeds received therefrom (including (i) any cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received and (ii) the Fair Market Value of Liquid Securities and Cash Equivalents, and excluding (iii) any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the assets or property that is the subject of such Asset Sale or Sale Leaseback Transaction and (iv) except to the extent subsequently converted to cash, within 360 days after such Asset Sale or Sale Leaseback Transaction, Cash Equivalents or Liquid Securities; consideration constituting Exchanged Properties or consideration other than as identified in the immediately preceding clauses (i) and (ii)), in each case net of:

     (a) all legal, title and recording expenses, commissions and other fees and expenses incurred, and all federal, state, foreign and local taxes required to be paid or accrued as a liability under GAAP as a consequence of such Asset Sale or Sale Leaseback Transaction,

     (b) all payments made on any Indebtedness (but specifically excluding Indebtedness of the Borrower and its Restricted Subsidiaries assumed in connection with or in anticipation of such Asset Sale or Sale Leaseback Transaction) which is secured by any assets subject to such Asset Sale or Sale Leaseback Transaction, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale or Sale Leaseback Transaction or by applicable law, be repaid out of the proceeds from such Asset Sale or Sale Leaseback Transaction, provided that such payments are made in a manner that results in the permanent reduction

23

in the balance of such Indebtedness and, if applicable, a permanent reduction in any outstanding commitment for future incurrences of Indebtedness thereunder,

     (c) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale or Sale Leaseback Transaction and

     (d) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Sale or Sale Leaseback Transaction and retained by the Borrower or any Restricted Subsidiary after such Asset Sale or Sale Leaseback Transaction;

provided, however, that if any consideration for an Asset Sale or Sale Leaseback Transaction (which would otherwise constitute Net Available Cash) is required to be held in escrow pending determination of whether a purchase price adjustment will be made, such consideration (or any portion thereof) shall become Net Available Cash only at such time as it is released to such Person or its Restricted Subsidiaries from escrow.

     “Net Cash Proceeds” means with respect to any issuance or sale of Capital Stock or debt securities or Capital Stock that has been converted into or exchanged for Capital Stock as referred to in Section 7.05, the proceeds of such issuance or sale in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed of for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Borrower or any Restricted Subsidiary), net of attorney’s fees, accountant’s fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.

     “Net Working Capital” means (i) all current assets of the Borrower and its Restricted Subsidiaries, less (ii) all current liabilities of the Borrower and its Restricted Subsidiaries, except current liabilities included in Indebtedness, in each case as set forth in Consolidated financial statements of the Borrower prepared in accordance with GAAP, provided, however, that all of the following shall be excluded in the calculation of Net Working Capital: (a) current assets or liabilities relating to the mark-to-market value of Interest Rate Agreements and hedging arrangements constituting Permitted Debt, (b) any current assets or liabilities relating to non-cash charges arising from any grant of Capital Stock, options to acquire Capital Stock, or other equity based awards, and (c) any current assets or liabilities relating to non-cash charges or accruals for future abandonment liabilities.

     “Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

24

     “Oil and Gas Business” means the business of exploiting, exploring for, developing, acquiring, operating, producing, processing, gathering, marketing, storing, selling, hedging, treating, swapping, refining and transporting hydrocarbons and carbon dioxide and other related energy businesses, including contract drilling and other oilfield services.

     “Oil and Gas Liens” means (i) Liens on any specific property or any interest therein, construction thereon or improvement thereto to secure all or any part of the costs incurred for surveying, exploration, drilling, extraction, development, operation, production, construction, alteration, repair or improvement of, in, under or on such property and the plugging and abandonment of wells located thereon (it being understood that, in the case of oil and gas producing properties, or any interest therein, costs incurred for “development” shall include costs incurred for all facilities relating to such properties or to projects, ventures or other arrangements of which such properties form a part or which relate to such properties or interests); (ii) Liens on an oil or gas producing property to secure obligations incurred or guarantees of obligations incurred in connection with or necessarily incidental to commitments for the purchase or sale of, or the transportation or distribution of, the products derived from such property; (iii) Liens arising under partnership agreements, oil and gas leases, overriding royalty agreements, net profits agreements, production payment agreements, royalty trust agreements, incentive compensation programs for geologists, geophysicists and other providers of technical services to the Borrower or a Restricted Subsidiary, master limited partnership agreements, farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of oil, gas or other hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, operating agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements which are customary in the Oil and Gas Business; provided, however, in all instances that such Liens are limited to the assets that are the subject of the relevant agreement, program, order or contract; (iv) Liens arising in connection with Production Payments and Reserve Sales; provided that such Liens are limited to the property that is subject to such Production Payments and Reserve Sales, and such Production Payments and Reserve Sales either (a) were created in connection with the acquisition or financing of the property and were incurred within 90 days after the acquisition of the property subject thereto, or (b) constitute Asset Sales made in compliance with Section 7.04; and (v) Liens on pipelines or pipeline facilities that arise by operation of law.

     “Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

25

     “Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

     “Participant” has the meaning specified in Section 10.06(d).

     “Pari Passu Indebtedness” means any Indebtedness of the Borrower or a Guarantor that is pari passu in right of payment to the Loans or a Guarantee, as the case may be.

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “PCAOB” means the Public Company Accounting Oversight Board.

     “Permitted Business Investments” means Investments and expenditures made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business as a means of actively engaging therein through agreements, transactions, interests or arrangements which permit one to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of Oil and Gas Business jointly with third parties, including (i) ownership interests in oil and gas properties or gathering, transportation, processing, storage or related systems and (ii) Investments and expenditures in the form of or pursuant to operating agreements, processing agreements, farm-in agreements, farm-out agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling arrangements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited) and other similar agreements (including for limited liability companies) with third parties, excluding, however, Investments in Persons other than Restricted Subsidiaries.

     “Permitted Investment” means

     (1) Investments in any Restricted Subsidiary or any Person which, as a result of such Investment, (a) becomes a Restricted Subsidiary or (b) is merged or consolidated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Borrower or any Restricted Subsidiary;

     (2) Indebtedness of the Borrower or a Restricted Subsidiary described under clauses (4), (5) and (6) of the definition of “Permitted Debt;”

     (3) Investments in any of the Loans or Exchange Notes;

     (4) Cash Equivalents;

     (5) Investments in property, plant and equipment used in the ordinary course of business and Permitted Business Investments;

     (6) Investments acquired by the Borrower or any Restricted Subsidiary in connection with an Asset Sale permitted under Section 7.04 to the extent such Investments are non-cash proceeds as permitted under such covenant;

26

     (7) Investments in existence on the date hereof;

     (8) Investments acquired in exchange for the issuance of Capital Stock of the Borrower (other than Disqualified Stock of the Borrower or a Restricted Subsidiary or Preferred Stock of a Restricted Subsidiary);

     (9) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and worker’s compensation, performance and other similar deposits provided to third parties in the ordinary course of business;

     (10) loans or advances to employees of the Borrower in the ordinary course of business for bona fide business purposes of the Borrower and its Restricted Subsidiaries (including travel, entertainment and relocation expenses) in the aggregate amount outstanding at any one time of not more than $2,000,000;

     (11) any Investments received in good faith in settlement or compromise of receivables or other obligations that were obtained in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer;

     (12) other Investments in the aggregate amount outstanding at any one time of up to the greater of (x) $25,000,000 and (y) 5.0% of Adjusted Consolidated Net Tangible Assets; and

     (13) guarantees received with respect to any Permitted Investment listed above.

     In connection with any assets or property contributed or transferred to any Person as an Investment, such property and assets shall be equal to the Fair Market Value at the time of Investment, without regard to subsequent changes in value.

     “Permitted Lien” means:

     (1) any Lien existing as of the date hereof securing Indebtedness or obligations existing on the date hereof and not otherwise referred to in this definition;

     (2) any Lien with respect to the Senior Credit Facility or any successor Credit Facilities securing Indebtedness incurred thereunder that could be borrowed under Section 7.02;

     (3) any Lien securing the Loans, the Guarantees and other obligations arising under this Agreement;

     (4) any Lien in favor of the Borrower or a Restricted Subsidiary;

     (5) any Lien arising by reason of:

     (A) any judgment, decree or order of any court, so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been

27

duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired;

     (B) taxes, assessments or governmental charges or claims that are not yet delinquent or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided that any reserve or other appropriate provision as will be required in conformity with GAAP will have been made therefor;

     (C) security made in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other types of social security;

     (D) good faith deposits in connection with tenders, leases and contracts (other than contracts for the payment of Indebtedness);

     (E) zoning restrictions, easements, licenses, reservations, title defects, rights of others for rights of way, utilities, sewers, electric lines, telephone or telegraph lines, and other similar purposes, provisions, covenants, conditions, waivers, restrictions on the use of property or minor irregularities of title (and with respect to leasehold interests, mortgages, obligations, Liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee), none of which materially impairs the use of any parcel of property material to the operation of the business of the Borrower or any Restricted Subsidiary or the value of such property for the purpose of such business;

     (F) deposits to secure public or statutory obligations, or in lieu of surety or appeal bonds;

     (G) operation of law or contract in favor of mechanics, carriers, warehousemen, landlords, materialmen, laborers, employees, suppliers and similar persons, incurred in the ordinary course of business for sums which are not yet delinquent or are being contested in good faith by negotiations or by appropriate proceedings which suspend the collection thereof;

     (H) normal depository arrangements with banks;

     (6) any Lien securing Acquired Debt created prior to (and not created in connection with, or in contemplation of) the incurrence of such Indebtedness by the Borrower or any Restricted Subsidiary; provided that such Lien only secures the assets acquired in connection with the transaction pursuant to which the Acquired Debt became an obligation of the Borrower or a Restricted Subsidiary;

     (7) any Lien to secure performance bids, leases (including, without limitation, statutory and common law landlord’s liens), statutory obligations, letters of credit and

28

other obligations of a like nature and incurred in the ordinary course of business of the Borrower or any Subsidiary and not securing or supporting Indebtedness, and any Lien to secure statutory or appeal bonds;

     (8) any Lien securing Indebtedness permitted to be incurred pursuant to clause (6) or clause (8) of the definition of Permitted Debt, so long as none of such Indebtedness constitutes debt for borrowed money;

     (9) any Lien securing Capital Lease Obligations or Purchase Money Obligations incurred in accordance with Section 7.02(b)(vii) and which are incurred or assumed solely in connection with the acquisition, development or construction of real or personal, moveable or immovable property commencing within 90 days of such incurrence or assumption; provided that such Liens only extend to such acquired, developed or constructed property, such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, addition or improvement thereto, and the incurrence of such Indebtedness is permitted by Section 7.02;

     (10) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Borrower or any of its Restricted Subsidiaries;

     (11) (A) Liens on property, assets or shares of stock of a Person at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Borrower or any of its Restricted Subsidiaries; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming a Restricted Subsidiary or such merger or consolidation; provided further, that any such Lien may not extend to any other property owned by the Borrower or any Restricted Subsidiary and assets fixed or appurtenant thereto; and (B) Liens on property, assets or shares of capital stock existing at the time of acquisition thereof by the Borrower or any of its Restricted Subsidiaries; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition and do not extend to any property other than the property so acquired;

     (12) Oil and Gas Liens, in each case which are not incurred in connection with the borrowing of money;

     (13) any extension, renewal, refinancing or replacement, in whole or in part, of any Lien described in the foregoing clauses (1) through (12) so long as no additional collateral is granted as security thereby; and

     (14) in addition to the items referred to in clauses (1) through (13) above, Liens of the Borrower and its Restricted Subsidiaries to secure Indebtedness in an aggregate amount at any time outstanding which does not exceed 5.0% of Adjusted Consolidated Net Tangible Assets as most recently determined at such time.

29

     “Permitted MLP Securities” means equity securities (including incentive distribution rights) of a master limited partnership (or limited liability company or similar business entity with pass-through treatment for U.S. Federal income tax purposes) that has a class of equity securities traded on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market, provided that such master limited partnership (or other entity) is an Affiliate of the Borrower.

     “Permitted Refinancing Indebtedness” means any Indebtedness of the Borrower or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, extend, substitute, defease, refund, refinance or replace (“refinance”) other Indebtedness of the Borrower or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:

     (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness being refinanced (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);

     (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being refinanced;

     (3) if the Indebtedness being refinanced is subordinated in right of payment to the Loans, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Loans on terms at least as favorable to the holders of Loans as those contained in the documentation governing the Indebtedness being refinanced; and

     (4) such Indebtedness is incurred either by the Borrower or by the Restricted Subsidiary, as applicable, that is the obligor on the Indebtedness refinanced.

     “Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

     “Permitted Debt” has the meaning specified in Section 7.02(b).

     “Permitted Payment” has the meaning specified in Section 7.05(b).

     “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

     “PIK Interest” shall have the meaning set forth in Section 2.05(a).

30

     “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

     “Platform” has the meaning specified in Section 6.02.

     “Preferred Stock” means, with respect to any Person, any Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over the Capital Stock of any other class in such Person.

     “Production Payments” means, collectively, Dollar-Denominated Production Payments and Volumetric Production Payments.

     “Production Payments and Reserve Sales” means the grant or transfer by the Borrower or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest, Production Payment, partnership or other interest in oil and gas properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such properties, production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical services to the Borrower or a Restricted Subsidiary.

     “Property” means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock and other securities issued by any other Person (but excluding Capital Stock or other securities issued by such first mentioned Person).

     “Public-Side Lender” has the meaning specified in Section 6.02.

     “Purchase Money Obligation” means any Indebtedness secured by a Lien on assets related to the business of the Borrower which are purchased or constructed by the Borrower at any time after the Loans are issued; provided that

     (1) the security agreement or conditional sales or other title retention contract pursuant to which the Lien on such assets is created (collectively a “Purchase Money Security Agreement”) shall be entered into within 90 days after the purchase or substantial completion of the construction of such assets and shall at all times be confined solely to the assets so purchased or acquired (together with any additions, accessions, and other related assets referred to in the last sentence of the above definition of “Liens”),

     (2) at no time shall the aggregate principal amount of the outstanding Indebtedness secured thereby be increased, except in connection with the purchase of

31

additions, improvements, and accessions thereto and except in respect of fees and other obligations in respect of such Indebtedness and

     (3) (A) the aggregate outstanding principal amount of Indebtedness secured thereby (determined on a per asset basis in the case of any additions, improvements and accessions) shall not at the time such Purchase Money Security Agreement is entered into exceed 100% of the purchase price to the Borrower of the assets subject thereto or (B) the Indebtedness secured thereby shall be with recourse solely to the assets so purchased or acquired subject to the last sentence of the above definition of “Liens”).

     “Qualified Capital Stock” of any Person means any and all Capital Stock of such Person other than Disqualified Stock.

     “Register” has the meaning specified in Section 10.06(c).

     “Registered Public Accounting Firm” has the meaning specified in the Securities Laws and shall be independent of the Borrower as prescribed by the Securities Laws.

     “Registration Default” has the meaning specified in Section 6.15.

     “Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

     “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

     “Required Lenders” means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the Commitments shall have or shall have been terminated, Lenders holding in the aggregate more than 50% of the outstanding principal amount of the Loans.

     “Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and, solely for purposes of notices given pursuant to Article II, any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

     “Restricted Payment” has the meaning set forth in Section 7.05.

     “Restricted Subsidiary” of a Person means any Subsidiary of that Person that is not an Unrestricted Subsidiary.

     “Rule 144A” means Rule 144A promulgated under the Securities Act.

32

     “Sale Leaseback Transaction” means, with respect to the Borrower or any of its Restricted Subsidiaries, any arrangement with any Person providing for the leasing by the Borrower or any of its Restricted Subsidiaries of any real property or equipment, acquired or placed into service more than 180 days prior to such arrangement, whereby such property has been or is to be sold or transferred by the Borrower or any of its Restricted Subsidiaries to such Person.

     “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

     “Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

     “SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

     “Second Exchange Notes” has the meaning specified in Section 6.15.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Securities Laws” means the Securities Act and regulations thereunder, the Securities Exchange Act of 1934 and regulations thereunder, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.

     “Senior Credit Facility” means that certain Credit Agreement dated as of November 21, 2006 among the Borrower (f/k/a Riata Energy, Inc.), Bank of America and the other lenders party thereto, as such agreement, in whole or in part, in one or more instances, may be amended, renewed, extended, substituted, refinanced, restructured, replaced, supplemented or otherwise modified from time to time (including, without limitation, any successive amendments, renewals, extensions, substitutions, refinancings, restructurings, replacements, supplementations or other modifications of the foregoing).

     “Series A Preferred Stock” means the Series A Convertible Preferred Stock of the Borrower issued pursuant to the Certificate of Designations filed on December 11, 2006.

     “Significant Subsidiary” means any Restricted Subsidiary that would be a “significant subsidiary” of the Borrower within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC as in effect on the date hereof.

     “Stated Maturity” means, when used with respect to any Indebtedness or any installment of interest thereon, the dates specified in such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest, as the case may be, is due and payable.

     “Subordinated Indebtedness” means Indebtedness of the Borrower or a Guarantor subordinated in right of payment to the Loans or a Guarantee, as the case may be.

33

     “Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

     “Subsidiary” of a Person means

     (1) any corporation more than 50% of the outstanding voting power of the Voting Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, or

     (2) any limited partnership of which such Person or any Subsidiary of such Person is a general partner, or

     (3) any other Person in which such Person, or one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries, directly or indirectly, has more than 50% of the outstanding Capital Stock or has the power, by contract or otherwise, to direct or cause the direction of the policies, management and affairs thereof.

     “Surviving Entity” has the meaning specified in Section 7.03(a)(i).

     “Syndication Completion Date” means the earlier of (i) the date on which the Lead Arranger notifies the Lenders that the Lead Arranger has completed its primary syndication of the Initial Loans to its satisfaction but in any event not later than 60 days after the initial launch of the syndication on IntraLinks or (ii) the 180^th day after the Closing Date.

     “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

     “Trade Accounts Payable” of any Person means accounts payable or other obligations of that Person or any Restricted Subsidiary to trade creditors created or assumed by the Person or such Restricted Subsidiary in the ordinary course of business in connection with the obtaining of goods or services.

     “Tranche” means, with respect to any Loan or Commitment, whether such Loan is a Fixed Rate Loan or Floating Rate Loan and whether such Commitment is a Fixed Rate Commitment or a Floating Rate Commitment.

34

     “Type” means, with respect to a Floating Rate Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

     “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

     “United States” and “U.S.” mean the United States of America.

     “Unrestricted Subsidiary” means any Subsidiary of the Borrower designated as such pursuant to and in compliance with Section 7.09.

     “Unrestricted Subsidiary Indebtedness” of any Unrestricted Subsidiary means Indebtedness of such Unrestricted Subsidiary

     (1) as to which neither the Borrower nor any Restricted Subsidiary is directly or indirectly liable (by virtue of the Borrower or any such Restricted Subsidiary being the primary obligor on, guarantor of, or otherwise liable in any respect to, such Indebtedness), except Guaranteed Debt of the Borrower or any Restricted Subsidiary to any Affiliate of the Borrower, in which case (unless the incurrence of such Guaranteed Debt resulted in a Restricted Payment at the time of incurrence) the Borrower shall be deemed to have made a Restricted Payment equal to the principal amount of any such Indebtedness to the extent guaranteed at the time such Affiliate is designated an Unrestricted Subsidiary and

     (2) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of the Borrower or any Restricted Subsidiary to declare, a default on such Indebtedness of the Borrower or any Restricted Subsidiary or cause the payment thereof to be accelerated or payable prior to its Stated Maturity;

provided that notwithstanding the foregoing, any Unrestricted Subsidiary may guarantee the Loans or any Credit Facility.

     “Volumetric Production Payment” means a production payment that is recorded as a sale in accordance with GAAP, whether or not the sale price must be recorded as deferred revenue, together with all undertakings and obligations in connection therewith.

     “Voting Stock” of a Person means Capital Stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

     “Ward Group” means (i) Tom L. Ward (“Ward”); (ii) Ward’s wife; (iii) any of Ward’s lineal descendants; (iv) Ward’s estate; (v) any trust of which at least one of the trustees is Ward, or the principal beneficiaries of which are any one or more of the Persons in (i)-(iv); (vi) any

35

Person which is controlled by any one or more of the Persons in (i)-(v); and (vii) any group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder as in effect on the date hereof) that includes one or more of Persons described in clauses (i) through (vi) above, provided that such Persons described in clauses (i) through (vi) above control more than 50% of the voting power of such group.

     “Weighted Average Life to Maturity” means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from the date of determination to the date or dates of each successive scheduled principal payment and (b) the amount of each such principal payment by (2) the sum of all such principal payments.

     “Well Participation Program” means that certain Well Participation Program effective as of June 8, 2006 by and among the Borrower and certain executive officers of the Borrower, as in effect on the Closing Date.

     “Wholly Owned Restricted Subsidiary” means a Restricted Subsidiary all the Capital Stock of which is owned by the Borrower or another Wholly Owned Restricted Subsidiary (other than directors’ qualifying shares).

     1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

     (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

36

     (b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

     (c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

     1.03 Accounting Terms. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

     1.04 Petroleum Terms.

     As used herein, the terms “proved reserves,” “proved developed reserves,” “proved developed producing reserves,” “proved developed nonproducing reserves,” and “proved undeveloped reserves” have the meaning given such terms from time to time and at the time in question by the Society of Petroleum Engineers of the American Institute of Mining Engineers.

     1.05 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

     1.06 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Central time (daylight or standard, as applicable).

ARTICLE II.
THE COMMITMENTS AND LOANS

     2.01 Loans. (a) Subject to the terms and conditions set forth herein, each Fixed Rate Lender severally agrees to make a single loan to the Borrower on the Closing Date in an amount not to exceed such Fixed Rate Lender’s Fixed Rate Commitment Percentage of the Fixed Rate Facility. The Fixed Rate Borrowing shall consist of Fixed Rate Loans made simultaneously by the Fixed Rate Lenders in accordance with their respective Applicable Percentage of the Fixed Rate Facility. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed.

     (b) Subject to the terms and conditions set forth herein, each Floating Rate Lender severally agrees to make a single loan to the Borrower on the Closing Date in an amount not to exceed such Floating Rate Lender’s Floating Rate Commitment. The Floating Rate Borrowing shall consist of Floating Rate Loans made simultaneously by the Floating Rate Lenders in

37

accordance with their respective Floating Rate Commitments. Amounts borrowed under this Section 2.01(b) and repaid or prepaid may not be reborrowed.

     2.02 Borrowings, Conversions and Continuations of Loans.

     (a) The Borrowings of Loans, each conversion of Floating Rate Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of Loans, of any conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each conversion or continuation of Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Floating Rate Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) in the case of a conversion or continuation, the principal amount of Loans to be converted or continued, and (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted. If the Borrower fails to specify a Type of Loan in a Loan Notice with respect to Floating Rate Loans or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Floating Rate Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans.

     (b) Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its ratable share of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of the Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Closing Date. Upon satisfaction of the conditions set forth in Article IV, the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower.

     (c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.

38

     (d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

     (e) After giving effect to all Borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than five Interest Periods in effect with respect to Loans.

     2.03 Prepayments.

     (a) Optional.

          (i) Fixed Rate Loans. At any time on or after April 1, 2011, the Borrower may prepay the Fixed Rate Loans at its option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice to the Administrative Agent, at the following prepayment prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the prepayment date, if prepaid during the twelve-month period beginning on April 1 of the years indicated below:

Year	Redemption Price
2011		104.313	%
2012		102.156	%
2013 and thereafter		100.00	%

          (ii) Floating Rate Loans. At any time on or after April 1, 2009 and subject to Section 3.05, the Borrower may prepay the Floating Rate Loans at its option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice to the Administrative Agent, at the following prepayment prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the prepayment date, if prepaid during the twelve-month period beginning on April 1 of the years indicated below:

Year	Redemption Price
2009		103.00	%
2010		102.00	%
2011		101.00	%
2012 and thereafter		100.00	%

          (iii) Any partial prepayment shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if Eurodollar Rate

39

Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05.

     (b) Clean-Up Call. If after giving effect to the Initial Exchange, the aggregate amount of Fixed Rate Loans or Floating Rate Loans is less than 10% of the aggregate principal amount of Fixed Rate Loans or Floating Rate Loans, as applicable, made on the Closing Date (the “Affected Tranche”), the Borrower may at its option prepay Loans of the Affected Tranche or Affected Tranches in whole (but not in part) at 100% of the outstanding principal amount thereof, together with interest thereon to the date of payment, provided that any such prepayment will be made, if at all, not later than 60 days after the Initial Exchange Date.

     (c) Mandatory. The Borrower shall, within 7 Business Days of the date on which the aggregate amount of Excess Proceeds exceeds $20,000,000, prepay Loans in an aggregate amount equal to the amount of Excess Proceeds at 100% of the principal amount of such Loans plus accrued and unpaid interest, if any, on the amount so prepaid to the date of payment. Any such prepayment shall be applied ratably to all Loans, treated for this purpose as a single Tranche. Any Lender may elect, on not less than 4 Business Days’ prior written notice to the Administrative Agent with respect to any mandatory prepayment made pursuant to this Section 2.03(c) not to have such prepayment applied to such Lender’s Loans, in which case, the full amount not so applied shall be retained by the Borrower.

     (d) Applications. Prepayments made pursuant to this Section 2.03 shall be applied ratably to the Loans of the Lenders of the Tranche so repaid.

     2.04 Repayment of Loans.

     (a) The Fixed Rate Loans will mature and be paid in full on the Fixed Rate Maturity Date.

     (b) The Floating Rate Loans will mature and be paid in full on the Floating Rate Maturity Date.

     (c) The Final Maturity Date for all Loans tendered in the Initial Exchange shall be deemed to be the closing date for the Initial Exchange.

     2.05 Interest.

     (a) Fixed Rate Loans. Subject to the provisions of subsection (c) below, each Fixed Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Applicable Fixed Rate for such Interest Period. For any Interest Period prior to the fourth anniversary of the Closing Date, the Borrower may, at its option, elect to pay interest on the Fixed Rate Loans (i) entirely in cash (“Cash Interest”, and any such Interest Period for which Cash Interest is elected in accordance with the next succeeding sentence, a

40

“Cash Interest Period”), in which case interest for such Interest Period shall be payable in cash, or (ii) entirely in kind (“PIK Interest”; and any such Interest Period for which PIK Interest is elected in accordance with the next succeeding sentence, a “PIK Interest Period”), in which case interest for such Interest Period shall be payable by increasing the outstanding principal amount of the Loans by the amount of interest accrued during such Interest Period. The Borrower must elect the form of payment of interest for the Fixed Rate Loans, whether Cash Interest or PIK Interest, with respect to each Interest Period prior to the fourth anniversary of the Closing Date by delivering a notice to the Administrative Agent five Business Days prior to the start of such Interest Period. The Administrative Agent shall promptly deliver a corresponding notice to each Lender. In the absence of such an election for any Interest Period, interest on the Loans shall be payable according to the election for the previous Interest Period. “Applicable Fixed Rate” means (x) during any Cash Interest Period, 8.625% and (y) during any PIK Interest Period, 9.375% plus, in each case, the Incremental Margin applicable at such time.

     (b) Floating Rate Loans. Subject to the provisions of subsection (c) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Floating Rate Margin and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Floating Rate Margin. “Applicable Floating Rate Margin” means (x) for any Eurodollar Rate Loan, 3.625% and (y) for any Base Rate Loan, 2.625% plus, in each case, the Incremental Margin applicable at such time.

     (c) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

          (ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders (or automatically upon and during the continuance of (x) any Default under clause (h) of Section 8.01 or (y) any failure to pay principal of any Loan when due), such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

          (iii) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

     (d) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

     2.06 Fees. The Borrower shall pay to the Administrative Agent, the Lead Arranger and the Lenders, as applicable, for their own respective accounts fees separately agreed among

41

such parties in writing. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

     2.07 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

     2.08 Evidence of Debt.

     The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

     2.09 Payments Generally; Administrative Agent’s Clawback.

     (a) General. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its ratable share of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

     (b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Administrative Agent such Lender’s share of the Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender

42

has not in fact made its share of the Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in the Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

     (ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

     A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

     (c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the Initial Loans set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

     (d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or to make its payment under Section 10.04(c).

43

     (e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

     2.10 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Loans made by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Loans and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:

     (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

     (ii) the provisions of this Section shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans

     to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).

     The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

ARTICLE III.
TAXES, YIELD PROTECTION AND ILLEGALITY

     3.01 Taxes.

     (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender, as the case may be, receives an amount equal to the sum it would have received had no such

44

deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

     (b) Payment of Other Taxes by the Borrower. Without limiting the provisions of subsection (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

     (c) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or, such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

     (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

     (e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

     Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

45

     (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

     (ii) duly completed copies of Internal Revenue Service Form W-8ECI,

     (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

     (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

     (f) Treatment of Certain Refunds. If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

     3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of

46

the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.

     3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.

     3.04 Increased Costs; Reserves on Eurodollar Rate Loans.

     (a) Increased Costs Generally. If any Change in Law shall:

     (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e));

     (ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender); or

     (iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

47

     (b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, such Lender, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

     (c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender, the amount shown as due on any such certificate within 10 days after receipt thereof.

     (d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

     (e) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.

     3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

     (a) any continuation, conversion, payment or prepayment of any Floating Rate Loan (other than pursuant to the Initial Exchange) other than a Base Rate Loan on a day other than the

48

last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

     (b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Floating Rate Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or

     (c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13;

including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

     3.06 Mitigation Obligations; Replacement of Lenders.

     (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Sections 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

     (b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 10.13.

     3.07 Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

49

ARTICLE IV.
CONDITIONS PRECEDENT TO LOANS

     The obligation of each Initial Lender to make its Initial Loan hereunder is subject to satisfaction of the following conditions precedent:

     (a) The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

     (i) executed counterparts of this Agreement and the Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;

     (ii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

     (iii) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

     (iv) a favorable opinion of Vinson and Elkins LLP, counsel to the Loan Parties, addressed to the Administrative Agent, Lead Arranger, each Co-Arranger and each Lender, as to the matters set forth in Exhibit E and such other matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;

     (v) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies, or an exhibit, of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

     (vi) a certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in paragraphs (xvi) and (xvii) below have been satisfied and (B) that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect;

50

     (vii) certificates attesting to the Solvency of each Loan Party before and after giving effect to the transactions contemplated by this Agreement and the incurrence of indebtedness related thereto and application of proceeds, from its chief financial officer;

     (viii) audited consolidated financial statements of the Borrower for the 2004 and 2005 fiscal years and unaudited consolidated financial statements of the Borrower for any interim quarterly periods that have ended since the most recent of such audited financial statements, which in each case, (1) shall be satisfactory in form and substance to the Lead Arranger and the Lenders, (2) shall not be materially inconsistent with the Information heretofore provided to the Lenders, and (3) shall meet the requirements of Regulation S-X under the Securities Act, and all other accounting rules and regulations of the SEC promulgated thereunder applicable to a registration statement under such Act on Form S-1.

     (ix) evidence of the receipt by the Borrower of not less than $250,000,000 cash proceeds from the issuance of Equity Interests of the Borrower;

     (x) evidence that the Existing Agreement has been or concurrently with the Closing Date is being terminated and repaid in full;

     (xi) such other certificates, documents, or opinions as the Administrative Agent or the Required Lenders reasonably may require;

     (xii) any fees required to be paid on or before the Closing Date shall have been paid;

     (xiii) unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent);

     (xiv) the Closing Date shall have occurred on or before March 31, 2007;

     (xv) there shall have been no change, occurrence or development since December 31, 2005 that could reasonably be expected to have a Material Adverse Effect;

     (xvi) the representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Article IV, the representations and warranties contained in subsections 5.05(a) and (b) of

51

Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to subsections (a) and (b), respectively, of Section 6.01; and

     (xvii) no Default shall exist, or would result from the Initial Loans or from the application of the proceeds thereof.

     Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Article IV, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES

     The Borrower represents and warrants to the Administrative Agent and the Lenders that:

     5.01 Existence, Qualification and Power. Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

     5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is or is to be a party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation that is material to the Loan Parties to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

     5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, except for (i) the authorizations, approvals, actions, notices and filings listed on Schedule 5.03, all of which have been duly obtained, taken, given or made and are in full force and effect, (ii) routine authorizations, approvals, actions, notices and filings in the ordinary course of business (e.g. tax filings, annual reports, environmental filings, etc.); (iii) any

52

necessary authorizations, approvals, actions, notices and filings (including the filing of a shelf registration statement) necessary in order to comply with Sections 6.15(e) and 6.16 and (iv) authorizations, approvals and consents necessary in connection with the Borrower’s mineral class leases with the general land office of State of Texas.

     5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

     5.05 Financial Statements; No Material Adverse Effect. (a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

     (b) The unaudited consolidated balance sheet of the Borrower and its Subsidiaries dated September 30, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. Schedule 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness.

     (c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

     (d) The consolidated pro forma balance sheet of the Borrower and its Subsidiaries as at September 30, 2006, and the related consolidated pro forma statements of income of the Borrower and its Subsidiaries for the nine months then ended, certified by the chief financial officer or treasurer of the Borrower, copies of which have been furnished to each Lender, fairly present the consolidated pro forma financial condition of the Borrower and its Subsidiaries as at such date and the consolidated pro forma results of operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with GAAP (except for the absence of footnotes and subject to year-end audit adjustments).

     5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower after due and diligent investigation, threatened, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain

53

to this Agreement or any other Loan Document or (b) except as specifically disclosed in Schedule 5.06 (the “Disclosed Litigation”), either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and there has been no change in the status, or financial effect on any Loan Party or any Restricted Subsidiary thereof, of the matters described in Schedule 5.06 that could reasonably be expected to have a Material Adverse Effect.

     5.07 No Default. Neither any Loan Party nor any Restricted Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

     5.08 Ownership of Property; Liens. (a) Each Loan Party and each of its Restricted Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

     (b) The property of each Loan Party and each of its Restricted Subsidiaries is subject to no Liens, other than Liens permitted by Section 7.01.

     5.09 Environmental Compliance. (a) The Loan Parties and their respective Restricted Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that, except as specifically disclosed in Schedule 5.09, such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

          (b) As of the Closing Date and except (i) as otherwise set forth in Schedule 5.09 or (ii) to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, none of the properties currently or formerly owned or operated by any Loan Party or any of its Restricted Subsidiaries is listed or proposed for listing on the National Priorities List under 42 USC § 9605(a)(8)(B) or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Restricted Subsidiaries; and Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Restricted Subsidiaries in quantities or in a manner as to create Environmental Liability.

          (c) As of the Closing Date and except (i) as otherwise set forth in Schedule 5.09 or (ii) to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law that is reasonably expected to result in

54

material Environmental Liability to any Loan Party or any of its Restricted Subsidiaries; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Restricted Subsidiaries have been disposed of in a manner not reasonably expected to result in material Environmental Liability to any Loan Party or any of its Restricted Subsidiaries.

     5.10 Insurance. The properties of the Borrower and its Restricted Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Restricted Subsidiary operates.

     5.11 Taxes. The Borrower and its Restricted Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Restricted Subsidiary that would, if made, have a Material Adverse Effect.

     5.12 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws except for such events of noncompliance which could not, in the aggregate, reasonably be expected to result in a Material Adverse Effect.

     (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

     (c) Except to the extent the same could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

     5.13 Subsidiaries; Equity Interests; Loan Parties. As of the Closing Date, no Loan Party has any Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are (in the case of corporate securities) fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except those

55

permitted under the Loan Documents or permitted by Section 7.01. As of the Closing Date, no Loan Party has any equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13. Set forth on Part (c) of Schedule 5.13 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its incorporation, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation. As of the Closing Date, the copy of the charter of each Loan Party and each amendment thereto provided pursuant to Article IV is a true and correct copy of each such document, each of which is valid and in full force and effect.

     5.14 Margin Regulations; Investment Company Act. (a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

     (b) None of the Borrower, any Person controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

     5.15 Disclosure. The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished in writing by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains as of the date so furnished any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

     5.16 Compliance with Laws. Each Loan Party and each Restricted Subsidiary thereof is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     5.17 Solvency. Each Loan Party is, individually and together with its Restricted Subsidiaries on a Consolidated basis, Solvent.

     5.18 Casualty, Etc. Neither the businesses nor the properties of any Loan Party or any of its Restricted Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or

56

other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

     5.19 Labor Matters.

          There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Restricted Subsidiaries as of the Closing Date and neither the Borrower nor any Restricted Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

ARTICLE VI.
AFFIRMATIVE COVENANTS

     So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03) cause each Restricted Subsidiary to:

     6.01 Financial Statements. Deliver to the Administrative Agent and the Lenders as contemplated by the penultimate paragraph of Section 6.02:

     (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, (i) a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a copy of the report and opinion of a Registered Public Accounting Firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit or with respect to the absence of any material misstatement; and (ii) commencing at such time as the Borrower is required to prepare the same for SEC reporting purposes, an opinion of such Registered Public Accounting Firm independently assessing the Borrower’s internal controls over financial reporting in accordance with Item 308 of the SEC Regulation S-K, PCAOB Auditing Standard No. 2, and Section 404 of Sarbanes-Oxley expressing a conclusion that contains no statement that there is a material weakness in such internal controls, except for such material weaknesses as to which the Required Lenders do not object, and such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries; and

     (b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated

57

statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of the Borrower’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.

     In addition to the foregoing, within five Business Days after providing the reports required by clauses (a) or (b) above, the Borrower shall make one or more of its senior officers available for a conference call with the Administrative Agent and the Lenders, at a time reasonably agreed to by the Administrative Agent and the Borrower, to discuss the information contained in such reports.

     If the Borrower has made one or more Designations and any Unrestricted Subsidiary or group of Unrestricted Subsidiaries would, but for its or their Designation, constitute a Significant Subsidiary or Subsidiaries, the reports required by clauses (a) and (b) above shall include a reasonably detailed presentation, either on the face of such reports or in the footnotes thereto, of the financial condition and results of operations of the Borrower and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries.

     6.02 Certificates; Other Information. Deliver to the Administrative Agent and the Lenders as contemplated by the penultimate paragraph of this Section 6.02:

     (a) [reserved];

     (b) [reserved];

     (c) promptly after the same are available, copies of all annual, regular, periodic and special reports, registration statements and proxy statements which the Borrower may file or be required to file with the SEC under Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

     (d) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;

     (e) [reserved];

     (f) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Restricted Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof;

58

     (g) not later than five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of all notices, requests and other documents (including amendments, waivers and other modifications) so received under or pursuant to any instrument, indenture, loan or credit or similar agreement regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and, from time to time upon request by the Administrative Agent, such information and reports regarding such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request;

     (h) promptly after the assertion or occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Restricted Subsidiaries with any Environmental Law or Environmental Permit that could reasonably be expected to have a Material Adverse Effect;

     (i) [reserved];

     (j) [reserved]; and

     (k) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Restricted Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent may from time to time reasonably request.

     Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(c) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(a) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

     The Borrower hereby acknowledges that (a) the Administrative Agent and/or Lead Arranger will make available to the Lenders materials and/or information provided by or on

59

behalf of the Borrower hereunder (collectively, “Borrower Materials”) either by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) or by delivery or electronic communication to the applicable Lenders and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities except as contemplated below) (each, a “Public-Side Lender”). The Borrower hereby agrees that so long as the Borrower is the issuer of any outstanding debt or equity securities that are registered or issued pursuant to a private offering or is actively contemplating issuing any such securities (x) all Borrower Materials that are to be posted on the Platform shall be clearly and conspicuously marked “PUBLIC-SIDE” which, at a minimum, shall mean that the words “PUBLIC-SIDE” shall appear prominently on the first page thereof; (y) by marking Borrower Materials “PUBLIC-SIDE,” the Borrower shall be deemed to have authorized the Administrative Agent, the Lead Arranger and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that (A) prior to the creation of a Public Market, Lenders shall treat such Borrower Materials as containing material non-public information with respect to the Borrower and its Subsidiaries (“MNPI”), and the Borrower shall be deemed to have represented to the Lenders that it expects such Borrower Materials will cease to be MNPI at the time of creation of a Public Market and (B) to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); and (z) any Borrower Materials that are not marked “PUBLIC-SIDE” as contemplated above shall be treated as containing MNPI, shall not be posted on the Platform and shall be available to Lenders only upon request therefor (which request may apply generally to all such Borrower Materials). Any such request shall constitute a confirmation from the applicable Lender that it has compliance procedures for dealing with such MNPI, and that it will use and maintain such information only in compliance with those procedures, its contractual obligations and applicable law, including federal and state securities laws.

     Each Public-Side Lender shall designate individuals or advisors authorized to act on behalf of the Public-Side Lender to receive Borrower Materials not designated as “PUBLIC-SIDE” pursuant to the immediately preceding paragraph, including any notices pursuant to Section 6.03.

     6.03 Notices. Promptly notify the Administrative Agent and each Lender:

     (a) of the occurrence of any Default;

     (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Restricted Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Restricted Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Restricted Subsidiary, including pursuant to any applicable Environmental Laws;

     (c) of the occurrence of any ERISA Event;

60

     (d) of any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary;

     (e) of the determination by the Registered Public Accounting Firm providing the opinion required (but only if required) under Section 6.01(a)(ii) (in connection with its preparation of such opinion) or the Borrower’s determination at any time of the occurrence or existence of any Internal Control Event; and

     (f) of the date on which Excess Proceeds from Asset Sales exceeds $20,000,000, which the Borrower is required to use to make a mandatory prepayment pursuant to Section 2.03(c).

     Each notice pursuant to this Section 6.03 (other than Section 6.03(f)) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

     6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Restricted Subsidiary; and (b) all lawful claims which, if unpaid, would by law become a Lien upon its property, except, in the case of (a) or (b), for such amounts that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Sections 7.03 or 7.04; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

     6.06 Maintenance of Properties. (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

     6.07 Maintenance of Insurance. Maintain (at its own expense) insurance with financially sound and reputable insurance companies, as well as insurance in such amounts, with such limitations or deductibles, against such risks, and in such form as are customarily

61

maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations.

     6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

     6.09 Books and Records. (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be.

     6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

     6.11 Use of Proceeds. The Borrower shall apply the proceeds of the Credit Extensions to (i) refinance the Borrower’s existing bridge credit facility under the Existing Agreement, (ii) pay certain fees and expenses incurred in connection with entering into this Agreement, (iii) provide working capital for the Borrower and its Subsidiaries including the issuance of letters of credit, capital expenditures, and other lawful corporate purposes and (iv) finance permitted acquisitions by the Borrower and its Subsidiaries of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties.

     6.12 Covenant to Guarantee Obligations. Upon the formation or acquisition of any new direct or indirect Restricted Subsidiary (excluding (i) any Foreign Subsidiary and (ii) any Immaterial Subsidiary) by any Loan Party, then the Borrower shall, at the Borrower’s expense within 20 days after such formation or acquisition (or such longer period as the Administrative Agent may in its discretion approve), cause such Restricted Subsidiary to duly execute and deliver to the Administrative Agent a guaranty or guaranty supplement, in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties’ obligations under the Loan Documents.

     6.13 Compliance with Environmental Laws. Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all

62

applicable Environmental Laws and Environmental Permits; obtain and renew all material Environmental Permits necessary for its current operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance in all material respects with the requirements of all applicable Environmental Laws; provided, however, that neither the Borrower nor any of its Restricted Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is not required by applicable Environmental Laws or being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

     6.14 [Reserved]

     6.15 Exchange Notes.

     (a) At any time after the one-year anniversary of the Closing Date but not later than April 30, 2008, the Borrower shall make an offer to all the Lenders under this Agreement to exchange the Loans for Initial Exchange Notes (such exchange, the “Initial Exchange”, and the date of such exchange, the “Initial Exchange Date”) having a principal amount equal to that of the Loans exchanged therefor and issued pursuant to the Initial Exchange Note Indenture. The Initial Exchange will be made pursuant to an offering memorandum customary for transactions pursuant to Rule 144A and relating to the Initial Exchange Notes and will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934 and any other securities laws and regulations thereunder. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Agreement solely with respect to the Initial Exchange, the Borrower will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations with respect to the Initial Exchange described in this Agreement by virtue thereof. Each Lender participating in the Initial Exchange must be eligible to purchase securities in an offering conducted pursuant to Rule 144A. For avoidance of doubt, only one Initial Exchange will occur during the term of the Loans.

     (b) Failure to make the Initial Exchange will not constitute a Default under this Agreement. The Loans and any Initial Exchange Notes subsequently issued under the Initial Exchange Note Indenture will be separate debt obligations of the Borrower and will not be treated as a single class, including, without limitation, for purposes of waivers, amendments, redemptions and offers to purchase.

     (c) If the Initial Exchange Date does not occur on or prior to May 31, 2008, the Borrower shall pay liquidated damages to the Lenders with respect to the first 90-day period immediately following such date in an amount equal to 0.25% per annum on the outstanding principal amount of the Loans. The amount of liquidated damages will increase by an additional 0.25% per annum on the outstanding principal amount of the Loans with respect to each subsequent 90-day period until the occurrence of the Initial Exchange, up to a maximum amount of liquidated damages under this subsection of 0.50% per annum. Any such liquidated damages shall be payable to but excluding the Initial Exchange Date and as provided in Section 2.05.

63

     (d) The Initial Exchange will be made solely pursuant to the offering memorandum described above and an offer to exchange and this Agreement shall not constitute an offer to exchange the Loans or an offer of the Initial Exchange Notes.

     (e) The Initial Exchange Note Indenture shall provide that no later than November 30, 2008 the Borrower shall offer an exchange of the Initial Exchange Notes for notes registered with the SEC (the “Second Exchange Notes”), which Second Exchange Notes shall have substantially similar terms as the Initial Exchange Notes. The Initial Exchange Note Indenture shall further provide that (i) upon failure to comply with the foregoing requirements (a “Registration Default”), the Borrower shall pay liquidated damages to each holder of Initial Exchange Notes with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to 0.25% per annum on the principal amount of Initial Exchange Notes held by such holder and (ii) the amount of such liquidated damages shall increase by an additional 0.25% per annum on the principal amount of Initial Exchange Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages for all Registration Defaults of 0.50% per annum.

     6.16 Change of Control.

     (a) If a Change of Control occurs, each Lender will have the right to require the Borrower to prepay all of such Lender’s Loans at a prepayment price in cash equal to 101% of the principal amount of such Lender’s Loans, plus accrued and unpaid interest to the date of prepayment.

     (b) No later than the date that is 60 days after any Change of Control, the Borrower will mail a notice (the “Change of Control Offer”) to each Lender, with a copy to the Administrative Agent:

     (i) stating that a Change of Control has occurred or may occur and that such Lender has the right to require the Borrower to prepay such Lender’s Loans at a prepayment price in cash equal to 101% of the principal amount plus accrued and unpaid interest to, but not including, the date of prepayment (the “Change of Control Payment”);

     (ii) stating the prepayment date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”);

     (iii) describing the circumstances and relevant facts regarding the transaction or transactions that constitute the Change of Control;

     (iv) describing the procedures determined by the Borrower, consistent with this Agreement, that a Lender must follow in order to have its Loans prepaid; and

     (v) if such notice is mailed prior to the occurrence of a Change of Control, stating that the Change of Control Offer is conditional on the occurrence of such Change of Control.

     (c) On the Change of Control Payment Date, if the Change of Control shall have occurred, the Borrower will, to the extent lawful pay to the Administrative Agent for application

64

to the repayment of all Loans properly submitted for prepayment pursuant to the Change of Control Offer an amount equal to the Change of Control Payment in respect of all Loans so submitted.

     (d) The Borrower will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth herein applicable to a Change of Control Offer made by the Borrower and prepays all Loans validly submitted for prepayment under such Change of Control Offer.

ARTICLE VII.
NEGATIVE COVENANTS

     So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, the Borrower shall not, nor shall it permit any Restricted Subsidiary to, directly or indirectly:

     7.01 Liens. (a) The Borrower will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create or incur, in order to secure any Indebtedness, any Lien of any kind, other than Permitted Liens, upon any property or assets (including any intercompany notes) of the Borrower or any Restricted Subsidiary owned on the date hereof or acquired after the date hereof, or assign or convey, in order to secure any Indebtedness, any right to receive any income or profits therefrom, unless the Loans (or a Guarantee in the case of Liens of a Guarantor) are directly secured equally and ratably with (or, in the case of Subordinated Indebtedness, prior or senior thereto, with the same relative priority as the Loans shall have with respect to such Subordinated Indebtedness) the Indebtedness secured by such Lien.

     (b) Notwithstanding the foregoing, any Lien securing the Loans or a Guarantee granted pursuant to clause (a) above shall be automatically and unconditionally released and discharged upon:

     (i) any sale, exchange or transfer to any Person not an Affiliate of the Borrower of the property or assets secured by such Lien,

     (ii) any sale, exchange or transfer to any Person not an Affiliate of the Borrower of all of the Capital Stock held by the Borrower or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating such Lien, or

     (iii) with respect to any Lien securing a Guarantee, the release of such Guarantee in accordance with the terms of this Agreement.

     7.02 Indebtedness. (a) The Borrower will not, and will not cause or permit any of its Restricted Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in any manner become directly or indirectly liable for the payment of or otherwise incur, contingently or otherwise (collectively, “incur”), any Indebtedness (including any Acquired Debt and the issuance of Disqualified Stock), unless such Indebtedness is incurred by the Borrower or any Guarantor and, in each case, the Borrower’s Consolidated Fixed Charge Coverage Ratio for the

65

most recent four full fiscal quarters for which financial statements are available immediately preceding the incurrence of such Indebtedness taken as one period is at least equal to or greater than 2.50:1.

     (b) Notwithstanding the foregoing, the Borrower and, to the extent specifically set forth below, the Restricted Subsidiaries may incur each and all of the following (collectively, the “Permitted Debt”):

     (i) Indebtedness of the Borrower or any Guarantors (whether as borrowers or guarantors) under one or more Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (i) not to exceed the greater of (x) $750,000,000 and (y) 30.0% of Adjusted Consolidated Net Tangible Assets;

     (ii) Indebtedness of the Borrower or any Guarantor pursuant to the Loans of either series or any Exchange Notes issued in exchange for the Loans or the Initial Exchange Notes;

     (iii) Indebtedness of the Borrower or any Guarantor outstanding on the date hereof, and not otherwise referred to in this definition of “Permitted Debt;”

     (iv) intercompany Indebtedness between or among the Borrower and any of its Restricted Subsidiaries; provided, however, that:

     (A) if the Borrower or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the Loans, in the case of the Borrower, or the Loan Guarantee, in the case of a Guarantor; and

     (B) (1) any subsequent issuance or transfer of Capital Stock that results in any such Indebtedness being held by a Person other than the Borrower or a Restricted Subsidiary thereof (other than pursuant to a Credit Facility) and (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Borrower or a Restricted Subsidiary thereof, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Borrower or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (iv);

     (v) guarantees by the Borrower or any Guarantor of any Indebtedness of the Borrower or any of the Guarantors which is permitted to be incurred under this Agreement;

     (vi)

     (A) obligations pursuant to Interest Rate Agreements entered into in the ordinary course of business with respect to Indebtedness permitted by this Agreement;

66

     (B) obligations under currency exchange contracts entered into in the ordinary course of business; and

     (C) obligations pursuant to hedging arrangements (including, without limitation, swaps, caps, floors, collars, options and similar agreements) entered into in the ordinary course of business for the purpose of protecting, on a net basis, against price risks, basis risks, or other risks encountered in the Oil and Gas Business;

     (vii) Indebtedness of the Borrower or any Restricted Subsidiary represented by Capital Lease Obligations (whether or not incurred pursuant to Sale Leaseback Transactions) or Purchase Money Obligations or other Indebtedness incurred or assumed in connection with the acquisition or development of real or personal, movable or immovable, property in each case incurred for the purpose of financing or refinancing all or any part of the purchase price or cost of construction or improvement of property used in the business of the Borrower, in an aggregate principal amount pursuant to this clause (vii) (together with the aggregate principal amount of any Permitted Refinancing Indebtedness in respect of Indebtedness originally incurred pursuant to this clause (vii)) not to exceed $50,000,000 outstanding at any time; provided that the principal amount of any Indebtedness permitted under this clause (vii) did not in each case at the time of incurrence exceed the Fair Market Value, as determined by the Borrower in good faith, of the acquired or constructed asset or improvement so financed;

     (viii) Indebtedness of the Borrower or any Guarantor in connection with

     (A) one or more standby letters of credit issued for the account of the Borrower or a Guarantor in the ordinary course of business and

     (B) other letters of credit, surety, bid, performance, appeal or similar bonds, bankers’ acceptances, completion guarantees or similar instruments; provided that, in each case contemplated by this clause (viii), upon the drawing of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing; provided, further, that with respect to clauses (A) and (B), such Indebtedness is not in connection with the borrowing of money or the obtaining of advances or credit;

     (ix) obligations relating to oil or gas balancing positions arising in the ordinary course of business;

     (x) Indebtedness of the Borrower or any Restricted Subsidiary arising from agreements for indemnification or purchase price adjustment obligations or similar obligations, earn-outs or other similar obligations or from guarantees or letters of credit, surety bonds or performance bonds securing any obligation of the Borrower or a Restricted Subsidiary pursuant to such an agreement, in each case incurred or assumed in connection with the acquisition or disposition of any business, assets or Capital Stock of a Restricted Subsidiary;

67

     (xi) Permitted Refinancing Indebtedness of the Borrower or any Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to renew, extend, substitute, defease, refund, refinance or replace, any Indebtedness, including any Disqualified Stock, incurred pursuant to Section 7.02(a) and clauses (ii), (iii) and (vii) of this Section 7.02(b);

     (xii) the incurrence by the Borrower or any of its Restricted Subsidiaries of Acquired Debt in connection with a transaction meeting either one of the financial tests set forth in Section 7.03(a)(iii);

     (xiii) any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided, however, that such Indebtedness is extinguished within five business days of incurrence; and

     (xiv) Indebtedness of the Borrower or any Restricted Subsidiary in addition to that described in clauses (i) through (xiii) above, and any renewals, extensions, substitutions, refinancings or replacements of such Indebtedness, so long as the aggregate principal amount of all such Indebtedness shall not exceed $40,000,000 outstanding at any one time in the aggregate.

     (c) For purposes of determining compliance with this Section, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by this Section, the Borrower in its sole discretion may classify or reclassify such item of Indebtedness and only be required to include the amount of such Indebtedness as one of such types (or to divide such Indebtedness between two or more of such types); provided that any Indebtedness under the Senior Credit Facility which is in existence on the Closing Date shall be deemed to have been incurred pursuant to clause (i) of this subsection (b) above rather than subsection (a) above.

     (d) Indebtedness permitted by this Section need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness.

     (e) Accrual of interest, accretion of principal or liquidation preference (or similar amount) in respect of Preferred Stock or amortization of original issue discount, and the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the accretion or payment of dividends on any Disqualified Stock or Preferred Stock (including without limitation the Series A Preferred Stock) in the form of additional shares of the same class of Disqualified Stock or Preferred Stock and the issuance of additional shares of Series A Preferred Stock pursuant to warrants issued and outstanding on the Closing Date will not be deemed to be an incurrence of Indebtedness for purposes of this covenant; provided, in each such case, that the amount thereof as accrued shall be included as required in the calculation of the Consolidated Fixed Charge Coverage Ratio of the Borrower.

68

     (f) For purposes of determining compliance with any dollar-denominated restriction on the incurrence of Indebtedness denominated in a foreign currency, the dollar-equivalent principal amount of such Indebtedness incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was incurred.

     (g) If Indebtedness is secured by a letter of credit that serves only to secure such Indebtedness, then the total amount deemed incurred shall be equal to the greater of (x) the principal of such Indebtedness and (y) the amount that may be drawn under such letter of credit.

     (h) The amount of Indebtedness issued at a price less than the amount of the liability thereof shall be determined in accordance with GAAP.

     7.03 Consolidation, Merger and Sale of Assets.

     (a) The Borrower will not, in a single transaction or through a series of related transactions, consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person or group of Persons, or permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions, if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Borrower and its Restricted Subsidiaries on a Consolidated basis to any other Person or group of Persons (other than the Borrower or a Guarantor), unless at the time and after giving effect thereto:

     (i) either (A) the Borrower will be the continuing corporation or (B) the Person (if other than the Borrower) formed by such consolidation or into which the Borrower is merged or the Person which acquires by sale, assignment, conveyance, transfer, lease or disposition all or substantially all of the properties and assets of the Borrower and its Restricted Subsidiaries on a Consolidated basis (the “Surviving Entity”) will be a corporation, limited liability company or limited partnership (provided that in the event the Surviving Entity is a limited partnership, then a Subsidiary of the Surviving Entity that is a corporation or limited liability company shall execute an amendment to this Agreement pursuant to which it shall become a co-obligor of the Surviving Entity’s obligations under the Loans and this Agreement) duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and the Surviving Entity expressly assumes, by an amendment to this Agreement, in a form reasonably satisfactory to the Administrative Agent, all the obligations of the Borrower under the Loans and this Agreement, and the Loans and this Agreement will remain in full force and effect as so supplemented;

     (ii) immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness not previously an obligation of the Borrower or any of its Restricted Subsidiaries which becomes the obligation of the Borrower or any of its Restricted Subsidiaries as a result of such transaction as having been incurred at the time of such transaction), no Default or Event of Default will have occurred and be continuing;

69

     (iii) immediately after giving effect to such transaction on a pro forma basis (on the assumption that the transaction occurred on the first day of the four-quarter period for which financial statements are available ending immediately prior to the consummation of such transaction with the appropriate adjustments with respect to the transaction being included in such pro forma calculation), the Borrower (or the Surviving Entity if the Borrower is not the continuing obligor under this Agreement) (A) could incur $1.00 of additional Indebtedness (other than Permitted Debt) under the provisions of Section 7.02 or (B) have a Consolidated Fixed Charge Coverage Ratio not less than the Consolidated Fixed Charge Coverage Ratio of the Borrower immediately prior to such transaction;

     (iv) unless the Borrower is the continuing obligor under this Agreement, at the time of the transaction, each Guarantor, if any, unless it is the other party to the transactions described above, will have by amendment to this Agreement confirmed that its Guarantee shall apply to the Surviving Entity’s obligations under this Agreement and the Loans;

     (v) at the time of the transaction, if any of the property or assets of the Borrower or any of its Restricted Subsidiaries would thereupon become subject to any Lien, the provisions of Section 7.01 are complied with; and

     (vi) at the time of the transaction, the Borrower or the Surviving Entity will have delivered, or caused to be delivered, to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent, an officers’ certificate and an opinion of counsel, each to the effect that such consolidation, merger, transfer, sale, assignment, conveyance, transfer, lease or other transaction and the amendment to this Agreement in respect thereof comply with the terms of this Agreement.

     (b) Each Guarantor will not, and the Borrower will not permit a Guarantor to, in a single transaction or through a series of related transactions, (x) consolidate with or merge with or into any other Person (other than the Borrower or any other Guarantor) or (y) sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person or group of Persons (other than the Borrower or any other Guarantor) or permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, in the case of clause (y) would result in a sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Guarantor and its Restricted Subsidiaries on a Consolidated basis to any other Person or group of Persons (other than the Borrower or any Guarantor), unless at the time and after giving effect thereto

     (i) either (A) the Guarantor or the Borrower will be the continuing Person in the case of a merger involving the Guarantor or (B) the Person (if other than the Guarantor) formed by such consolidation or into which such Guarantor is merged or the Person which acquires by sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Guarantor and its Restricted Subsidiaries on a Consolidated basis (the “Surviving Guarantor Entity”) expressly assumes, by an amendment to this Agreement, in a form reasonably satisfactory to the

70

Administrative Agent, all the obligations of such Guarantor under its Guarantee of the Loans and this Agreement, and such Guarantee and this Agreement will remain in full force and effect;

     (ii) immediately before and immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default will have occurred and be continuing; and

     (iii) at the time of the transaction such Guarantor or the Surviving Guarantor Entity will have delivered, or caused to be delivered, to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent, an officers’ certificate and an opinion of counsel, each to the effect that such consolidation, merger, transfer, sale, assignment, conveyance, lease or other transaction and the supplemental indenture in respect thereof comply with this Agreement;

provided, however, that this Section 7.03(b) shall not apply to any Guarantor whose Guarantee of the Loans is unconditionally released and discharged in accordance with Section 9.10 of this Agreement.

     (c) In the event of any transaction (other than a lease) described in and complying with the conditions listed in Sections 7.03(a) and (b) in which the Borrower or any Guarantor, as the case may be, is not the continuing Person, the successor Person formed or remaining or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower or such Guarantor, as the case may be, and the Borrower or any Guarantor, as the case may be, shall be discharged from all obligations and covenants under this Agreement and the Loans or its Guarantee, as the case may be.

     (d) Notwithstanding the foregoing, the Borrower or any Guarantor may merge with an Affiliate incorporated or organized solely for the purpose of reincorporating or reorganizing the Borrower or Guarantor in another jurisdiction to realize tax or other benefits.

     7.04 Asset Sale. (a) The Borrower will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale unless (i) the Borrower or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets and property subject to such Asset Sale and (ii) at least 75% of the aggregate consideration paid to the Borrower or such Restricted Subsidiary in connection with such Asset Sale and all other Asset Sales since the date hereof, on a cumulative basis, is in the form of cash, Cash Equivalents, Liquid Securities, Exchanged Properties (including pursuant to asset swaps), the assumption by the purchaser of liabilities of the Borrower (other than liabilities of the Borrower that are by their terms subordinated to the Loans) or liabilities of any Guarantor that made such Asset Sale (other than liabilities of a Guarantor that are by their terms subordinated to such Guarantor’s Guarantee), in each case as a result of which the Borrower and its remaining Restricted Subsidiaries are no longer liable for such liabilities, or, solely in the case of any Asset Sale of Midstream Assets, Permitted MLP Securities.

     (b) The Net Available Cash from Asset Sales by the Borrower or a Restricted Subsidiary may be applied by the Borrower or such Restricted Subsidiary, to the extent the

71

Borrower or such Restricted Subsidiary elects (or is required by the terms of any Pari Passu Indebtedness of the Borrower or a Restricted Subsidiary), to

     (i) repay any Indebtedness of the Borrower other than Subordinated Indebtedness; or

     (ii) reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Borrower or another Restricted Subsidiary) or make capital expenditures in the Oil and Gas Business.

     (c) Excess Proceeds shall be applied to prepay the Loans in accordance with Section 2.03(c).

     7.05 Restricted Payments. (a) The Borrower will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly:

     (i) pay any dividend on, or make any distribution to holders of, any shares of the Borrower’s Capital Stock (other than dividends or distributions payable solely in shares of the Borrower’s Qualified Capital Stock);

     (ii) purchase, redeem, defease or otherwise acquire or retire for value, directly or indirectly, the Borrower’s Capital Stock;

     (iii) make any principal payment on, or purchase, redeem, defease, retire or otherwise acquire for value, prior to any scheduled principal payment, sinking fund payment or maturity, any Subordinated Indebtedness, except a payment on, or a purchase, redemption, defeasance, retirement or other acquisition of such Subordinated Indebtedness within one year of its final maturity;

     (iv) pay any dividend or distribution on any Capital Stock of any Restricted Subsidiary to any Person (other than (A) to the Borrower or any of its Wholly Owned Restricted Subsidiaries or any Guarantor or (B) dividends or distributions made by a Restricted Subsidiary on a pro rata basis to all holders of the Capital Stock of such Restricted Subsidiary); or

     (v) make any Investment in any Person (other than any Permitted Investments);

     (any of the foregoing actions described in clauses (i) through (v) above, other than any such action that is a Permitted Payment (as defined below), collectively, “Restricted Payments”) (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value of the assets proposed to be transferred, as determined by the board of directors of the Borrower, whose determination shall be conclusive and evidenced by a board resolution), unless

     (A) immediately after giving effect to such proposed Restricted Payment on a pro forma basis, no Default or Event of Default shall have occurred and be continuing;

72

     (B) immediately after giving effect to such Restricted Payment on a pro forma basis, the Borrower could incur $1.00 of additional Indebtedness (other than Permitted Debt) under Section 7.02(a); and

     (C) after giving effect to the proposed Restricted Payment, the aggregate amount of all such Restricted Payments declared or made after the date of this Agreement (including all Designation Amounts) does not exceed the sum of:

     (1) 50% of the aggregate Consolidated Net Income of the Borrower accrued on a cumulative basis during the period beginning April 1, 2007 and ending on the last day of the Borrower’s last fiscal quarter ending prior to the date of the Restricted Payment (or, if such aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of such loss);

     (2) the aggregate Net Cash Proceeds, or the Fair Market Value of property other than cash, received (i) after the date hereof by the Borrower either (1) as capital contributions in the form of common equity to the Borrower or (2) from the issuance or sale (other than to any of its Subsidiaries) of Qualified Capital Stock of the Borrower (except, in each case, to the extent such proceeds are used to purchase, redeem or otherwise retire Capital Stock or Subordinated Indebtedness as set forth below in Sections 7.05(b)(ii) and (b)(iii) below) (and excluding the Net Cash Proceeds from the issuance of Qualified Capital Stock financed, directly or indirectly, using funds borrowed from the Borrower or any Subsidiary until and to the extent such borrowing is repaid) and (ii) on or after March 20, 2007 and not later than the Closing Date by the Borrower, but only to the extent of the Net Cash Proceeds of the amount (if any) by which the aggregate cash proceeds received by the Borrower from the issuance of its Equity Interests on the Closing Date exceeds $250,000,000;

     (3) the aggregate Net Cash Proceeds received after the date hereof by the Borrower (other than from any of its Subsidiaries) upon the exercise of any options, warrants or rights to purchase Qualified Capital Stock of the Borrower (and excluding the Net Cash Proceeds from the exercise of any options, warrants or rights to purchase Qualified Capital Stock financed, directly or indirectly, using funds borrowed from the Borrower or any Subsidiary until and to the extent such borrowing is repaid);

     (4) the aggregate Net Cash Proceeds received after the date hereof by the Borrower from the conversion or exchange, if any, of debt securities or Disqualified Stock of the Borrower or its Restricted Subsidiaries into or for Qualified Capital Stock of the Borrower plus, to the extent such debt securities or Disqualified Stock were issued after the

73

date hereof, the aggregate of Net Cash Proceeds from their original issuance (and excluding the Net Cash Proceeds from the conversion or exchange of debt securities or Disqualified Stock financed, directly or indirectly, using funds borrowed from the Borrower or any Subsidiary until and to the extent such borrowing is repaid);

     (5)

(a) in the case of the disposition or repayment of any Investment constituting a Restricted Payment (including any Investment in an Unrestricted Subsidiary) made after the date of this Agreement, an amount (to the extent not included in Consolidated Net Income) equal to the amount received with respect to such Investment, less the cost of the disposition of such Investment and net of taxes, and

(b) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (as long as the designation of such Subsidiary as an Unrestricted Subsidiary was deemed a Restricted Payment), the Fair Market Value of the Borrower’s interest in such Subsidiary at the time of such redesignation; and

     (6) any amount which previously qualified as a Restricted Payment on account of any guarantee entered into by the Borrower or any Restricted Subsidiary; provided that such guarantee has not been called upon and the obligation arising under such guarantee no longer exists.

     (b) Notwithstanding the foregoing, and in the case of clauses (ii) through (ix) below, so long as no Default or Event of Default is continuing or would arise therefrom, the foregoing provisions shall not prohibit the following actions (each of clauses (i) through (ix) being referred to as a “Permitted Payment”):

     (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment was permitted by the provisions of paragraph (a) of this Section 7.05, and such payment shall be deemed to have been paid on such date of declaration;

     (ii) the purchase, defeasance, redemption, or other acquisition or retirement for value of any Capital Stock of the Borrower in exchange for (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip), or out of the Net Cash Proceeds of a substantially concurrent issuance and sale for cash (other than to a Subsidiary) of, any Qualified Capital Stock of the Borrower; provided that the Net Cash Proceeds from the issuance of such Qualified Capital Stock shall be excluded from clause (C)(2) above;

74

     (iii) the purchase, redemption, defeasance, retirement or other acquisition for value or payment of principal of any Subordinated Indebtedness in exchange for, or in an amount not in excess of the Net Cash Proceeds of, a substantially concurrent issuance and sale for cash (other than to any Subsidiary of the Borrower) of any Qualified Capital Stock of the Borrower, provided that the Net Cash Proceeds from the issuance of such shares of Qualified Capital Stock shall be excluded from clause (C)(2) above;

     (iv) the purchase, redemption, defeasance, retirement or other acquisition for value or payment of principal of any Subordinated Indebtedness (other than Disqualified Stock) through the substantially concurrent issuance of Permitted Refinancing Indebtedness;

     (v) any purchase, redemption, retirement, defeasance or other acquisition for value of any Subordinated Indebtedness pursuant to the provisions of such Subordinated Indebtedness upon a Change of Control or an Asset Sale after the Borrower shall have complied with the provisions of Sections 6.16 or 7.04 as the case may be and prepaid all Loans presented for prepayment in connection with the Change of Control Offer or Asset Sale, as the case may be;

     (vi) the purchase, redemption, defeasance or other acquisition or retirement for value of any Capital Stock of the Borrower held by any current or former officers, directors or employees of the Borrower or any of its Subsidiaries (or permitted transferees of such current or former officers, directors or employees) pursuant to the terms of agreements (including employment agreements) or plans approved by the Borrower’s board of directors, including any such purchase, redemption, defeasance or other acquisition or retirement of such Capital Stock that is deemed to occur upon the exercise of stock options or similar rights if such shares represent all or a portion of the exercise price or are surrendered in connection with satisfying Federal income tax obligations; provided, however, that the aggregate amount of such purchases, redemptions, defeasances or other retirements and acquisitions pursuant to this clause (vi) will not, in the aggregate, exceed $2,000,000 per fiscal year;

     (vii) loans made to officers, directors or employees of the Borrower or any Restricted Subsidiary approved by the board of directors of the Borrower in an aggregate amount not to exceed $2,000,000 outstanding at any one time, the proceeds of which are used solely (A) to purchase Capital Stock of the Borrower in connection with a restricted stock or employee stock purchase plan, or to exercise stock options received pursuant to an employee or director stock option plan or other incentive plan, in a principal amount not to exceed the exercise price of such stock options or (B) to refinance loans, together with accrued interest thereon, made pursuant to item (A) of this clause (vii);

     (viii) payments of dividends on the Series A Preferred Stock outstanding on the Closing Date, together with any additional Series A Preferred Stock issued after the Closing Date pursuant to warrants issued and outstanding on the Closing Date, in an amount in any fiscal year not to exceed the dividend rate required under the terms thereof as set forth in the Certificate of Designations with respect to such Series A Preferred Stock on the Closing Date;

75

     (ix) payments to dissenting stockholders of the Borrower (A) pursuant to applicable law or (B) in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets in connection with a transaction that is not prohibited by this Agreement; or

     (x) payments made by any Person other than the Borrower or any Restricted Subsidiary to the stockholders of the Borrower in connection with or as part of (A) a merger or consolidation of the Borrower with or into such Person or a Subsidiary of such Person, or (B) a merger of a Subsidiary of such Person into the Borrower; and

     (xi) Restricted Payments not exceeding $25,000,000 in the aggregate.

     7.06 Change in Nature of Business.

     Neither the Borrower nor any of its Restricted Subsidiaries will directly or indirectly engage in any line or lines of business activity other than that which is an Oil and Gas Business, except to such extent as would not be material to the Borrower and its Restricted Subsidiaries, taken as a whole.

     7.07 Transactions with Affiliates. The Borrower will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with or for the benefit of any Affiliate of the Borrower (other than the Borrower or a Restricted Subsidiary) unless such transaction or series of related transactions is entered into in good faith and in writing and

     (a) such transaction or series of related transactions is on terms that are no less favorable to the Borrower or such Restricted Subsidiary, as the case may be, than those that would be available in a comparable transaction in arm’s-length dealings with a party who is not an Affiliate of the Borrower,

     (b) with respect to any transaction or series of related transactions involving aggregate value in excess of $10,000,000,

     (i) the Borrower delivers an officers’ certificate to the Administrative Agent certifying that such transaction or series of related transactions complies with clause (a) above, and

     (ii) such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the board of directors of the Borrower, or in the event there is only one Disinterested Director, by such Disinterested Director, or

     (c) with respect to any transaction or series of related transactions involving aggregate value in excess of $30,000,000, the Borrower delivers to the Administrative Agent a written opinion of an investment banking firm of national standing or other recognized independent expert with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required stating that the transaction or series of

76

related transactions is fair to the Borrower or such Restricted Subsidiary from a financial point of view;

provided, however, that this provision shall not apply to:

     (i) employee benefit arrangements with any officer or director of the Borrower, including under any employment agreement, stock option or stock incentive plans, and customary indemnification arrangements with officers or directors of the Borrower, in each case entered into in the ordinary course of business,

     (ii) the payment of reasonable and customary fees to directors of the Borrower or any of its Restricted Subsidiaries who are not employees of the Borrower or any Affiliate,

     (iii) any Restricted Payments or Permitted Payments made in compliance with Section 7.05,

     (iv) sales of Capital Stock (other than Disqualified Stock) of the Borrower to Affiliates of the Borrower,

     (v) in the case of contracts for purchase of drilling equipment or sale of oil field service supplies or natural gas or other operational contracts, any such contracts are entered into in the ordinary course of business on terms substantially similar to those contained in similar contracts entered into by the Borrower or any Restricted Subsidiary and third parties, or if neither the Borrower nor any Restricted Subsidiary has entered into a similar contract with a third party, that the terms are no less favorable than those available from third parties on an arm’s length basis, as determined by the board of directors of the Borrower,

     (vi) any customary agreements with stockholders of the Borrower providing for preemptive, voting, tag-along and similar rights to certain stockholders of the Borrower, provided that such agreements are approved in advance by a majority of the Disinterested Directors, and

     (vii) any transactions undertaken pursuant to any contracts in existence on the Closing Date (as in effect on the Closing Date) and any renewals, replacements or modifications of such contracts (pursuant to new transactions or otherwise) on terms no less favorable to the holders of the Loans than those in effect on the Closing Date.

     7.08 Burdensome Agreements.  The Borrower will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to come into existence or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

     (i) pay dividends or make any other distribution on its Capital Stock to the Borrower or any other Restricted Subsidiary,

77

     (ii) pay any Indebtedness owed to the Borrower or any other Restricted Subsidiary,

     (iii) make loans or advances to the Borrower or any other Restricted Subsidiary or

     (iv) transfer any of its properties or assets to the Borrower or any other Restricted Subsidiary.

     (b) However, clause (a) above will not prohibit any encumbrance or restriction created, existing or becoming effective under or by reason of:

     (i) any agreement (including the Senior Credit Facility) in effect on the date hereof;

     (ii) any agreement or instrument with respect to a Restricted Subsidiary that is not a Restricted Subsidiary of the Borrower on the date hereof, in existence at the time such Person becomes a Restricted Subsidiary of the Borrower and not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary, provided that such encumbrances and restrictions are not applicable to the Borrower or any Restricted Subsidiary or the properties or assets of the Borrower or any Restricted Subsidiary other than such Subsidiary which is becoming a Restricted Subsidiary;

     (iii) any agreement or instrument governing any Acquired Debt or other agreement of any Person or related to assets acquired by or merged into or consolidated with the Borrower or any Restricted Subsidiaries, so long as such encumbrance or restriction (A) was not entered into in contemplation of the acquisition, merger or consolidation transaction, and (B) is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets or subsidiaries of the Person, so acquired, so long as the agreement containing such restriction does not violate any other provision of this Agreement;

     (iv) any applicable law or any requirement of any regulatory body;

     (v) the security documents evidencing any Liens securing obligations or Indebtedness (provided such Liens are otherwise permitted to be incurred under the provisions of Section 7.01) that limit the right of the debtor to dispose of the assets subject to such Liens;

     (vi) provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary, or restrictions in licenses relating to the property covered thereby, or other encumbrances or restrictions in agreements or instruments relating to specific assets or property that restrict generally the transfers of such assets or property, provided, however, that such encumbrances or restrictions do not materially impact the ability of the Borrower to make payments on the Loans when due as required by the terms of this Agreement;

78

     (vii) asset sale agreements with respect to asset sales permitted to be made under the provisions of Section 7.04 that limit the transfer of such assets pending the closing of such sale;

     (viii) shareholders’, partnership, joint venture and similar agreements entered into in the ordinary course of business; provided, however, that such encumbrances or restrictions do not apply to any Restricted Subsidiaries other than the applicable company, partnership, joint venture or other entity; and provided, further, however, that such encumbrances and restrictions do not materially impact the ability of the Borrower to make payments on the Loans when due as required by the terms of this Agreement;

     (ix) cash or other deposits, or net worth requirements or similar requirements, imposed by suppliers or landlords under contracts entered into in the ordinary course of business;

     (x) any other Credit Facility governing debt of the Borrower or any Guarantor, permitted to be incurred by Section 7.02; provided, however, that such encumbrances or restrictions are not (in the view of the board of directors of the Borrower as expressed in a board resolution thereof) materially more restrictive, taken as a whole, than those contained in the Senior Credit Facility;

     (xi) customary restrictions on the disposition or distribution of assets or property in agreements entered into in the ordinary course of the Oil and Gas Business of the types described in the definition of Permitted Business Investments; and

     (xii) the Initial Exchange Note Indenture or any agreement, amendment, modification, restatement, renewal, supplement, refunding, replacement or refinancing that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (i) through (xi), or in this clause (xii); provided that the terms and conditions of any such encumbrances or restrictions are no more restrictive in any material respect taken as a whole than those under or pursuant to the agreement so extended, renewed, refinanced or replaced.

     7.09 Designation of Unrestricted Subsidiaries.

     (a) The board of directors of the Borrower may designate after the Closing Date any Subsidiary as an “Unrestricted Subsidiary” (a “Designation”) only if:

     (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Designation;

     (ii)

     (A) the Borrower would be permitted to make an Investment (other than a Permitted Investment) at the time of Designation (assuming the effectiveness of such Designation) pursuant to Section 7.05(a) in an amount (the “Designation Amount”) equal to the greater of (1) the net book value of the

79

Borrower’s interest in such Subsidiary calculated in accordance with GAAP or (2) the Fair Market Value of the Borrower’s interest in such Subsidiary, or

     (B) the Designation Amount is less than $1,000;

     (iii) the Borrower would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Debt) pursuant to Section 7.02 at the time of such Designation (assuming the effectiveness of such Designation);

     (iv) such Unrestricted Subsidiary does not own any Capital Stock in any Restricted Subsidiary of the Borrower which is not simultaneously being designated an Unrestricted Subsidiary;

     (v) such Unrestricted Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness, provided that an Unrestricted Subsidiary may provide a Guarantee for the Loans; and

     (vi) such Unrestricted Subsidiary is not a party to any agreement, contract, arrangement or understanding at such time with the Borrower or any Restricted Subsidiary unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Borrower or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Borrower or, in the event such condition is not satisfied, the value of such agreement, contract, arrangement or understanding to such Unrestricted Subsidiary shall be deemed a Restricted Payment.

In the event of any such Designation, the Borrower shall be deemed, for all purposes of this Agreement, to have made an Investment equal to the Designation Amount that constitutes a Restricted Payment pursuant to Section 7.05.

     (b) The Borrower shall not and shall not cause or permit any Restricted Subsidiary to at any time

     (i) provide credit support for, guarantee or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), provided, however, that the provisions of this clause (b)(i) shall not be deemed to prevent Permitted Investments in Unrestricted Subsidiaries that are otherwise allowed under this Agreement, or

     (ii) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary.

     (c) For purposes of the foregoing, the Designation of a Subsidiary of the Borrower as an Unrestricted Subsidiary shall be deemed to be the Designation of all of the Subsidiaries of such Subsidiary as Unrestricted Subsidiaries. Unless so designated as an Unrestricted

80

Subsidiary, any Person that becomes a Subsidiary of the Borrower will be classified as a Restricted Subsidiary.

     (d) The Borrower may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a “Revocation”) if:

     (i) no Default or Event of Default shall have occurred and be continuing at the time of and after giving effect to such Revocation;

     (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of this Agreement; and

     (iii) unless such redesignated Subsidiary shall not have any Indebtedness outstanding (other than Indebtedness that would be Permitted Debt), immediately after giving effect to such proposed Revocation, and after giving pro forma effect to the incurrence of any such Indebtedness of such redesignated Subsidiary as if such Indebtedness was incurred on the date of the Revocation, the Borrower could incur $1.00 of additional Indebtedness (other than Permitted Debt) pursuant to Section 7.02.

     (e) All Designations and Revocations must be evidenced by a resolution of the board of directors of the Borrower delivered to the Administrative Agent certifying compliance with the foregoing provisions of this covenant.

     7.10 Payments for Consent.

     Neither the Borrower nor any of its Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Lender for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Agreement or the Loans of either Tranche unless such consideration is offered to be paid or is paid to all holders of Loans of such Tranche that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

     7.11 Sale Leaseback Transactions.

     The Borrower will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale Leaseback Transaction; provided, that the Borrower or any of its Restricted Subsidiaries may enter into a Sale Leaseback Transaction if:

     (a) the Borrower or such Subsidiary could have incurred Indebtedness in an amount equal to the Attributable Indebtedness relating to such Sale Leaseback Transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in Section 7.02(a);

     (b) the gross cash proceeds of such Sale Leaseback Transaction are at least equal to the Fair Market Value of the property that is the subject of such Sale Leaseback Transaction; and

81

     (c) the transfer of assets in such Sale Leaseback Transaction is permitted by, and the Borrower applies the proceeds of such transaction in the same manner and to the same extent as Net Available Cash and Excess Proceeds from an Asset Sale in compliance with, Section 7.04.

ARTICLE VIII.
EVENTS OF DEFAULT AND REMEDIES

     8.01 Events of Default. Any of the following shall constitute an Event of Default:

     (a) there shall be a default in the payment of any interest on any Loan or any other amount (other than amounts referred to in clause (b) below) under this Agreement when it becomes due and payable, and such default shall continue for a period of 3 Business Days; or

     (b) there shall be a default in the payment of the principal of (or premium, if any, on) any Loan when due (upon acceleration, optional or mandatory prepayment or otherwise); or

     (c) there shall be a default in the performance or breach of the provisions set forth in Section 7.03; or

     (d) there shall be a default in the performance, or breach, of any covenant or agreement of the Borrower or any Guarantor under this Agreement (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with in clause (a), (b) or (c) above) and such default shall continue for 30 days; or

     (e)

     (i) any default in the payment of the principal, premium, if any, or interest on any Indebtedness shall have occurred under any of the agreements, indentures or instruments under which the Borrower, any Guarantor or any other Significant Subsidiary then has outstanding Indebtedness in excess of $30,000,000 when the same shall become due and payable in full and such default shall have continued after any applicable grace period and shall not have been cured or waived and, if not already matured at its final maturity in accordance with its terms, the holder of such Indebtedness shall have the right to accelerate such Indebtedness or

     (ii) an event of default as defined in any of the agreements, indentures or instruments described in Section 8.01(e)(i) shall have occurred and the Indebtedness thereunder, if not already matured at its final maturity in accordance with its terms, shall have been accelerated; or

     (f) any Guarantee shall for any reason cease to be, or shall for any reason be asserted in writing by any Guarantor or the Borrower not to be, in full force and effect and enforceable in accordance with its terms, except to the extent contemplated by this Agreement and any such Guarantee; or

     (g) one or more judgments, orders or decrees of any court or regulatory or administrative agency for the payment of money in excess of $30,000,000 (determined net of any

82

amounts covered by insurance policies by insurers believed by the Borrower in good faith to be credit-worthy), either individually or in the aggregate, shall be rendered against the Borrower, any Guarantor or any other Significant Subsidiary or any of their respective properties and shall not be discharged and either (i) any creditor shall have commenced an enforcement proceeding upon such judgment, order or decree or (ii) there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of an appeal or otherwise, shall not be in effect; or

     (h) the Borrower or any Restricted Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

     (i) the Borrower or any Restricted Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy.

     8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of Required Lenders, take any or all of the following actions:

     (a) declare the commitment of each Lender to make Loans to be terminated, whereupon such commitments and obligation shall be terminated;

     (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

     (d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Administrative Agent or any Lender.

83

     8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

     First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

     Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lender) and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;

     Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

     Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and

     Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.

ARTICLE IX.
ADMINISTRATIVE AGENT

     9.01 Appointment and Authority.

     Each of the Lenders hereby irrevocably appoints Bank of America, N.A. to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. Except to the extent Sections 9.03(b) and 9.06 expressly contemplate rights of others, the provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall not have rights as a third party beneficiary of any of such provisions.

     9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.

84

Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

     9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

     (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

     (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

     (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

     The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower or a Lender.

     The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

85

     9.04 Reliance by Administrative Agent.

     The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender, unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

     9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

     9.06 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent

86

shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

     9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

     9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, neither the Lead Arranger nor any Co-Arranger shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except as expressly provided herein or therein.

     9.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise

     (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.06 and 10.04) allowed in such judicial proceeding; and

     (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent

87

and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.06 and 10.04.

     Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

     9.10 Guaranty Matters. The Guarantee of a Guarantor will be released automatically:

     (a) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Borrower or a Restricted Subsidiary, if the sale or other disposition does not violate Section 7.04 hereof;

     (b) in connection with any sale or other disposition of all of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Borrower or a Restricted Subsidiary, if the sale or other disposition does not violate Section 7.04 hereof; or

     (c) if the Borrower designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with Section 7.09 hereof.

     In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.

ARTICLE X.
MISCELLANEOUS

     10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

     (a) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;

     (b) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to

88

the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;

     (c) reduce the principal of, or the rate of interest specified herein on, any Loan or any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;

     (d) change Section 2.10 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender, or, if such sharing or allocation is between Fixed Rate Loans and Floating Rate Loans, the consent of Lenders with more than 50% of the Commitments (or if the Commitments have been terminated, Lenders holding more than 50% of the outstanding principal amount of the Loans) of each such Tranche, voting as separate classes;

     (e) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender; or

     (f) release all or substantially all of the value of the Guaranty without the written consent of each Lender.

and, provided further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document.

     10.02 Notices; Effectiveness; Electronic Communication.

     (a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

     (i) if to the Borrower or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

     (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the

89

recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

     (b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

     Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

     (c) The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower, any Lender, or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

     (d) Change of Address, Etc. Each of the Borrower and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address,

90

telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

     (e) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. Furthermore, each Public-Side Lender agrees to cause at least one individual at or on behalf of such Public-Side Lender to at all times have selected the “PRIVATE-SIDE INFORMATION” or similar designation on the content declaration screen of the Platform in order to enable such Public-Side Lender or its delegate, in accordance with such Public-Side Lender’s compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the “PUBLIC-SIDE” portion of the Platform and that may contain material non-public information with respect to the Borrower or its securities for purposes of United States Federal or state securities laws.

     10.03 No Waiver; Cumulative Remedies. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

     10.04 Expenses; Indemnity; Damage Waiver.

     (a) Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent or any Lender in connection with the enforcement or protection of its

91

rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

     (b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), the Lead Arranger, each Co-Arranger and each Lender and each Related Party of each of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

     (c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the Lead Arranger, each Co-Arranger or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Lead Arranger, such Co-Arranger or such Related Party, as the case may be, such Lender’s ratable share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) in its capacity as such, against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity or

92

against the Lead Arranger or any Co-Arranger acting in its capacity as such. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.09(d).

     (d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

     (e) Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

     (f) Survival. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

     10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

     10.06 Successors and Assigns.

     (a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations

93

hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section or, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

     (b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

     (i) Minimum Amounts.

     (A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment or the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

     (B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $1,000,000 unless the Administrative Agent otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met.

     (ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned.

     (iii) Required Consents. The consent of the Borrower and the Administrative Agent (each of which such consents not to be unreasonably withheld or delayed) shall be required unless (1) in the case of the Borrower consent only, an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and provided that the Borrower

94

shall be deemed to have consented to any assignment if it shall not have responded to any request therefor before 4:00 P.M. (New York City time) three Business Days after the day on which such request was received.

     (iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount, if any, required as set forth in Schedule 10.06; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

     (v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

     (vi) No Assignment to Non-Qualified Institutional Buyers or Natural Persons. No such assignment shall be made to (x) a Person that is not a “qualified institutional buyer” within the meaning of Rule 144A or (y) a natural person.

     (vii) No Assignment During Syndication. Except pursuant to transactions arranged by the Lead Arranger, no Lender may sell or assign (other than to an Affiliate) any portion of its interest in the Initial Loans until the Syndication Completion Date.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

     (c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The

95

Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

     (d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent (except as set forth below), sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement, (iv) prior to the Syndication Completion Date, no such participation may be granted by any Lender except to an Affiliate of such Lender and (v) no such participation may be granted by any Lender to a Person that is not a “qualified institutional buyer” within the meaning of Rule 144A.

     Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.03 as though it were a Lender.

     (e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.

     (f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

     (g) Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be

96

of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

     (h) Notice to Lead Arranger. The Lead Arranger shall be notified of any participation (except to an Affiliate of the transferor Lender) until the 180^th day after the Closing Date.

     10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lead Arranger, each of the Co-Arrangers and each of the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) bona fide or potential assignees, transferees and participants in connection with contemplated assignments, transfers or participations of any Loans or any participations therein or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, the Lead Arranger, any Co-Arranger or any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.

     For purposes of this Section, “Information” means all non-public information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary, provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as nonpublic and confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to confidential information of a similar nature.

     Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.

97

     10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

     10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

     10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Article IV, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

     10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the

98

Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Loans, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

     10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

     10.13 Replacement of Lenders. If (i) any Lender requests compensation under Section 3.04 or (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or (iii) any Lender is unwilling to approve an amendment hereto which has been approved by Required Lenders but requires approval of such Lender to be effective, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

     (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

     (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

     (c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;

     (d) in the case of an assignment resulting from clause (iv) above, such assignment will result in effectiveness of such increase or amendment; and

     (e) such assignment does not conflict with applicable Laws.

     A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

99

     10.14 Governing Law; Jurisdiction; Etc.

     (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

     (b) SUBMISSION TO JURISDICTION. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

          (c) WAIVER OF VENUE. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

          (d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

     10.15 Waiver of Jury Trial.

     EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT

100

OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

     10.16 No Advisory or Fiduciary Responsibility.

     In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Lead Arranger and the Co-Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each of the Administrative Agent, the Lead Arranger and each of the Co-Arrangers is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person; (iii) none of the Administrative Agent, the Lead Arranger or any Co-Arranger has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent, the Lead Arranger or any Co-Arranger has advised or is currently advising the Borrower or any of its Affiliates on other matters) and none of the Administrative Agent, the Lead Arranger or any Co-Arranger has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent, the Lead Arranger, each of the Co-Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and none of the Administrative Agent, the Lead Arranger or any Co-Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent, the Lead Arranger and the Co-Arrangers have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent, the Lead Arranger or any Co-Arranger with respect to any breach or alleged breach of agency or fiduciary duty.

101

     10.17 USA PATRIOT Act Notice.

     Each Lender that is subject to the Act (as hereinafter defined) and each of the Administrative Agent, the Lead Arranger and each Co-Arranger (each in its capacity as such and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender, the Administrative Agent, the Lead Arranger or any Co-Arranger, as applicable, to identify the Borrower in accordance with the Act.

102

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

SANDRIDGE ENERGY, INC.
By:	/s/ Tom L. Ward
	Name:	Tom L. Ward
	Title:	President and Chief Executive Officer

BANK OF AMERICA, N.A., as Administrative Agent
By:	/s/ Suzanne M. Paul
	Name:	Suzanne M. Paul
	Title:	Vice President
BANC OF AMERICA BRIDGE LLC, as a Lender
By:	/s/ Alysa Trakas
	Name:	Alysa Trakas
	Title:	Vice President
BANC OF AMERICA SECURITIES LLC, as Lead Arranger
By:	/s/ Jeffrey J. McLane
	Name:	Jeffrey J. McLane
	Title:	Principal

GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Arranger and a Lender
By:	/s/ Bruce H. Mendelsohn
	Name:	Bruce H. Mendelsohn
	Title:	Authorized Signatory

LEHMAN BROTHERS INC., as Co-Arranger
By:	/s/ Timothy N. Hartzell
	Name:	Timothy N. Hartzell
	Title:	Managing Director
LEHMAN COMMERCIAL PAPER INC., as a Lender
By:	/s/ Jeff Ogden
	Name:	Jeff Ogden
	Title:	Managing Director

DEUTSCHE BANK SECURITIES INC., as Co-Arranger
By:	/s/ Kevin M. Sherlock
	Name:	Kevin M. Sherlock
	Title:	Managing Director
DEUTSCHE BANK AG, NEW YORK BRANCH, as a Lender
By:	/s/ Marguerite Sutton
	Name:	Marguerite Sutton
	Title:	Director

SCHEDULE 2.01

COMMITMENTS

Lender	Fixed Rate Commitment		Floating Rate Commitment
Banc of America Bridge LLC	$	229,125,000	$	123,375,000
Deutsche Bank AG, New York Branch	$	149,500,000	$	80,500,000
Goldman Sachs Credit Partners L.P.	$	149,500,000	$	80,500,000
Lehman Commercial Paper Inc.	$	121,875,000	$	65,625,000
Total	$	650,000,000	$	350,000,000

SCHEDULE 5.03

GOVERNMENTAL AUTHORIZATIONS

None.

SCHEDULE 5.05

SUPPLEMENT TO INTERIM FINANCIAL STATEMENTS

(Continued on next page)

Supplement to Interim Financial Statements: Existing Indebtedness

		3/15/2007		Collateral
SYMBOL ENERGY
	LARCO		2,287,129.15	NA
SAGEBRUSH
	BANK OF AMERICA		4,000,000.00	All Bank of America cash accounts
	ROC		3,125,000.00	NA
			7,125,000.00
SR OPERATING
	N/P SDI		7,970,907.91	NA
	DAN JORDAN — AIRPLANE		252,777.76
	AICCO-Insurance Policies		2,398,624.25	NA
	AICCO-Insurance Policies		742,885.29	NA
	AICCO-Insurance Policies		305,367.53	NA
			11,670,562.74
HONDO HEAVY HAUL
	N/P JOHN DEERE		145,631.06	John Deere 724J Loader with 9’ Forks
	N/P PACCAR FINANCIAL		324,179.82	Quantity of 6 2003 Peterbilt 379-127 Vehicles
			469,810.88
LARIAT
*	MERRILL LYNCH #1		13,219,174.35	Rig #1 — Rig #7 and Ancillary Equipment
*	MERRILL LYNCH #2		1,662,818.55	Rig #13 and All Associated Equipment
*	MERRILL LYNCH #3		3,511,600.54	Rig #12 and All Associated Equipment
*	MERRILL LYNCH #4		1,811,403.86	Rig #14 and All Associated Equipment
*	MERRILL LYNCH #5		791,881.95	Service/Workover Rigs
*	MERRILL LYNCH #6		1,376,864.92	Rig #15 and All Associated Equipment
*	MERRILL LYNCH #7		1,595,583.63	Rig #16 and All Associated Equipment
*	MERRILL LYNCH #8		2,014,347.37	Rig #19 and All Associated Equipment
*	MERRILL LYNCH #9		708,446.28	Misc Trucks & Equipment

		3/15/2007		Collateral
*	MERRILL LYNCH #10		7,360,628.14	Rig #22 and 3 Pulling Units
*	MERRILL LYNCH #11		5,357,528.07	Rig #24 and All Associated Equipment
*	MERRILL LYNCH #12		7,566,748.67	Rig #26
*	MERRILL LYNCH #13		840,753.28	Pulling Units 11, 12, 13, & 17
*	MERRILL LYNCH #14		5,969,613.78	Rig #28
*	MERRILL LYNCH #15		5,189,799.77	Rig #28
	DAIMLER CHRYSLER #11970		16,114.28	2005 Sterling Acterra Tractor
	DAIMLER CHRYSLER #11974		16,114.28	2005 Sterling Acterra Tractor
	N/P DIAMLER CHRYSLER #83592		67,667.25	2007 Western Star 4900 Tractor
	N/P DIAMLER CHRYSLER #83593		67,667.25	2007 Western Star 4900 Tractor
	N/P DIAMLER CHRYSLER #81856		29,697.81	2007 Sterling Acterra Tractor
	N/P DIAMLER CHRYSLER #66004		64,213.62	2007 Western Star 4900 Tractor
	N/P DIAMLERCHRYSLER #81858		31,071.49	2007 Sterling Acterra Tractor
	N/P DIAMLERCHRYSLER #81859		32,302.92	2007 Sterling Acterra Tractor
	N/P DIAMLERCHRYSLER #81860		32,302.82	2007 Sterling Acterra Tractor
	N/P DIAMLERCHRYSLER #81861		33,355.49	2007 Sterling Acterra Tractor
	N/P JOHN DEERE #2582		42,178.49	2005 330CLC Excavator
	N/P JOHN DEERE CREDIT #9496		32,868.06	850C Long Track Crawler Dozer
	N/P JOHN DEERE CREDIT #6211		58,960.68	1050C Crawler Dozer
	N/P JOHN DEERE CREDIT #2526		30,811.13	850C Long Track Crawler Dozer
	N/P JOHN DEERE CREDIT #6277		54,893.05	1050C Crawler Dozer
	N/P JOHN DEERE CREDIT #64644		51,827.61	544H Loader
	N/P JOHN DEERE CREDIT #79513		60,093.66	544H Loader
	N/P JOHN DEERE CREDIT #79321		45,442.63	544H Loader
	N/P JOHN DEERE CREDIT #87862		64,445.24	544H Loader
	JOHN DEERE CREDIT #6762		7,638.21	2005 310SG Wheel Loader Backhoe
	N/P JDC #1063		31,922.64	1 850C Dozer
	N/P JDC #78141		69,599.16	1 544H Front Loader
	N/P JDC #3935		68,897.03	724J Loader
	N/P JDC #62412,61917,01125,611051		461,201.24	Backhoes,Motograders
	N/P JDC #611397,430,431,468,224		821,480.97	4 Motograders, 1 Loader
	N/P JDC		851,073.40	2 dozers, 1 loader, 2 backhoes
*	DAIMLER CHRYSLER		608,046.72	15 Freightliner Trucks
	GE CAPITAL CORP		1,128,498.96	10 Mack Trucks
	PACCAR #24856 & #24870		138,899.47	2-2004 Peterbilts
	PACCAR		46,516.63	Kenworths
	PACCAR #5780267		274,919.05	2-2007 Peterbilts and 2-2004 Peterbilts
	PACCAR #5783865		144,622.90	2-2004 Peterbilts
	PACCAR		147,347.81	2-2004 Peterbilts

		3/15/2007		Collateral
			64,609,885.11
*	THIS LARIAT DEBT IS GUARANTEED BY SDI
SDI
	BANK OF AMERICA		225,000,000.00	Oil & Gas Properties
	CITICAPITAL		184,106.36	2 CAT Generators
			225,184,106.36
*	THIS LARIAT DEBT IS GUARANTEED BY SDI
LARCO
	RIATA ENERGY		5,635,243.89	NA
NEG
	AICCO-Insurance Policies		2,559,014.92	NA
RIAGRA
	N/P SDI		8,983,980.36	NA
ROC
	N/P SDI		62,333.53	NA
PSEC
	N/P SDI		31,813,722.36	NA
	SUBORDINATED DEBT-SDI		6,540,000.00	NA
			38,353,722.36
PSPC
	N/P SDI		5,902,097.77	NA
TOTAL			372,842,887.07
LESS INTER-CO NOTES			72,320,414.97
TOTAL			300,522,472.10

SCHEDULE 5.06

LITIGATION

     Riata Energy, Inc. and Riata Piceance, LLC, Plaintiffs, V. Elliott Roosevelt, Jr., E.R. Family Limited Partnership and Ceres Resource Partners, L.P., Defendants.; No. 04-11461-E; In the 101^st Judicial District Court in and for Dallas County, Tx

     Harvey Y. Yates Company, Plaintiff, v Riata Energy, Inc. Defendant; No. 10376; In the 112^TH District Court in and for Pecos County, Tx

SCHEDULE 5.09

ENVIRONMENTAL MATTERS

None.

SCHEDULE 5.13

SUBSIDIARIES,
OTHER EQUITY INVESTMENTS
AND LOAN PARTY INFORMATION

(Continued on next page)

SCHEDULE 5.13

SandRidge Energy, Inc.

PART A AND PART B — all Subsidiaries and Equity Interests of Loan Parties

Symbol	Company Name	Address	City/State/Zip	FEIN	OWNERSHIP
SDI	SandRidge Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-8084793
SUBSIDIARY ENTITIES
	Algerita Energy, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1400800	100%SDI
SOC	SandRidge Operating Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2541245	100%SDI
	Cup Of The Day #1, LLC	701 S. Tyler, Ste 102	Amarillo, TX 79201	13-4301747	100%SOC
CSLLC	Chaparral Supply, LLC	P. O. Box 1417	Ft. Stockton, Texas 79735	26-0036758	100%SOC
IEL	Integra Energy, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2887527	85%SOC
	Cholla Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	01-0557493	100%IEL
CHOLP	Cholla Pipeline, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	26-0025092	36%IEL, 17%ROC
TPL	Transpecos Logging, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2897434	100%SOC
	Black Bayou Exploration, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-4790561	100%SDI
LSI	Lariat Services, Inc.	2402 West Wall	Midland, TX 79701	75-2500702	100%SDI
LARCO	Lariat Compression Company	5432 N. Highway 1053	Ft. Stockton, TX 79735	75-2545523	100%LSI
SYMENE	Symbol Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2882968	100%LARCO
HONDO	Hondo Heavy Haul	13416 W. 1-20 East	Odessa, TX 79765	20-3568524	100%LSI
	Larclay, GP, LLC	701 S. Taylor, Suite 426	Amarillo, TX 79101	20-4727861	50%LSI
	Larclay, L.P.	701 S. Taylor, Suite 426	Amarillo, TX 79101	20-4728095	50%LSI
MCRLLC	Midcontinent Resources, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-0096928	100%SDI
PSEML	PetroSource Energy Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1237622	100%SDI
PSEC	PetroSource Energy Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2629471	99%SDI, 1% PSEM
PSCO2	PSCO2, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0547903	99%PSEC, 1% PSEML
PSPC	PetroSource Production Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1918006	99%PSEC, 1% PSEML
	PSE Holdings, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2950920	100%SDI
PSEM	PSE Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2622462	100%SDI
RLC	Riagra Land & Cattle	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2569335	100%SDI
SDC	SandRidge Drilling Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2563168	100%SDI
RIAN	Riata Energy Operating, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-0333569	100%SDI
REIPIC	Riata Piceance, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-0023468	100%SDI
	Riata Wolfcamp Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-2214412	100%SDI
ROC	ROC Gas Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2541148	100%SDI
SBP	Sagebrush Pipeline, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-1550515	70%ROC
SMM	Sierra Madera Management, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	43-1969581	100%SDI
SMCO2	Sierra Madera CO2 Pipeline, Ltd	1601 NW Expwy, 1600	Oklahoma City, OK 73118	47-0881558	99%SDI, 1% SMM

Symbol	Company Name	Address	City/State/Zip	FEIN	OWNERSHIP
SandRidge Holdings, Inc. Acquisition		1601 NW Expwy, 1600	Oklahoma City, OK 73118	20-5878401	100% SDI
NEG	NEG Oil & Gas, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	03-0573934	100% Sandridge
SUBSIDIARY ENTITIES
NEGH	NEG Holding, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	75-2958833	100%NEG
NEGO	NEG Operating, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776535	100%NEGH
NGXGP	NGX GP of Delaware LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776542	100%NEGO
NGXLP	NGX LP Of Delaware LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776545	100%NEGO
NGXELP	NGX Energy Limited Partnership	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776546	99%NGXLP, 1%NGXGP
SHANA	Shana National LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776549	100%NEGO
MIDR	Mid River, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776548	100%NEG
OFFGP	Offshore GP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776539	100%NEG
OFFLP	Offshore LP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776538	100%NEG
NOFFSH	National Offshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	11-3758786	99%OFFLP, 1%OFFGP
ONGP	Onshore GP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0833283	100%NEG
ONLP	Onshore LP, LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	87-0776536	100%NEG
NONSH	National Onshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	47-0953489	99%ONLP, 1%ONGP
GBPIPE	Galveston Bay Pipeline Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0595703	100%NONSH
GBPROC	Galveston Bay Processing Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	76-0570422	100%NONSH

PART C — LOAN PARTIES INFORMATION

Company Name	Address	City/State/Zip	Jurisdiction	FEIN Number
SandRidge Operating Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2541245
Integra Energy, L.L.C.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2887527
Lariat Compression Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2545523
NEG Oil & Gas LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	03-0573934
NEG Operating LLC	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	87-0776535
National Offshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	11-3758786
National Onshore LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	47-0953489
PetroSource Energy Company, LP	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-2629471
PetroSource Production Company, L.P.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-1918006
SandRidge Energy, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	20-8084793
ROC Gas Company	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Texas	75-2541148
Sandridge Holdings, Inc.	1601 NW Expwy, 1600	Oklahoma City, OK 73118	Delaware	20-5878401

SCHEDULE 10.02

ADMINISTRATIVE AGENT’S OFFICE;
CERTAIN ADDRESSES FOR NOTICES

BORROWER:
SandRidge Energy, Inc.
1601 Northwest Expressway, Suite 1600
Oklahoma City, OK 73118
Attention: Matt McCann
Telephone: (405) 753-5600
Telecopier: (405) 753-5988
Electronic Mail: mmccann@sdrge.com
Website Address: www.sandridgeenergy.com

U.S. Taxpayer Identification Number: 20-8084793

ADMINISTRATIVE AGENT:

Administrative Agent’s Office
(for payments and Requests for Credit Extensions):
Bank of America, N.A.
One Independence Center
101 North Tryon Street
Mail Code: NC1-001-04-39
Charlotte, NC 28255-001
Attention: Renee Blackmore
Telephone: (704) 387-2484
Telecopier: (704) 719-5450
Account No.: 1366212250600
Ref: SandRidge Energy, Inc.
ABA# 026009593

Other Notices as Administrative Agent:
Bank of America, N.A.
Agency Management
231 South LaSalle Street
Mail Code: IL1-231-10-41
Chicago, IL 60697
Attention: Suzanne M. Paul
Telephone: (312) 923-1640
Telecopier: (877) 206-8435
Electronic Mail: suzanne.m.paul@bankofamerica.com

SCHEDULE 10.06

PROCESSING AND RECORDATION FEES

     The Administrative Agent will charge a processing and recordation fee (an “Assignment Fee”) in the amount of $2,500 for each assignment; provided, however, that in the event of two or more concurrent assignments to members of the same Assignee Group (which may be effected by a suballocation of an assigned amount among members of such Assignee Group) or two or more concurrent assignments by members of the same Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group), the Assignment Fee will be $2,500 plus the amount set forth below:

Transaction	Assignment Fee
First four concurrent assignments or suballocations to members of an Assignee Group (or from members of an Assignee Group, as applicable)		-0-
Each additional concurrent assignment or suballocation to a member of such Assignee Group (or from a member of such Assignee Group, as applicable)	$	500

EXHIBIT A

FORM OF LOAN NOTICE

Date: ___________, _____

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of March 22, 2007 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among SandRidge Energy, Inc., a Delaware corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

     The undersigned hereby requests (select one):

     o A Borrowing of Initial Loans                    o A conversion or continuation of Loans

     1.   On                                                                               (a Business Day).

     2.   In the amount of $                                                            .

     3.   Comprised of                                                                     .

[Type of Loan requested]

     4.   For Eurodollar Rate Loans: with an Interest Period of                  months.

SANDRIDGE ENERGY, INC.
By:
	Name:
	Title:

A-1
Form of Loan Notice

EXHIBIT B

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:                     ,

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of March 22, 2007 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among SandRidge Energy, Inc., a Delaware corporation (the “Borrower”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.

     The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the                                                               of the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

     1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

     1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present, in all material respects, the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

     2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements.

     3. A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and

[select one:]

B-1
Form of Compliance Certificate

     [to the best knowledge of the undersigned during such fiscal period, the Borrower performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.]

—or—

     [the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

     4. The representations and warranties of the Borrower contained in Article V of the Agreement, and any representations and warranties of any Loan Party that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of                                   ,                          .

SANDRIDGE ENERGY, INC.
By:
	Name:
	Title:

B-2
Form of Compliance Certificate

EXHIBIT C

ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each] ¹ Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each] ² Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]³ hereunder are several and not joint.]⁴ Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

     For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to

1	For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2	For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3	Select as appropriate.
4	Include bracketed language if there are either multiple Assignors or multiple Assignees.

C-1
Form of Assignment and Assumption

[the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

1.	Assignor[s]:
2.	Assignee[s]:
	[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]]
3.	Borrower(s):
4.	Administrative Agent: Bank of America, N.A., as the administrative agent under the Credit Agreement
5.	Credit Agreement: Credit Agreement, dated as of March 22, 2007 among SandRidge Energy, Inc., the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
6.	Assigned Interest[s]: 5

				Aggregate				Percentage
				Amount of		Amount of		Assigned of
		Facility		Commitment/Loans		Commitment/Loans		Commitment/			CUSIP
Assignor[s]6	Assignee[s]7	Assigned8		for all Lenders9		Assigned		Loans10			Number
			________	$	________	$	________		________	%
			________	$	________	$	________		________	%
			________	$	________	$	________		________	%

[7. Trade Date:                                         ]¹¹

5	The reference to “Loans” in the table should be used only if the Credit Agreement provides for Term Loans.
6	List each Assignor, as appropriate.
7	List each Assignee, as appropriate.
8	Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Floating Rate Commitment”, “Fixed Rate Commitment”, etc.).
9	Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
10	Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
11	To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.

C-2
Form of Assignment and Assumption

Effective Date:                                         , 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

     The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR [NAME OF ASSIGNOR]
By:
	Title:
ASSIGNEE [NAME OF ASSIGNEE]
By:
	Title:

Consented to and Accepted: BANK OF AMERICA, N.A, as  Administrative Agent
	By:
		Title:
	Consented to: SANDRIDGE ENERGY, INC.
	By:
		Title:

C-3
Form of Assignment and Assumption

ANNEX 1 TO ASSIGNMENT AND ASSUMPTION

[                                                   ]¹²

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

          1. Representations and Warranties.

          1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

          1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it is a “qualified institutional buyer” within the meaning of Rule 144A, (iii) it meets all the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b)(iii) of the Credit Agreement), (iv) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (v) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (vi) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vii) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it

¹² Describe Credit Agreement at option of Administrative Agent.

C-4
Form of Assignment and Assumption

has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (viii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender; and (c) acknowledges that [the][each] Assigned Interest is not a “security” and confirms that (i) it is not relying on the protections of the U.S. Securities Act of 1933, as amended, or the rules or regulations thereunder or similar laws governing the offer and sale of securities and (ii) it is not requesting the delivery of any financial information in addition to that provided for in the Credit Agreement with respect to [the][each] Assigned Interest.

          2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.

          3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

C-5
Form of Assignment and Assumption

EXHIBIT D

FORM OF GUARANTY

(See attached)

D-1
Form of Guaranty

EXHIBIT E

OPINION OF COUNSEL TO THE LOAN PARTIES

(See attached)

E-1
Form of Opinion of Counsel to the Loan Parties

EX-10.9

Exhibit 10.9

AMENDMENT No. 1

dated as of March 7, 2007

to the SENIOR CREDIT AGREEMENT

dated as of November 21, 2006

among

SANDRIDGE ENERGY, INC.
as the Borrower,

BANK OF AMERICA, N.A.,
as Administrative Agent, Swing Line Lender and L/C Issuer

and

The Other Lenders Party Thereto

BANK OF AMERICA SECURITIES LLC,
Sole Lead Arranger and Sole Book Manager

AMENDMENT NO. 1 TO CREDIT AGREEMENT

     AMENDMENT dated as of March 7, 2007 to the Senior Credit Agreement dated as of November 21, 2006 (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) among SANDRIDGE ENERGY, INC., a Delaware corporation (the “Borrower”), each LENDER from time to time party thereto and BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”), Swing Line Lender and L/C Issuer.

W I T N E S S E T H:

     WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein;

     NOW, THEREFORE, the parties hereto agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein that is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby.

     Section 2. Amendment.

     (a) Section 7.03 of the Credit Agreement is amended by deleting Section 7.03(b) in its entirety and by substituting in lieu thereof the new Section 7.03(b) to read in its entirety as follows:

     “(b) Indebtedness in respect of the Bridge Facility and any refinancing thereof, provided that (i) the principal amount of such Indebtedness is not increased at the time of such refinancing by more than $150,000,000, and (ii) such refinancing (A) is unsecured, (B) requires no scheduled amortization prior to the 6th anniversary of the Closing Date and (C) is otherwise on market terms and conditions;”

     Section 3. Representations of the Borrower. The Borrower represents and warrants that, after giving effect to this Amendment, (i) the representations and warranties of the Borrower set forth in Article V of the Credit Agreement will be true and (ii) no Default will have occurred and be continuing.

     Section 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     Section 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

1

     Section 6. Effectiveness. This Amendment shall become effective on the date on which the Administrative Agent shall have received counterparts hereof signed by each of the Required Lenders and the Borrower (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party).

2

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

BORROWER SANDRIDGE ENERGY, INC.
By:	/s/ Dirk M. Van Doren
	Name:	Dirk M. Van Doren
	Title:	Chief Financial Officer

LENDERS BANK OF AMERICA, N.A., as Lender
By:	/s/ Charles W. Patterson
	Name:	Charles W. Patterson
	Title:	Managing Director
UNION BANK OF CALIFORNIA, N.A.
By:	/s/ Whitney Randolph
	Name:	Whitney Randolph
	Title:	Investment Banking Officer
ROYAL BANK OF CANADA
By:	/s/ Don J. McKinnerney
	Name:	Don J. McKinnerney
	Title:	Authorized Signatory
BARCLAYS BANK PLC
By:	/s/ Nicholas Bell
	Name:	Nicholas Bell
	Title:	Director

[Signature Page to Amendment No. 1
to the
Senior Credit Agreement]

CREDIT SUISSE, CAYMAN ISLANDS BRANCH
By:	/s/ Vanessa Gomez
	Name:	Vanessa Gomez
	Title:	Vice President
By:	/s/ Karim Blasetti
	Name:	Karim Blasetti
	Title:	Vice President
BANK OF OKLAHOMA, N.A.
By:	/s/ Mike Weatherholt
	Name:	Mike Weatherholt
	Title:	Officer
COMERICA BANK
By:	/s/ Peter L. Sefzik
	Name:	Peter L. Sefzik
	Title:	Vice President
THE BANK OF NOVA SCOTIA
By:	/s/ Richard Hawthorne
	Name:	Richard Hawthorne
	Title:	Director
SUNTRUST BANK
By:	/s/ Sean Roche
	Name:	Sean Roche
	Title:	Vice President
THE ROYAL BANK OF SCOTLAND PLC
By:	/s/ Lucy Walker
	Name:	Lucy Walker
	Title:	Vice President

[Signature Page to Amendment No. 1
to the
Senior Credit Agreement]

BMO CAPITAL MARKETS FINANCING, INC.
By:	/s/ James V. Ducote
	Name:	James V. Ducote
	Title:	Director
AMARILLO NATIONAL BANK
By:	/s/ Sha Gearn
	Name:	Sha Gearn
	Title:	Vice President
MIDFIRST BANK
By:	/s/ James P. Boggs
	Name:	James P. Boggs
	Title:	Senior Vice President
U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Daria M. Mahoney
	Name:	Daria M. Mahoney
	Title:	Vice President
WELLS FARGO BANK, NA
By:	/s/ Dustin S. Hansen
	Name:	Dustin S. Hansen
	Title:	Vice President
BANK OF SCOTLAND
By:	/s/ Karen Weich
	Name:	Karen Weich
	Title:	Vice President

[Signature Page to Amendment No. 1
to the
Senior Credit Agreement]

BNP PARIBAS
By:	/s/ Russell Otts
	Name:	Russell Otts
	Title:	Vice President
By:	/s/ Robert Long
	Name:	Robert Long
	Title:	Vice President
ALLIED IRISH BANKS P.L.C.
By:	/s/ David O’Driscoll
	Name:	David O’Driscoll
	Title:	Assistant Vice President
By:	/s/ Aidan Lanigan
	Name:	Aidan Lanigan
	Title:	Vice President
FORTIS CAPITAL CORP.
By:	/s/ Michele Jones
	Name:	Michele Jones
	Title:	Senior Vice President
By:	/s/ Darrell Holley
	Name:	Darrell Holley
	Title:	Managing Director

[Signature Page to Amendment No. 1
to the
Senior Credit Agreement]

CALYON NEW YORK BRANCH
By:	/s/ Tom Byargeon
	Name:	Tom Byargeon
	Title:	Managing Director
By:	/s/ Michael Willis
	Name:	Michael Willis
	Title:	Director

Acknowledged by:

ADMINISTRATIVE AGENT

BANK OF AMERICA, N.A., as
     Administrative Agent

By:	/s/ Suzanne M. Paul
	Name:	Suzanne M. Paul
	Title:	Vice President

[Signature Page to Amendment No. 1
to the
Senior Credit Agreement]

EX-10.10

Exhibit 10.10

AMENDMENT No. 2

dated as of March 30, 2007

to the SENIOR CREDIT AGREEMENT

dated as of November 21,2006

among

SANDRIDGE ENERGY, INC.

as the Borrower,

BANK OF AMERICA, N.A.,

as Administrative Agent, Swing Line Lender and L/C Issuer

and

The Other Lenders Party Thereto

BANK OF AMERICA SECURITIES LLC,

Sole Lead Arranger and Sole Book Manager

AMENDMENT NO. 2 TO CREDIT AGREEMENT

     AMENDMENT dated as of March 30, 2007 to the Senior Credit Agreement dated as of November 21, 2006 (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) among SANDRIDGE ENERGY, INC., a Delaware corporation (the “Borrower”), each LENDER from time to time party thereto and BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”), Swing Line Lender and L/C Issuer.

W I T N E S S E T H:

     WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein;

     NOW, THEREFORE, the parties hereto agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein that is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby.

     Section 2. Amendments. The Credit Agreement is hereby amended as follows:

     (a) The definition of Interest Period in Section 1.01 is amended (i) by adding the words “two weeks or” immediately before the words “one, two, three or six months thereafter,” and (ii) by adding the words “of one-month or greater duration” immediately following the words “any Interest Period” in clause (ii).

     (b) Section 2.02(e) is amended by adding the clause “and no more than two of such Interest Periods shall be of a duration of two weeks” at the end thereof.

     (c) Section 2.03(a)(ii)(A) is amended by replacing the word “twelve” with the words “twenty four”.

     (d) The figure “$15,000,000” appearing in Section 7.03(f) is changed to “$25,000,000.”

     (e) Subsection (h) of Section 7.03 is amended to read in its entirety as follows:

     “(h) Indebtedness incurred by Lariat, and Guarantees of the Borrower in respect of such Indebtedness; provided that the principal amount of Indebtedness of Lariat guaranteed by the Borrower pursuant to this subsection (h) or otherwise shall at no time exceed $92,500,000;”

1

     (f) The ratio “4.0:1.0” appearing in Section 7.11(b) is replaced by the following “(i) in the case of the fiscal quarters ending December 31, 2006, March 31, 2007 and June 30, 2007, 4.5:1.0 and (ii) in the case of any subsequent fiscal quarter, 4.0:1.0.”

     Section 3.     Representations of the Borrower. The Borrower represents and warrants that, after giving effect to this Amendment, (i) the representations and warranties of the Borrower set forth in Article V of the Credit Agreement will be true and (ii) no Default will have occurred and be continuing.

     Section 4.     Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     Section 5.     Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

     Section 6.     Effectiveness. This Amendment shall become effective on the date on which the Administrative Agent shall have received counterparts hereof signed by each of the Required Lenders and the Borrower (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party).

2

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

BORROWER SANDRIDGE ENERGY, INC.
By:	/s/ Tom L. Ward
	Name:	Tom L. Ward
	Title:	Chairman and Chief Executive Officer

LENDERS BANK OF AMERICA, N.A., as Lender
By:	/s/ Scott A. Mackey
	Name:	Scott A. Mackey
	Title:	Vice President

UNION BANK OF CALIFORNIA, N.A.
By:	/s/ Whitney Randolph
	Name:	Whitney Randolph
	Title:	Investment Banking Officer

ROYAL BANK OF CANADA
By:	/s/ Don J. McKinnerney
	Name:	Don J. McKinnerney
	Title:	Authorized Signatory

BARCLAYS BANK PLC
By:	/s/ Nicholas Bell
	Name:	Nicholas Bell
	Title:	Director

(Signature Page to Amendment No. 2
to the
Senior Credit Agreement)

CREDIT SUISSE, CAYMAN ISLANDS BRANCH
By:	/s/ Vanessa Gomez
	Name:	Vanessa Gomez
	Title:	Vice President

By:	/s/ James Neira
	Name:	James Neira
	Title:	Associate

BANK OF OKLAHOMA, N.A.
By:	/s/ Mike Weatherholt
	Name:	Mike Weatherholt
	Title:	Officer

COMERICA BANK
By:	/s/ Peter L. Sefzik
	Name:	Peter L. Sefzik
	Title:	Vice President

THE BANK OF NOVA SCOTIA
By:	/s/ Richard Hawthorne
	Name:	Richard Hawthorne
	Title:	Director

SUNTRUST BANK
By:	/s/ Yahn Pirio
	Name:	Yahn Pirio
	Title:	Vice President

THE ROYAL BANK OF SCOTLAND PLC
By:	/s/ Lucy Walker
	Name:	Lucy Walker
	Title:	Vice President

(Signature Page to Amendment No. 2
to the
Senior Credit Agreement)

BMO CAPITAL MARKETS FINANCING, INC.
By:	/s/ Mary Lou Allen
	Name:	Mary Lou Allen
	Title:	Vice President

AMARILLO NATIONAL BANK
By:	/s/ Sha Gearn
	Name:	Sha Gearn
	Title:	Vice President

MIDFIRST BANK
By:	/s/ James P. Boggs
	Name:	James P. Boggs
	Title:	Senior Vice President

U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Daria M. Mahoney
	Name:	Daria M. Mahoney
	Title:	Vice President

WELLS FARGO BANK, NA
By:	/s/ Dustin S. Hansen
	Name:	Dustin S. Hansen
	Title:	Vice President

BANK OF SCOTLAND
By:	/s/ Karen Weich
	Name:	Karen Weich
	Title:	Vice President

(Signature Page to Amendment No. 2
to the
Senior Credit Agreement)

BNP PARIBAS
By:	/s/ David Dodd
	Name:	David Dodd
	Title:	Managing Director

By:	/s/ Russell Otts
	Name:	Russell Otts
	Title:	Vice President

ALLIED IRISH BANKS P.L.C.
By:	/s/ David O’Driscoll
	Name:	David O’Driscoll
	Title:	Assistant Vice President

By:	/s/ Aidan Lanigan
	Name:	Aidan Lanigan
	Title:	Vice President

FORTIS CAPITAL CORP.
By:	/s/ Michele Jones
	Name:	Michele Jones
	Title:	Senior Vice President

By:	/s/ Darrell Holley
	Name:	Darrell Holley
	Title:	Managing Director

CALYON NEW YORK BRANCH
By:	/s/ Tom Byargeon
	Name:	Tom Byargeon
	Title:	Managing Director

By:	/s/ Michael Willis
	Name:	Michael Willis
	Title:	Director

(Signature Page to Amendment No. 2
to the
Senior Credit Agreement)

     Acknowledged by:

ADMINISTRATIVE AGENT BANK OF AMERICA, N.A., as Administrative Agent
By:	/s/ Suzanne M. Paul
	Name:	Suzanne M. Paul
	Title:	Vice President

(Signature Page to Amendment No. 2
to the
Senior Credit Agreement)

EX-10.11

Exhibit 10.11

EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made effective June 8, 2006 (the “Effective Date”), between RIATA ENERGY, INC., a Texas corporation (the “Company”), and TOM L. WARD, an individual (the “Executive”).

WITNESSETH:

     WHEREAS, the Company and the Executive desire to set forth the terms of their agreements relating to the employment of Executive by the Company; and

     WHEREAS, the Company has adopted the Well Participation Program (the “WP Program”) in order to provide for the participation by the Executive in the Company’s wells.

     NOW, THEREFORE, in consideration of the mutual promises herein contained, the Company and the Executive agree as follows:

     1. Employment. The Company hereby employs the Executive and the Executive hereby accepts such employment subject to the terms and conditions contained in this Agreement. The Executive is engaged as an employee of the Company and the Executive and the Company do not intend to create a joint venture, partnership or other relationship that might impose a fiduciary obligation on the Executive or the Company in the performance of this Agreement, other than as an officer and director of the Company,

     2. Executive’s Duties. The Executive is employed on a full-time basis. Throughout the term of this Agreement, the Executive will use the Executive’s best efforts and due diligence to assist the Company in the objective of achieving the most profitable operation of the Company and the Company’s affiliated entities consistent with developing and maintaining a quality business operation.

     2.1 Specific Duties. During the term of this Agreement the Executive: (a) will serve as Chief Executive Officer for the Company; (b) will be nominated for election or appointed to serve as a director of the Company and will be nominated as Chairman of the Board; (c) will be appointed as an officer or manager of such of the Company’s subsidiaries as the Executive requests; and (d) will be nominated for election or appointed to serve as a director of such of the Company’s subsidiaries as the Executive requests. The Executive agrees to use the Executive’s best efforts to perform all of the services required to fully and faithfully execute the offices and positions to which the Executive is appointed and elected and such other services as may be reasonably directed by the Board of Directors of the Company in accordance with this Agreement.

     2.2 Modifications. The precise duties to be performed by the Executive may be extended or curtailed in the discretion of the Board of Directors of the Company. However, except for termination for Cause (as hereinafter defined) under paragraph 6.1.2 of this Agreement, the failure of the Executive to be elected, be reelected or serve as a director of the Company during the term of this Agreement, the removal of the Executive as a member of the Board of Directors of the Company, the failure to reelect or reappoint

the Executive as Chairman of the Board and Chief Executive Officer of the Company, or the assignment of the performance of duties incumbent on the foregoing offices to other persons without the prior written consent of the Executive will constitute termination without Cause by the Company.

     2.3 Rules and Regulations. From time to time, the Company may issue policies and procedures applicable to employees and the Executive including an Employment Policies Manual. The Executive agrees to comply with such policies and procedures, except to the extent such policies are inconsistent with this Agreement. Such policies and procedures may be supplemented, modified, changed or adopted without notice in the sole discretion of the Company at any time. In the event of a conflict between such policies and procedures and this Agreement, this Agreement will control unless compliance with this Agreement will violate any law or regulation applicable to the Company or its affiliated entities.

     2.4 Stock Investment. During the term of this Agreement, the Executive agrees to hold shares of the Company’s common stock having an aggregate Investment Value (as hereafter defined) greater than five hundred percent (500%) of the compensation paid to the Executive under paragraphs 4.1 and 4.2 of this Agreement during such calendar year. Any shares of common stock acquired by the Executive prior, to the date of this Agreement and still owned by the Executive during the term of this Agreement may be used to satisfy the requirement to own common stock. For purposes of this paragraph, the “Investment Value” of each share of stock will be as follows: (a) for shares purchased after the date of this Agreement the price paid by the Executive for such shares; (b) for shares acquired after the date of this Agreement through the exercise of stock options, the grant of restricted stock, the conversion of preferred stock or other than through open market purchases, the fair market value of the common stock on the date the option was exercised, the stock was issued or the stock was acquired through the conversion of preferred stock, or the date such stock was otherwise acquired; and (c) for shares acquired on or prior to the date of this Agreement, the price paid by the Executive. The Company has no obligation to sell or to purchase from the Executive any of the Company’s stock in connection with this paragraph 2.4 and has made no representations or warranties regarding the Company’s stock, operations or financial condition.

     3. Other Activities. Except for the activities (the “Permitted Activities”) permitted under paragraphs 3.1, 3.2 and 3.3 of this Agreement or approved by the Board of Directors, during the period of Executive’s employment, the Executive will not: (a) engage in activities which require such substantial services on the part of the Executive that the Executive is unable to perform the duties assigned to the Executive in accordance with this Agreement; (b) serve as an officer or director of any publicly held entity; or (c) directly or indirectly invest in, participate in or acquire an interest in any oil and gas business, including, without limitation, (i) producing oil and gas, (ii) drilling, owning or operating oil and gas leases or wells, (iii) providing services or materials to the oil and gas industry, (iv) marketing or refining oil or gas, or (v) owning any interest in any corporation, partnership, company or entity which conducts any of the foregoing activities. The limitations in this paragraph 3 will not prohibit an investment by the Executive in publicly traded securities. The Executive is not restricted from maintaining or making investments, or engaging in other businesses, enterprises or civic, charitable or public service

2

functions if such activities, investments, businesses or enterprises do not result in a violation of clauses (a) through (c) of this paragraph 3. Notwithstanding the foregoing, the Executive will be permitted to participate in the following activities that will be deemed to be approved by the Company, if such activities are undertaken in strict compliance with this Agreement.

     3.1 Royalty Interests and Gifts. The foregoing restriction in clause (c) will not prohibit the ownership of royalty interests where the Executive owns or previously owned the surface of the land covered by the royalty interest and the ownership of the royalty interest is incidental to the ownership of the surface estate or the ownership of royalty, overriding royalty or working interests that are received by gift or inheritance.

     3.2 Existing Interests. The Executive has in the past conducted oil and gas activities individually and through TLW Investments, Inc., an Oklahoma corporation, and other entities owned or controlled by the Executive (collectively, the “Executive Affiliates”). The Executive also has a pre-existing right to participate in the drilling of oil and gas wells through the Chesapeake Energy Corporation Founder Well Participation Program (“CHK Program”) until August 10, 2006. The Executive will be permitted to continue to conduct oil and gas activities (including participation in new wells) through the CHK Program; or otherwise directly or through the Executive Affiliates, but only to the extent such activities are conducted on oil and gas leases or interests which the Executive or Executive Affiliates owned or had the right to acquire as of the date of this Agreement or which Executive or Executive affiliates acquires through the CHK Program (the “Prior Interests”).

     3.3 Company’s Activities. The Executive or the designated Executive Affiliate will be permitted to participate in the WP Program. The WP Program may not be amended or modified without the prior written consent of the Board of Directors and the Executive.

     4. Executive’s Compensation. The Company agrees to compensate the Executive as follows:

     4.1 Base Salary. A base salary (the “Base Salary”), in an annual rate of not less than Nine Hundred Fifty Thousand Dollars ($950,000.00), will be paid to the Executive in installments consistent with the Company’s customary payroll practices, during the term of this Agreement.

     4.2 Bonus. In addition to the Base Salary described at paragraph 4.1 of this Agreement, the Company may periodically pay bonus compensation to the Executive. Any bonus compensation will be at the absolute discretion of the Company in such amounts and at such times as the Board of Directors of the Company (or a Compensation Committee thereof) may determine.

     4.3 Equity Compensation. In addition to the compensation set forth in paragraphs 4.1 and 4.2 of this Agreement, the Executive may periodically receive grants of stock options, restricted stock or other equity related awards from the Company’s

3

stock compensation plans in effect from time to time, subject to the terms and conditions of such plans.

     4.4 Benefits. The Company agrees to extend to the Executive retirement benefits, deferred compensation, reimbursement of reasonable expenditures for dues, travel and entertainment and any other benefits the Company provides to other executives or officers from time to time on the same terms as such benefits are provided to such individuals. The Company will also provide the Executive the opportunity to apply for coverage under the Company’s medical, life and disability plans, if any. If the Executive is accepted for coverage under such plans, the Company will provide such coverage on the same terms as is customarily provided by the Company to the plan participants as modified from time to time. The following specific benefits will also be provided to the Executive at the expense of the Company.

     4.4.1 Vacation. The Executive will be entitled to take up to five (5) weeks of paid vacation each calendar year during the term of this Agreement, subject to proration for any portion of a calendar year under this Agreement. No additional compensation will be paid for failure to take vacation and no vacation may be carried forward from one calendar year to another.

     4.4.2 Membership Dues. The Company will reimburse the Executive for: (a) the monthly dues necessary to maintain a full membership in any country club in the Oklahoma City or Amarillo area at which the Executive hosts business functions; and (b) the reasonable cost of any business entertainment at such clubs consistent with Company policy. All other costs, including, without implied limitation, any initiation costs, initial membership costs, personal use and business entertainment unrelated to the Company will be the sole obligation of the Executive and the Company will have no liability with respect to such amounts.

     4.4.3 Travel. For safety, security and efficiency the Executive will be required to utilize aircraft owned or leased by the Company for business and reasonable personal use in the Western Hemisphere (including North America, South America and the surrounding oceans) and will not be required to reimburse the Company for any cost related to such use. In addition, the Executive’s immediate family members may use such Company aircraft for their personal use to the same extent. When a family member travels without the Executive, the Executive agrees to reimburse the Company for the variable costs of such use. For purposes of this Agreement, the variable cost of using the Company’s aircraft means the variable costs directly identifiable with each use (including fuel, pilot charges, landing fees, hourly charges under co-ownership arrangements and other such costs), but specifically excluding any fixed costs of the aircraft (including acquisition costs and depreciation). The Executive will: (a) not owe any additional amounts to the Company under this paragraph for guests or family members traveling with the Executive; and (b) pay all personal income taxes accruing as a result of the personal use of the Company’s aircraft by the Executive, his family or guests under this paragraph. The amount of reasonable

4

personal and family use shall be subject to annual review by the compensation committee of the Board of Directors of the Company.

     4.4.4 Accounting Support. The Executive will be reasonably permitted to utilize the Company’s office space, computer facilities and personnel to provide accounting services, records maintenance, tax advice and tax return preparation for the Executive’s (and his family’s) personal business investments and activities. The Executive agrees to reimburse the Company an amount equal to 50% of the salaries and bonuses paid by the Company to employees primarily engaged in providing such support services to the Executive. Such amounts will be billed monthly on an estimated basis, adjusted to actual at least once annually and paid by the Executive on receipt of an invoice from the Company. The cost of secretarial or general administrative support for the Executive will not be required to be reimbursed in whole or part by the Executive. The amount of reasonable use of service provided by this paragraph 4.4.4 shall be subject to annual review by the compensation committee of the Board of Directors of the Company.

     4.5 Gross-Up Payment. In the event it is determined that any payment or distribution by the Company or the Company’s subsidiaries or affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this paragraph 4.5) (a “Payment”) is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the “Code”) or any interest or penalties related to such excise tax (collectively, the “Excise Tax”), the Executive will be entitled to receive an additional payment (a “Gross-Up Payment”) from the Company. The Gross-Up Payment will be equal to the amount such that after payment by the Executive of all taxes (including the Excise Tax, income taxes, interest and penalties imposed with respect to such taxes) on the Gross-Up Payment, the Executive will retain an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payment.

     4.5.1 Determination. Subject to the provisions of paragraph 4.5.2 all determinations required to be made under this paragraph 4.5 (including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized) will be made by a nationally recognized certified public accounting firm designated by the Executive (the “Accounting Firm”). The Accounting Firm will provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is reasonably requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change of Control (as hereinafter defined), the Executive will be entitled to appoint another nationally recognized accounting firm to make the determinations required under this paragraph (which accounting firm will then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm will be paid by the Company. Any Gross-Up Payment required to be paid under

5

this paragraph 4.5 will be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm’s determination, Any determination by the Accounting Firm will be binding on the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm, the Gross-Up Payment made by the Company may be less than actually required (an “Underpayment”) consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph 4.5.2 below and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm will determine the amount of the Underpayment that has occurred and any such Underpayment will be promptly paid by the Company to or for the benefit of the Executive.

     4.5.2 Contest of Claims. The Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification will be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and will apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive will not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive notifies the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such thirty (30) day period that the Company desires to contest such claim, the Executive will: (a) provide to the Company any information reasonably requested by the Company relating to such claim; (b) take such action in connection with contesting such claim as the Company reasonably requests in writing including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (c) cooperate with the Company in good faith as necessary to effectively contest such claim; and (d) permit the Company to participate in any proceedings relating to such claim. The Company will bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with the contest of the claim and agrees to indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such protest (including payment of costs and expenses as provided hereunder). Without limitation on the foregoing provisions, the Company will control all proceedings related to such contested claim, may at its sole option pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may at its sole option either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. The Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company reasonably determines. If the Company directs the Executive to pay a claim and sue for a refund, the Company will be required to advance the amount of such payment to the Executive on an interest-free basis

6

and agrees to indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contested claim will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

     4.5.3 Refunds. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 4.5.2, the Executive becomes entitled to receive any refund with respect to such claim the Executive will (subject to the Company’s complying with the requirements of paragraph 4.5.2) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 4.5.2, a determination is made that the Executive will not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of (30) days after such determination, then the advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

     4.6 Compensation Review. The compensation of the Executive will be reviewed not less frequently than annually by the Board of Directors of the Company (or a Compensation Committee thereof) and shall be reviewed semi-annually if the compensation of other executive officers of the Company is reviewed at such frequency. The compensation of the Executive prescribed in paragraph 4 of this Agreement (including benefits) may be increased at the discretion of the Board of Directors of the Company or the Compensation Committee, but may not be reduced without the prior written consent of the Executive except as expressly provided herein.

7

     5. Term. In the absence of termination as set forth in paragraph 6 below, this Agreement will extend for a term commencing on the Effective Date, and ending on June 30, 2009 (the “Expiration Date”) as extended from time to time. Unless the Company provides thirty (30) days prior written notice of non-extension to the Executive, on or before each June 30 during the term of this Agreement, the term and the Expiration Date will be automatically extended for one (1) additional year so that the remaining term on this Agreement will be not less than two (2) and not more than three (3) years.

     6. Termination. The Executive’s employment will continue in effect until the expiration of the term set forth in paragraph 5 of this Agreement unless earlier terminated pursuant to this paragraph 6.

     6.1 Termination by Company. The Company will have the following rights to terminate Executive’s employment:

     6.1.1 Termination without Cause. The Company may terminate Executive’s employment without Cause at any time by the service of written notice of termination to the Executive specifying an effective date of such termination not sooner than ten (10) days after the date of such notice (the “Termination Date”). In the event the Executive is terminated without Cause (other than a CC Termination under paragraph 6.3 of this Agreement), the Executive will receive as termination compensation: (a) his Base Salary (as in effect on the Termination Date) during the remaining term of this Agreement, but in any event through the Expiration Date; and (b) any vacation pay accrued through the Termination Date. The payment of such amounts shall be made during the remaining term of the Agreement in installments consistent with the Company’s normal payroll practices, but, if on the Termination Date, the Executive is a “specified employee” as defined in regulations under Section 409A of the Code, such payments will commence on the first payroll payment date which is more than six months following the Termination Date and the first payment shall include any amounts that would have otherwise been payable during the six month period.

     6.1.2 Termination for Cause. The Company may terminate Executive’s employment for Cause. For purposes of this Agreement, “Cause” means: (a) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company or its subsidiaries or affiliates (other than a failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board of Directors which specifically identifies the manner in which the Board of Directors believes that the Executive has not substantially performed the Executive’s duties; or (b) the willful engaging by the Executive in illegal conduct, gross misconduct or a clearly established violation of the Company’s written policies and procedures, in each case which is materially and demonstrably injurious to the Company. For purposes of this provision, an act or failure to act, on the part of the Executive, will not be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without

8

reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board of Directors or based on the advice of counsel for the Company will be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. In the event Executive’s employment is terminated for Cause, the Company will not have any obligation to provide any further payments or benefits to the Executive after the effective date of such termination. Executive’s employment will not be deemed to have terminated for Cause unless a written determination specifying the reasons for such termination is made, approved by a majority of the independent and disinterested members of the Board of Directors of the Company and delivered to the Executive. Thereafter, the Executive will have the right for a period of thirty (30) days to request a Board of Directors meeting to be held at a mutually agreeable time and location to be attended by the members of the Board of Directors in person within the following thirty (30) days, at which meeting the Executive and his designated representatives will have an opportunity to be heard. Failing such determination and opportunity for hearing, any termination of Executive’s employment will be deemed to have occurred without Cause.

     6.2 Termination by Executive. The Executive may voluntarily terminate his employment with or without Cause by the service of written notice of such termination to the Company specifying an effective date of such termination ninety (90) days after the date of such notice, during which time the Executive may use remaining accrued vacation days, or at the Company’s option, be paid for such days. In the event his employment is terminated by the Executive, neither the Company nor the Executive will have any further obligations hereunder, except for any obligations which expressly survive termination of employment including, without limitation, any obligation of the Company to provide any further payments or benefits to the Executive after the effective date of such termination.

     6.3 Termination After Change in Control. If during the term of this Agreement there is a “Change of Control” and within one (1) year thereafter there is a CC Termination (as hereafter defined), then the Executive will be entitled to a severance payment (in addition to any other rights and other amounts payable to the Executive under Section 6.7 or under Company plans in which Executive is a participant) payable in a lump sum in cash within 10 days following the CC Termination in an amount equal to the sum of the following: (a) three (3) times the Executive’s Base Salary for the last 12 calendar months ending immediately prior to the CC Termination and bonus paid pursuant to Section 4.2 (based on the average of the last three years annual bonuses or such lesser number of years as Executive may have been employed); plus (b) any applicable Gross-Up Payment. If the foregoing amount is not paid within ten (10) days after the CC Termination, the unpaid amount will bear interest at the per annum rate of 12%. Notwithstanding the foregoing, if at the time of a CC Termination, the Executive is a “specified employee” as defined in regulations under Section 409A of the Code, such payment will be made on the first day which is more than six months following the CC Termination. In connection with any Change of Control, the Company shall obtain the

9

assumption of this Agreement, without limitation or reduction, by any successor to the Company or any parent corporation of the Company.

     6.3.1 Change of Control. For the purpose of this Agreement, a “Change of Control” means the occurrence of any of the following:

     (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), other than Executive or his affiliates or Malone Mitchell 3rd or his affiliates (the “Exempt Persons”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”). For purposes of this paragraph (a) the following acquisitions by a Person will not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of paragraph (c) of this paragraph 6.3.1.

     (b) The individuals who, as of the date hereof, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors. Any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered a member of the Incumbent Board as of the date hereof, but any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board will not be deemed a member of the Incumbent Board as of the date hereof.

     (c) The consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless following such Business Combination: (i) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock

10

and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) other than one or more of the Exempt Persons beneficially owns, directly or indirectly, 40% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

     (d) The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     6.3.2 CC Termination. The term “CC Termination” means any of the following: (a) the Executive’s employment is terminated by the Company other than under paragraphs 6.1.2, 6.4 or 6.5; or (b) the Executive resigns as a result of a change in the Executive’s duties or title, a reduction in the Executive’s then current Base Salary or a significant reduction in the Executive’s then current benefits as provided in Section 4, a relocation of more than 25 miles from the Executive’s then current place of employment being required by the Board of Directors or a default by the Company under this Agreement

     6.4 Incapacity of Executive. If the Executive suffers from a physical or mental condition, which in the reasonable judgment of the Company’s Board of Directors, prevents the Executive in whole or in part from performing the duties specified herein for a period of four (4) consecutive months, the Executive’s employment may be terminated by the Company, in which event, the Company will pay Executive his Base Salary in effect on the date of termination through the remaining term of this Agreement, but in any event through the Expiration Date. The payment of such amounts shall be made during the remaining term of the Agreement in installments consistent with the Company’s normal payroll practices, but, if on the termination date, the Executive is a “specified employee” as defined in regulations under Section 409A of the Code, such payments will commence on the first payroll payment date which is more than six months following the termination date and the first payment shall include any amounts that

11

would have otherwise been payable during the six month period. Notwithstanding the foregoing, the amount payable hereunder will be reduced by any benefits payable under any disability plans provided by the Company under paragraph 4.4 of this Agreement.

     6.5 Death of Executive. If the Executive dies during the term of this Agreement, Executive’s employment will terminate without compensation to the Executive’s estate except: (a) the obligation to continue the Base Salary payments under paragraph 4.1 of this Agreement for twelve (12) months after the effective date of such termination, and (b) the benefits described in paragraph 4.4 of this Agreement accrued through the effective date of such termination.

     6.6 Effect of Termination. The termination of Executive’s employment will terminate all obligations of the Executive to render services on behalf of the Company. The Executive will maintain the confidentiality of all information acquired by the Executive during the term of his employment in accordance with paragraph 7 of this Agreement. Except as otherwise provided in this paragraph 6, no accrued bonus, severance pay or other form of compensation will be payable by the Company to the Executive by reason of the termination of his employment. In the event that payments are required to be made by the Company under this paragraph 6, the Executive will not be required to seek other employment as a means of mitigating the Company’s obligations hereunder resulting from termination of the Executive’s employment and the Company’s obligations hereunder (including payment of severance benefits) will not be terminated, reduced or modified as a result of the Executive’s earnings from other employment or self-employment. All keys, entry cards, credit cards, files, records, financial information, furniture, furnishings, equipment, supplies and other items relating to the Company will remain the property of the Company. The Executive will have the right to retain and remove all personal property and effects that are owned by the Executive and located in the offices of the Company. All such personal items will be removed from such offices no later than ten (10) days after the effective date of termination, and the Company is hereby authorized to discard any items remaining and to reassign the Executive’s office space after such date. Prior to the effective date of termination, the Executive will cooperate with the Company to provide for the orderly termination of the Executive’s employment.

     6.7 Equity Compensation Provisions. Notwithstanding any provision to the contrary in any option agreement, restricted stock agreement, plan or other agreement relating to equity based compensation, in the event of a termination under paragraph 6.1.1 or 6.3 of this Agreement: (a) all units, stock options, incentive stock options, performance shares, stock appreciation rights and restricted stock held by Executive immediately prior to such termination will immediately become 100% vested; and (b) the Executive’s right to exercise any previously unexercised options will not terminate until the latest date on which such option would expire but for Executive’s termination of employment. To the extent Company is unable to provide for one or both of the foregoing rights the Company will provide in lieu thereof a lump-sum cash payment equal to the difference between the total value of such units, stock options, incentive stock options, performance shares, stock appreciation rights and shares of restricted stock (the “Equity Compensation Rights”) with the foregoing rights as of the date of Executive’s termination of employment and the

12

total value of the Equity Compensation Rights without the foregoing rights as of the date of the Executive’s termination of employment. The foregoing amounts will be determined by the Board of Directors in good faith based on a valuation performed by an independent consultant selected by the Board of Directors and the cash payment, if any, will be paid in a lump sum in the case of a termination under Section 6.1.1, at the same time as the first severance payment is otherwise due under such Section, and in the case of a termination under Section 6.3, at the same time the payment is due under such Section.

     7. Confidentiality. The Executive recognizes that the nature of the Executive’s services are such that the Executive will have access to information which constitutes trade secrets, is of a confidential nature, is of great value to the Company or is the foundation on which the business of the Company is predicated. The Executive agrees not to disclose to any person other than the Company’s employees or the Company’s legal counsel or other parties authorized by the Company to receive confidential information (“Confidential Information”) nor use for any purpose, other than the performance of this Agreement, any Confidential Information. Confidential Information includes data or material (regardless of form) which is: (a) a trade secret; (b) provided, disclosed or delivered to Executive by the Company, any officer, director, employee, agent, attorney, accountant, consultant, or other person or entity employed by the Company in any capacity, any customer, borrower or business associate of the Company or any public authority having jurisdiction over the Company of any business activity conducted by the Company; or (c) produced, developed, obtained or prepared by or on behalf of Executive or the Company (whether or not such information was developed in the performance of this Agreement) with respect to the Company or any assets oil and gas prospects, business activities, officers, directors, employees, borrowers or customers of the foregoing. However, Confidential Information will not include any information, data or material which at the time of disclosure or use was generally available to the public other than by a breach of this Agreement, was available to the party to whom disclosed on a non-confidential basis by disclosure or access provided by the Company or a third party, or was otherwise developed or obtained independently by the person to whom disclosed without a breach of this Agreement. On request by the Company, the Company will be entitled to a copy of any Confidential Information in the possession of the Executive. The provisions of this paragraph 7 will survive the termination, expiration or cancellation of Executive’s employment for a period of one (1) year after the date of termination. The Executive will deliver to the Company all originals and copies of the documents or materials containing Confidential Information. For purposes of paragraphs 7, 8, and 9 of this Agreement, the Company expressly includes any of the Company’s subsidiaries or affiliates.

     8. Non-competition. During the period of Executive’s employment and for a period ending six months after the Executive’s termination of employment for any reason other than pursuant to Sections 6.1.1 or 6.3, (a) the Executive will not acquire, attempt to acquire or aid another in the acquisition or attempted acquisition of an interest in oil and gas assets, oil and gas production, oil and gas leases, minerals interests, oil and gas wells or other such oil and gas exploration, development or production activities within any spacing unit in which the Company owns an oil an gas interest on the date of termination of employment of the Executive; (b) the Executive will not solicit, induce, entice or attempt to entice any employee, contractor, customer, vendor or subcontractor to terminate or breach any relationship with the Company or the Company’s subsidiaries or affiliates for the Executive’s own account or for the benefit of another

13

party; and (c) the Executive will not circumvent or attempt to circumvent the foregoing agreements in clause (a) or (b) by any future arrangement or through the actions of a third party. The foregoing will not prohibit the activities which are expressly permitted by paragraph 3 of this Agreement.

     9. Proprietary Matters. The Executive expressly understands and agrees that any and all improvements, inventions, discoveries, processes or know-how that are generated or conceived by the Executive during the term of this Agreement, whether generated or conceived during the Executive’s regular working hours or otherwise, will be the sole and exclusive property of the Company. Whenever requested by the Company (either during the term of this Agreement or thereafter), the Executive will assign or execute any and all applications, assignments and or other instruments and do all things which the Company deems necessary or appropriate in order to permit the Company to: (a) assign and convey or otherwise make available to the Company the sole and exclusive right, title, and interest in and to said improvements, inventions, discoveries, processes, know-how, applications, patents, copyrights, trade names or trademarks; or (b) apply for, obtain, maintain, enforce and defend patents, copyrights, trade names, or trademarks of the United States or of foreign countries for said improvements, inventions, discoveries, processes or know-how. However, the improvements, inventions, discoveries, processes or know-how generated or conceived by the Executive and referred to above (except as they may be included in the patents, copyrights or registered trade names or trademarks of the Company, or corporations, partnerships or other entities which may be affiliated with the Company) will not be exclusive property of the Company at any time after having been disclosed or revealed or have otherwise become available to the public or to a third party on a non-confidential basis other than by a breach of this Agreement, or after they have been independently developed or discussed without a breach of this Agreement by a third party who has no obligation to the Company or the Company Entities.

     10. Arbitration. The parties will attempt to promptly resolve any dispute or controversy arising out of or relating to this Agreement or termination of the Executive by the Company. Any negotiations pursuant to this paragraph 10 are confidential and will be treated as compromise and settlement negotiations for all purposes. If the parties are unable to reach a settlement amicably, the dispute will be submitted to binding arbitration before a single arbitrator in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. The arbitrator will be instructed and empowered to take reasonable steps to expedite the arbitration and the arbitrator’s judgment will be final and binding upon the parties subject solely to challenge on the grounds of fraud or gross misconduct. Except for damages arising out of a breach of paragraphs 6, 7, 8 or 9 of this Agreement, the arbitrator is not empowered to award total damages (including compensatory damages) that exceed 300% of compensatory damages and each party hereby irrevocably waives any damages in excess of that amount. The arbitration will be held in Oklahoma County, Oklahoma. Judgment upon any verdict in arbitration may be entered in any court of competent jurisdiction and the parties hereby consent to the jurisdiction of, and proper venue in, the federal and state courts located in Oklahoma County, Oklahoma. The Company will pay the costs and expenses of the arbitration including, without implied limitation, the fees for the arbitrators. Unless otherwise expressly set forth in this Agreement, the procedures specified in this paragraph 10 will be the sole and exclusive procedures for the resolution of disputes and controversies between the parties arising out of or relating to this Agreement. Notwithstanding the foregoing, a party may seek a

14

preliminary injunction or other provisional judicial relief if in such party’s judgment such action is necessary to avoid irreparable damage or to preserve the status quo.

     11. Miscellaneous. The parties further agree as follows:

     11.1 Time. Time is of the essence of each provision of this Agreement.

     11.2 Notices. Any notice, payment, demand or communication required or permitted to be given by any provision of this Agreement will be in writing and will be deemed to have been given when received by personal delivery, by facsimile, by overnight courier, or by certified mail, postage and charges prepaid, directed to the following address or to such other or additional addresses as any party might designate by written notice to the other party:

To the Company:	Riata Energy, Inc.
	701 South Taylor, Suite 390
	Amarillo, TX 79101
	Attn: Malone Mitchell 3rd
To the Executive:	Mr. Tom L. Ward
	19200 North Rockwell
	Edmond, OK 73003

     11.3 Assignment. Neither this Agreement nor any of the parties’ rights or obligations hereunder can be transferred or assigned without the prior written consent of the other parties to this Agreement.

     11.4 Construction. If any provision of this Agreement or the application thereof to any person or circumstances is determined, to any extent, to be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which the same is held invalid or unenforceable, will not be affected thereby, and each term and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law. This Agreement is intended to be interpreted, construed and enforced in accordance with the laws of the state of Texas

     11.5 Entire Agreement. Except as provided in paragraph 2.3 of this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter herein contained, and no modification hereof will be effective unless made by a supplemental written agreement executed by all of the parties hereto.

     11.6 Binding Effect. This Agreement will be binding on the parties and their respective successors, legal representatives and permitted assigns. In the event of a merger, consolidation, combination, dissolution or liquidation of the Company, the performance of this Agreement will be assumed by any entity which succeeds to or is transferred the business of the Company as a result thereof.

15

     11.7 Attorneys’ Fees. If any party institutes an action, proceeding or arbitration against any other party relating to the provisions of this Agreement or any default hereunder, the Company will be responsible for paying the Company’s legal fees and expenses and the Company will be required to reimburse the Executive for reasonable expenses and legal fees incurred by the Executive in connection with the resolution of such action or proceeding, including any costs of appeal.

     11.8 Supercession. This Agreement is the final, complete and exclusive expression of the agreement between the Company and the Executive and supersedes and replaces in all respects any prior oral or written employment agreements. On execution of this Agreement by the Company and the Executive, the relationship between the Company and the Executive after the effective date of this Agreement will be governed by the terms of this Agreement and not by any other agreements, oral or otherwise.

     11.9 Non-Contravention. Executive represents and warrants to the Company that the execution and performance of this Agreement will not violate, constitute a default under, or otherwise give rights to any third party, pursuant to the terms of any Agreement to which Executive is a party. The Company acknowledges that Executive has confidentiality and noncompetition obligations to Chesapeake Energy Corporation, pursuant to the terms of his employment agreement dated July 1, 2005 and resignation agreement dated February 10, 2006, copies of which have been made available to the Corporation and that Executive intends to abide by the terms of such obligations.

     11.10 Indemnity. EXECUTIVE AGREES TO INDEMNIFY AND HOLD HARMLESS THE COMPANY, ITS DIRECTORS, OFFICERS AND EMPLOYEES AND AGENTS (THE “INDEMNIFIED PARTIES”) AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE, AS INCURRED, (“LOSS”) TO WHICH THE INDEMNIFIED PARTIES MAY BECOME SUBJECT OR INCUR, INSOFAR AS SUCH LOSS ARISES OUT OF OR IS BASED UPON ANY INACCURACY IN ANY REPRESENTATION OR WARRANTY GIVEN BY EMPLOYEE IN SECTION 11.9 OF THIS AGREEMENT AND TO REIMBURSE THE INDEMNIFIED PARTIES FOR ANY AND ALL EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF COUNSEL CHOSEN BY THE INDEMNIFIED PARTIES) AS SUCH EXPENSES ARE REASONABLY INCURRED BY THE INDEMNIFIED PARTIES IN CONNECTION WITH INVESTIGATING, DEFENDING, SETTLING, COMPROMISING OR PAYING ANY SUCH LOSS.

     11.11 Compliance with Section 409A of the Code. This Agreement is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent any benefit paid under this Agreement shall be subject to Section 409A of the Code, such benefit shall be paid in a manner that will comply with Section 409A, including any IRS 409A Guidance. Any provision of this Agreement that would cause the payment of any benefit to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A (which amendment may be retroactive to the extent permitted by the IRS 409A Guidance.

[SIGNATURES ON FOLLOWING PAGE]

16

     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective the date first above written.

RIATA ENERGY, INC.
By:	/s/ Malone Mitchell, 3rd
	Malone Mitchell, 3rd
	President (the “Company”)
By:	/s/ Tom L. Ward
	Tom L. Ward, individually
	(the “Executive”)

[Signature Page to Employment Agreement]

EX-10.12

Exhibit 10.12

EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made effective September 2, 2006 (the “Effective Date”), between RIATA ENERGY, INC., a Texas corporation (the “Company”), and LARRY COSHOW, an individual (the “Executive”).

WITNESSETH:

     WHEREAS, the Company and the Executive desire to set forth the terms of their agreements relating to the employment of Executive by the Company; and

     NOW, THEREFORE, in consideration of the mutual promises herein contained, the Company and the Executive agree as follows:

     1. Employment. The Company hereby employs the Executive and the Executive hereby accepts such employment subject to the terms and conditions contained in this Agreement. The Executive is engaged as an employee of the Company and the Executive and the Company do not intend to create a joint venture, partnership or other relationship that might impose a fiduciary obligation on the Executive or the Company in the performance of this Agreement, other than as an officer and director of the Company.

     2. Executive’s Duties. The Executive is employed on a full-time basis. Throughout the term of this Agreement, the Executive will use his best efforts and due diligence to assist the Company in the objective of achieving the most profitable operation of the Company and the Company’s affiliated entities consistent with developing and maintaining a quality business operation. The Executive shall also devote all of Executive’s working time, attention and energies to the performance of Executive’s duties and responsibilities under this Agreement.

     2.1 Specific Duties. During the term of this Agreement, the Executive will serve as the Executive Vice-President of Land for the Company. The Executive will perform all of the services required to fully and faithfully execute the position to which the Executive is appointed and such other services as may be assigned by the Company’s Board of Directors in their sole discretion. The Executive agrees to use the Executive’s best efforts to perform all of the services required to fully and faithfully execute the offices and positions to which the Executive is appointed and elected. In addition, the precise duties to be performed by Executive may be changed or curtailed in the sole discretion of the Board of Directors of the Company.

     2.2 Rules and Regulations. From time to time, the Company may issue policies and procedures applicable to employees and the Executive including a policy manual. The Executive agrees to comply with such policies and procedures, except to the extent such policies are inconsistent with this Agreement. Such policies and procedures may be supplemented, modified, changed or adopted without notice in the sole discretion of the Company at any time. In the event of a conflict between such policies and procedures and this Agreement, this Agreement will control unless

compliance with this Agreement will violate any law or regulation applicable to the Company or its affiliated entities.

     3. Other Activities. The Executive shall not engage in any business activity that in the judgment of the Board conflicts with the Executive’s duties hereunder, whether or not such activity is pursued for gain, profit, or other pecuniary advantage. In addition, except for the activities permitted under paragraph 3.1 of this Agreement or approved by the Board of Directors in writing, the Executive will not: (a) engage in activities which require such substantial services on the part of the Executive that the Executive is unable to perform the duties assigned to the Executive in accordance with this Agreement; (b) serve as an officer or director of any publicly held entity; or (c) directly or indirectly invest in, participate in or acquire an interest in any oil and gas business, including, without limitation, (i) producing oil and gas, (ii) drilling, owning or operating oil and gas leases or wells, (iii) providing services or materials to the oil and gas industry, (iv) marketing or refining oil or gas, or (v) owning any interest in any corporation, partnership, company or entity which conducts any of the foregoing activities. The limitations in this paragraph 3 will not prohibit an investment by the Executive in publicly traded securities. The Executive is not restricted from maintaining or making investments, or engaging in other businesses, enterprises or civic, charitable or public service functions if such activities, investments, businesses or enterprises do not result in a violation of clauses (a) through (c) of this paragraph 3. Notwithstanding the foregoing, the Executive will be permitted to participate in the activities set forth in Section 3.1 that will be deemed to be approved by the Company, if such activities are undertaken in strict compliance with this Agreement.

     3.1 Royalty Interests and Gifts. The foregoing restriction in clause (c) will not prohibit the ownership of royalty interests where the Executive owns or previously owned the surface of the land covered by the royalty interest and the ownership of the royalty interest is incidental to the ownership of the surface estate or the ownership of royalty, overriding royalty or working interests that are received by gift or inheritance subject to disclosure by Executive to the Company in writing.

     4. Executive’s Compensation. The Company agrees to compensate the Executive as follows:

     4.1 Base Salary. Executive will be paid a base salary (the “Base Salary”) in an annual rate of not less than Three Hundred Thousand Dollars ($300,000.00), which will be paid to the Executive in installments consistent with the Company’s customary payroll practices, during the term of this Agreement.

     4.2 Bonus. In addition to the Base Salary described at paragraph 4.1 of this Agreement, the Company may periodically pay bonus compensation to the Executive. Executive, however, is guaranteed a minimum bonus during the first year of employment. During the first year of employment, Executive shall be paid a bonus of not less than One Hundred Seventy-Five Thousand Dollars ($175,000.00). Such bonus will be paid pro rata on a semi-annual basis on or before January 31 and July 31 of the applicable calendar year. Any bonus compensation will be paid by separate check apart

2

from Executive’s Base Salary less appropriate deductions pursuant to Internal Revenue Service guidelines. In order to be entitled to the bonus compensation set forth herein and any future bonuses, Executive must be an active full-time employee of the Company on the dates the bonuses are to be paid. In other words, Executive must be employed full-time on the date that the bonuses are to be paid in order to be eligible for such bonuses. Upon separation of employment for any reason prior to the date any bonuses are paid, Executive shall not be eligible for any pro rata bonus compensation. Executive recognizes and acknowledges that except as provided above, the award of bonus is not guaranteed or promised in any way. Any additional bonus compensation will be at the absolute discretion of the Company in such amounts and at such times as the Board of Directors of the Company (or a Compensation Committee thereof) may determine.

     4.3 Equity Compensation. In addition to the compensation set forth in paragraphs 4.1 and 4.2 of this Agreement, the Executive will be granted an award of 20,000 shares of Company restricted stock under and subject to the Company’s equity compensation plans (the “Equity Compensation Plans”) as set forth below which will vest over a four (4) year period which begins to run from the date of each grant. The 20,000 shares will be granted as follows: 10,000 shares of this stock will be granted on January 1, 2007 and another 10,000 shares will be granted on July 1, 2007. In order to be entitled to the award of equity compensation set forth herein, the Executive must be an active full-time employee of the Company on the grant dates. Further, the terms and provisions of the Equity Compensation Plans control and direct the award of Company restricted stock and any conflict between this Agreement and the Equity Compensation Plans will be resolved in favor of the terms and provisions of the Equity Compensation Plans.

     4.4 Benefits. The Company agrees to extend to the Executive retirement benefits and deferred compensation (if any and if made available) and reimbursement of reasonable expenditures. The Company will also provide the Executive the opportunity to apply for coverage under the Company’s medical, life and disability plans, if any. If the Executive is accepted for coverage under such plans, the Company will provide such coverage on the same terms as is customarily provided by the Company to the plan participants as modified from time to time. The Executive is subject to all of the terms and provisions of the Company’s benefit plans or policies.

     4.5 Vacation. The Executive will be entitled to take up to four (4) weeks or twenty (20) days of paid time off each calendar year during the term of this Agreement, subject to proration for any portion of a calendar year under this Agreement. No additional compensation will be paid for failure to take vacation and no vacation may be carried forward from one calendar year to another except for 40 hours.

     5. Term. In the absence of termination as set forth in paragraph 6 below, this Agreement will extend for a term commencing on the Effective Date, and ending on September 2, 2008 (the “Expiration Date”). Unless the Company provides thirty (30) days prior written notice of non-extension to the Executive, on or before September 2, 2008, the term and the

3

Expiration Date will be automatically extended for one (1) additional year from the Expiration Date.

     6. Termination. The Executive’s employment will continue in effect until the expiration of the term set forth in paragraph 5 of this Agreement unless earlier terminated pursuant to this paragraph 6.

     6.1 Termination by Company. The Company will have the following rights to terminate Executive’s employment:

     6.1.1 Termination without Cause. The Company may terminate Executive’s employment without Cause at any time by the service of written notice of termination to the Executive specifying an effective date of such termination not sooner than ten (10) days after the date of such notice (the “Termination Date”). In the event the Executive is terminated without Cause (other than a CC Termination under paragraph 6.3 of this Agreement), the Executive will receive as termination compensation: (a) his Base Salary (as in effect on the Termination Date) during the remaining term of this Agreement, but in any event through the Expiration Date. The payment of such amounts shall be made during the remaining term of the Agreement in installments consistent with the Company’s normal payroll practices, but, if on the Termination Date, the Executive is a “specified employee” as defined in regulations under Section 409A of the Code, such payments will commence on the first payroll payment date which is more than six months following the Termination Date and the first payment shall include any amounts that would have otherwise been payable during the six month period. The right to the foregoing termination compensation under clause (a) above is subject to the Executive’s execution of the Company’s severance agreement which will operate as a release of all legally waivable claims against the Company. Such payment is further conditioned upon the Executive’s compliance with all of the provisions of this Agreement, including all post-employment obligations.

     6.1.2 Termination for Cause. The Company may terminate the employment of the Executive hereunder at any time for Cause (as hereinafter defined) (such a termination being referred to in this Agreement as a “Termination For Cause”) by giving the Executive written notice of such termination, which shall take effect immediately upon the giving of such notice to the Executive. As used in this Agreement, “Cause” means (A) the Executive’s material breach or threatened breach of this Agreement; (B) the Executive fails to substantially perform the Executive’s duties hereunder; (C) the misappropriation or fraudulent conduct by the Executive with respect to the assets or operations of the Company or any of its subsidiaries or affiliated companies; (D) the Executive’s willful disregard of the instructions of the Board or the Executive’s material neglect of duties or failure to act, other than by reason of disability or death; (E) the Executive’s personal misconduct which substantially injures the Company; or (F) the conviction of the Executive for, or a plea of guilty or no

4

contest to, a felony or any crime involving fraud, theft or dishonesty. In the event Executive’s employment is terminated for Cause, the company will not have any obligation to provide any further payments or benefits to the Executive after the effective date of such termination.

     6.2 Termination by Executive. The Executive may voluntarily terminate his employment with or without Cause by the service of written notice of such termination to the Company specifying an effective date of such termination ninety (90) days after the date of such notice. The Company may in its sole discretion, elect to waive all or any part of the 90-day notice period with no further obligations being owed to the Executive by the Company. In the event employment is terminated by the Executive, neither the Company nor the Executive will have any further obligations hereunder, except for any obligations which expressly survive termination of employment including Sections 7, 8, 9, 10, 11 ,12 and 13.

     6.3 Termination After Change in Control. If during the term of this Agreement there is a “Change of Control” and within one (1) year thereafter there is a CC Termination (as hereafter defined), then the Executive will be entitled to a severance payment (in addition to any other rights and other amounts payable to the Executive under Section 6.7 or under Company plans in which Executive is a participant) payable in a lump sum in cash within 10 days following the CC Termination in an amount equal to the sum of the following: (a) one (1) times the Executive’s Base Salary for the last 12 calendar months ending immediately prior to the CC Termination and bonus paid pursuant to Section 4.2 (based on the average of the last three years annual bonuses or such lesser number of years as Executive may have been employed). If the foregoing amount is not paid within ten (10) days after the CC Termination, the unpaid amount will bear interest at the per annum rate of 12%. The right to the foregoing termination compensation under clause (a) above is subject to the Executive’s execution of the Company’s severance agreement which will operate as a release of all legally waivable claims against the Company. Such payment is further conditioned upon the Executive’s compliance with all of the provisions of this Agreement, including all post-employment obligations. Notwithstanding the foregoing, if at the time of a CC Termination, the Executive is a “specified employee” as defined in regulations under Section 409A of the Code, such payment will be made on the first day which is more than six months following the CC Termination. In connection with any Change of Control, the Company shall obtain the assumption of this Agreement, without limitation or reduction, by any successor to the Company or any parent corporation of the Company.

     6.3.1 Change of Control. For the purpose of this Agreement, a “Change of Control” means the occurrence of any of the following:

     (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), other than Executive or his affiliates or Tom L. Ward or his affiliates (the “Exempt Persons”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange

5

Act) of 40% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”). For purposes of this paragraph (a) the following acquisitions by a Person will not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of paragraph (c) of this paragraph 6.3.1.

     (b) The individuals who, as of the date hereof, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors. Any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered a member of the Incumbent Board as of the date hereof, but any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board will not be deemed a member of the Incumbent Board as of the date hereof.

     (c) The consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless following such Business Combination: (i) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) other than one or more of the Exempt Persons beneficially owns, directly or indirectly, 40% or more of, respectively, the then outstanding shares of common stock of

6

the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

     (d) The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     6.3.2 CC Termination. The term “CC Termination” means any of the following: (a) the Executive’s employment is terminated by the Company other than under paragraphs 6.1.2, 6.4 or 6.5; or (b) the Executive resigns as a result of a change in the Executive’s duties or title, a reduction in the Executive’s then current Base Salary or a significant reduction in the Executive’s then current benefits as provided in Section 4, a relocation of more than 25 miles from the Executive’s then current place of employment being required by the Board of Directors or a default by the Company under this Agreement.

     6.4 Incapacity of Executive. If the Executive suffers from a physical or mental condition, which in the reasonable judgment of the Company’s Board of Directors, prevents the Executive in whole or in part from performing the duties specified herein for a period of sixteen (16) consecutive weeks, the Executive’s employment may be terminated by the Company, in which event, the Company will pay Executive his Base Salary in effect on the date of termination through the remaining term of this Agreement, but in any event through the Expiration Date. The payment of such amounts shall be made during the remaining term of the Agreement in installments consistent with the Company’s normal payroll practices, but, if on the termination date, the Executive is a “specified employee” as defined in regulations under Section 409A of the Code, such payments will commence on the first payroll payment date which is more than six months following the termination date and the first payment shall include any amounts that would have otherwise been payable during the six month period. Notwithstanding the foregoing, the amount payable hereunder will be reduced by any benefits payable under any disability plans provided by the Company under paragraph 4.4 of this Agreement. The right to the compensation due under this paragraph 6.4 is subject to the execution by the Executive or the Executive’s legal representative of the Company’s severance agreement which will operate as a release of all legally waivable claims against the Company. In applying this section, the Company will comply with any applicable legal requirements, including the Americans with Disabilities Act.

     6.5 Death of Executive. If the Executive dies during the term of this Agreement, Executive’s employment will terminate without compensation to the Executive’s estate except: (a) the obligation to continue the Base Salary payments under paragraph 4.1 of this Agreement for twelve (12) months after the effective date of such termination.

7

     6.6 Effect of Termination. The termination of Executive’s employment will terminate all obligations of the Executive to render services on behalf of the Company. The Executive will maintain the confidentiality of all information acquired by the Executive during the term of his employment in accordance with paragraph 7 of this Agreement and the Executive shall comply with all other post employment requirements including paragraphs 7, 8, 9, 10, 11, 12 and 13. Except as otherwise provided in this paragraph 6, no accrued bonus, severance pay or other form of compensation will be payable by the Company to the Executive by reason of the termination of his employment. All keys, entry cards, credit cards, files, records, financial information, furniture, furnishings, equipment, supplies and other items relating to the Company will remain the property of the Company. The Executive will have the right to retain and remove all personal property and effects that are owned by the Executive and located in the offices of the Company. All such personal items will be removed from such offices no later than ten (10) days after the effective date of termination, and the Company is hereby authorized to discard any items remaining and to reassign the Executive’s office space after such date. Prior to the effective date of termination, the Executive will cooperate with the Company to provide for the orderly termination of the Executive’s employment.

     6.7 Equity Compensation Provisions. Notwithstanding any provision to the contrary in any option agreement, restricted stock agreement, plan or other agreement relating to equity based compensation, in the event of a termination under paragraph 6.1.1 or 6.3 of this Agreement: (a) all units, stock options, incentive stock options, performance shares, stock appreciation rights and restricted stock granted and held by Executive immediately prior to such termination will immediately become 100% vested; and (b) the Executive’s right to exercise any previously unexercised options will not terminate until the latest date on which such option would expire but for Executive’s termination of employment. To the extent Company is unable to provide for one or both of the foregoing rights the Company will provide in lieu thereof a lump-sum cash payment equal to the difference between the total value of such units, stock options, incentive stock options, performance shares, stock appreciation rights and shares of restricted stock (the “Equity Compensation Rights”) with the foregoing rights as of the date of Executive’s termination of employment and the total value of the Equity Compensation Rights without the foregoing rights as of the date of the Executive’s termination of employment. The foregoing amounts will be determined by the Board of Directors in good faith based on a valuation performed by an independent consultant selected by the Board of Directors and the cash payment, if any, will be paid in a lump sum in the case of a termination under Section 6.1.1, at the same time as the first severance payment is otherwise due under such Section, and in the case of a termination under Section 6.3, at the same time the payment is due under such Section. The right to the foregoing termination compensation under clauses (a) and (b) above is subject to the Executive’s execution of the Company’s severance agreement which will operate as a release of all legally waivable claims against the Company. Such payment is further conditioned upon the Executive’s compliance with all of the provisions of this Agreement, including all post-employment obligations.

8

     7. Confidentiality. The Executive recognizes that the nature of the Executive’s services are such that the Executive will have access to information which constitutes trade secrets, is of a confidential nature, is of great value to the Company or is the foundation on which the business of the Company is predicated. The Executive agrees not to disclose to any person other than the Company’s employees or the Company’s legal counsel or other parties authorized by the Company to receive confidential information (“Confidential Information”) nor use for any purpose, other than the performance of this Agreement, any Confidential Information. Confidential Information includes data or material (regardless of form) which is: (a) a trade secret; (b) provided, disclosed or delivered to Executive by the Company, any officer, director, employee, agent, attorney, accountant, consultant, or other person or entity employed by the Company in any capacity, any customer, borrower or business associate of the Company or any public authority having jurisdiction over the Company of any business activity conducted by the Company; or (c) produced, developed, obtained or prepared by or on behalf of Executive or the Company (whether or not such information was developed in the performance of this Agreement) with respect to the Company or any assets oil and gas prospects, business activities, officers, directors, employees, borrowers or customers of the foregoing. However, Confidential Information will not include any information, data or material which at the time of disclosure or use was generally available to the public other than by a breach of this Agreement, was available to the party to whom disclosed on a non-confidential basis by disclosure or access provided by the Company or a third party, or was otherwise developed or obtained independently by the person to whom disclosed without a breach of this Agreement. On request by the Company, the Company will be entitled to a copy of any Confidential Information in the possession of the Executive. The provisions of this paragraph 7 will survive the termination, expiration or cancellation of Executive’s employment for a period of one (1) year after the date of termination. The Executive will deliver to the Company all originals and copies of the documents or materials containing Confidential Information. For purposes of paragraphs 7, 8, and 9 of this Agreement, the Company expressly includes any of the Company’s subsidiaries or affiliates.

     8. Non-Solicitation. The Executive agrees that during the Non-Solicitation Period (as hereafter defined), Executive will not directly, either personally or by or through his agent, on behalf of himself or on behalf of any other individual, association or entity, (i) use any of the Confidential Information for the purposes of calling on any established customer of the Company or soliciting or inducing any of such customers to acquire, or providing to any of such customers, any product or service provided by the Company or any affiliate or subsidiary of the Company; (ii) solicit, influence or encourage any established customer of the Company to divert or direct such customer’s business to the Executive or any person or entity by which or with which the Executive is employed, associated, affiliated or otherwise related; or (iii) solicit, divert or attempt to solicit or divert any entity which has been identified and contacted by the Company, either directly or through such entity’s agent(s), with respect to a possible acquisition by the Company. For the purposes hereof, the term “Non-Solicitation Period” shall mean a period of six (6) months after Executive’s employment and for any reason.

     9. Non-Interference. The Executive agrees that during the Non-Interference Period (as hereafter defined) he will not, directly or indirectly, either personally or by or through

9

his agent, on behalf of himself or on behalf of any other individual, association or entity, hire, solicit or seek to hire any employee of the Company or any affiliate or subsidiary of the Company, or any individual who was an employee of the Company or any affiliate or subsidiary of the Company during the twelve-month period prior to the Termination Date, or in any other manner attempt, directly or indirectly, to persuade any such employee to discontinue his or her status of employment with the Company or any affiliate or subsidiary of the Company or to become employed in a business or activities likely to be competitive with the business of the Company or any affiliate or subsidiary of the Company. For the purposes hereof, the term “Non-Interference Period” shall mean a period of six (6) months after Executive’s employment and for any reason.

     10. Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

     11. Remedies. The Executive acknowledges and understands that the provisions of this Agreement are of a special and unique nature, the loss of which cannot be adequately compensated for in damages by an action at law, and that the breach or threatened breach of the provisions of this Agreement would cause the Company or any of its Subsidiaries irreparable harm. In the event of a breach or threatened breach by the Executive of the provisions of this Agreement, the Company or any of its subsidiaries or affiliates shall be entitled to an injunction restraining the Executive from such breach. In addition to the foregoing and not in any way in limitation thereof, or in limitation of any right or remedy otherwise available, if the Executive violates any provision of Paragraphs 7, 8 or 9 hereof, any compensation or severance payments then or thereafter due from the Company to the Executive shall be terminated forthwith and the Company’s obligation to pay and the Executive’s right to receive such compensation as severance payments shall terminate and be of no further force or effect, in each case without limiting or affecting the Executive’s obligations under such Paragraphs 7, 8 and 9 or the Company’s or its subsidiaries’ or affiliates’ other rights and remedies available at law or equity. Nothing contained in this Agreement shall be construed as prohibiting the Company or any of its subsidiaries or affiliates from pursuing, or limiting the Company’s or any of its subsidiaries’ or affiliates’ ability to pursue, any other remedies available for any breach or threatened breach of this Agreement by the Executive. The provisions of Paragraph 13 of this Agreement relating to arbitration shall not be applicable to the Company to the extent it seeks an injunction in any court to restrain the Executive from violating Paragraphs 7, 8 or 9 hereof.

10

12. Proprietary Matters.

     12.1 The Executive acknowledges and agrees that the Company owns all right, title and interest (including patent rights, copyrights, trade secret rights, trademark rights and all other intellectual and industrial property rights) relating to any and all inventions (whether or not patentable), works of authorship, design, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by the Executive during the term of this Agreement which are useful in, or directly or indirectly related to, the business of the Company or any Confidential Information (collectively, the “Proprietary Rights”). The Executive further acknowledges and agrees that all such Proprietary Rights are “works made for hire” of which the Company is the author. The Executive agrees to promptly disclose and provide all Proprietary Rights to the Company; provided, in the event the Proprietary Rights shall not be deemed to constitute “works made for hire,” or in the event the Executive should, by operation of law or otherwise, be deemed to retain any rights in the Proprietary Rights, the Executive agrees to assign to the Company, without further consideration, the Executive’s entire right, title and interest in and to each and every such Proprietary Right.

     12.2 The Executive hereby agrees to assist Company in obtaining and enforcing United States and/or foreign letters patent and copyright registrations covering the Proprietary Rights and further agrees that Executive’s obligation to assist Company shall continue beyond the termination of Executive’s employment hereunder. If Company is unable because of Executive’s mental or physical incapacity or for any other reason to secure Executive’s signature to apply for or to pursue any application for any United States or foreign letters patent or copyright registrations covering inventions assigned to Company, then Executive hereby irrevocably designates and appoints Company and its duly authorized officers and agents as Executive’s agent and attorney-in-fact to act for and on Executive’s behalf to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by Executive. Executive hereby waives and quitclaims to Company any and all claims of any nature whatsoever which Executive now or hereafter may have for infringement of any patent or copyright resulting from any such application for letters patent or copyright registrations assigned hereunder to Company. Executive will further assist Company in every lawful way to enforce any copyrights or patents obtained, including without limitation, testifying in any suit or proceeding involving any of the copyrights or patents or executing any documents deemed necessary by Company, all without further consideration except as contemplated by the immediately following sentence but at the expense of Company. If Executive is called upon to render such assistance after termination of Executive’s employment hereunder, then Executive shall be entitled to a fair and reasonable per diem fee (which shall not be less than Executive’s equivalent daily Base Salary) in addition to reimbursement of any expenses incurred at the request of Company.

11

     13. Arbitration. Any dispute between the parties out of or related to this Agreement or the employment relationship, whether arising during the term of this Agreement or afterwards, and involving a claim for money damages shall be subject to binding arbitration and resolved pursuant to the rules of the American Arbitration Association. All arbitration shall be final and binding and shall be governed by the Federal Arbitration Act and the arbitration decision shall be enforceable in any court of competent jurisdiction. This obligation to arbitrate shall survive even if this Agreement shall be alleged to be rescinded or terminated. The arbitration hearing shall be convened in Oklahoma City, Oklahoma. The Company will pay the costs and expenses of the arbitration including, without limitation, the fees for the arbitrators.

     14. Miscellaneous. The parties further agree as follows:

     14.1 Time. Time is of the essence of each provision of this Agreement.

     14.2 Notices. Any notice, payment, demand or communication required or permitted to be given by any provision of this Agreement will be in writing and will be deemed to have been given when received by personal delivery, by facsimile, by overnight courier, or by certified mail, postage and charges prepaid, directed to the following address or to such other or additional addresses as any party might designate by written notice to the other party:

To the Company:	Riata Energy, Inc. 1601 NW Expressway, Suite 1600 Oklahoma City, OK 73118
To the Executive:	Mr. Larry Coshow 2612 NW 176th St. Edmond, OK 73003

     14.3 Assignment. Neither this Agreement nor any of the parties’ rights or obligations hereunder can be transferred or assigned without the prior written consent of the other parties to this Agreement.

     14.4 Construction. If any provision of this Agreement or the application thereof to any person or circumstances is determined, to any extent, to be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which the same is held invalid or unenforceable, will not be affected thereby, and each term and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law. This Agreement is intended to be interpreted, construed and enforced in accordance with the laws of the state of Oklahoma

     14.5 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter herein contained, and no

12

modification hereof will be effective unless made by a supplemental written agreement executed by all of the parties hereto.

     14.6 Binding Effect; Third Party Beneficiary; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective affiliates, officers, employees, agents, successors and assigns (including, in the case of the Company or any of its subsidiaries or affiliated companies, the successor to the business of the Company as a result of the transfer of all or substantially all of the assets or capital stock of the Company or any of its subsidiaries or affiliates); provided, that the Executive may not assign this Agreement or any of his rights or interests herein, in whole or in part, to any other person or entity without the prior written consent of the Company.

     14.7 Supercession. This Agreement is the final, complete and exclusive expression of the agreement between the Company and the Executive and supersedes and replaces in all respects any prior oral or written employment agreements. On execution of this Agreement by the Company and the Executive, the relationship between the Company and the Executive after the effective date of this Agreement will be governed by the terms of this Agreement and not by any other agreements, oral or otherwise.

     14.8 Non-Contravention. Executive represents and warrants to the Company that the execution and performance of this Agreement will not violate, constitute a default under, or otherwise give rights to any third party, pursuant to the terms of any Agreement to which Executive is a party.

     14.9 Indemnity. EXECUTIVE AGREES TO INDEMNIFY AND HOLD HARMLESS THE COMPANY, ITS DIRECTORS, OFFICERS AND EMPLOYEES AND AGENTS (THE “INDEMNIFIED PARTIES”) AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE, AS INCURRED, (“LOSS”) TO WHICH THE INDEMNIFIED PARTIES MAY BECOME SUBJECT OR INCUR, INSOFAR AS SUCH LOSS ARISES OUT OF OR IS BASED UPON ANY INACCURACY IN ANY REPRESENTATION OR WARRANTY GIVEN BY EXECUTIVE IN SECTION 11.9 OF THIS AGREEMENT AND TO REIMBURSE THE INDEMNIFIED PARTIES FOR ANY AND ALL EXPENSES (INCLUDING THE FEES AND DISBURSEMENTS OF COUNSEL CHOSEN BY THE INDEMNIFIED PARTIES) AS SUCH EXPENSES ARE REASONABLY INCURRED BY THE INDEMNIFIED PARTIES IN CONNECTION WITH INVESTIGATING, DEFENDING, SETTLING, COMPROMISING OR PAYING ANY SUCH LOSS.

     14.10 Compliance with Section 409A of the Code. This Agreement is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent any benefit paid under this Agreement shall be subject to Section 409A of the Code, such benefit shall be paid in a manner that will comply with Section 409A, including any IRS 409A Guidance. Any provision of this Agreement that would cause the payment of any benefit to fail to satisfy

13

Section 409A of the Code shall have no force and effect until amended to comply with Section 409A (which amendment may be retroactive to the extent permitted by the IRS 409A Guidance.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective the date first above written.

[SIGNATURES ON FOLLOWING PAGE]

14

RIATA ENERGY, INC.
By:	/s/ Tom L. Ward
	Tom L. Ward
	Chief Executive Officer (the “Company”)
By	/s/ Larry Coshow
	Larry Coshow
	(the “Executive”)

15

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated March 30, 2007, except for Restatement section of Note 1 to the consolidated financial statements, as to which the date is May 11, 2007 relating to the consolidated financial statements of SandRidge Energy, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

PricewaterhouseCoopers LLP
Houston, Texas
August 13, 2007

EX-23.2

Exhibit 23.2

August 13,2007

SandRidge Energy, Inc.
1600 NW Expressway, Suite 1601
Oklahoma City, OK 73118

Ladies and Gentlemen:

     We consent to the use of the name DeGolyer and MacNaughton, to references to DeGolyer and MacNaughton, and to the inclusion of information taken from our “Appraisal Report as of December 31, 2005 on Certain Properties owned by Riata Energy SEC Price Case,” “Appraisal Report as of December 31, 2005 on Certain Properties owned by PetroSource Energy SEC Price Case,” “Appraisal Report as of December 31, 2005 on Certain Properties owned by Riata Energy Gungoll Acquisition SEC Price Case,” “Appraisal Report as of December 31, 2005 on Certain Properties owned by NEG Operating LLC SEC Price Case,” and “Appraisal Report as of December 31, 2006 on Certain Properties owned by PetroSource” (our Reports) under the headings “Business — The NEG Acquisition” and “Experts” in the SandRidge Energy, Inc. Form S-1 Registration Statement to be filed on or about June 18, 2007 (including any amendments thereto, collectively referred to hereinafter as “Form S-1”) and in the notes to the financial statements included in the Form S-1. We are able to verify that the reserves listed for PetroSource in the table on Page 66 of the Form S-1 are the same as these listed in our Report titled “Appraisal Report as of December 31, 2006 on Certain Properties owned by PetroSource.”

Very truly yours,

DeGOLYER and MacNAUGHTON

EX-23.4

EXHIBIT 23.4

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated October 27, 2006, accompanying the financial statements of NEG Oil & Gas LLC and subsidiaries excluding National Energy Group, Inc., and the 10 ³/4% Senior Notes due from National Energy Group, Inc., but including National Energy Group, Inc.’s 50% membership interest in NEG Holding LLC as of December 31, 2004 and 2005 and for each of the three years in the period ended December 31, 2005 contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”

/s/ Grant Thornton LLP

Houston, Texas
August 13, 2007

EX-23.5

Exhibit 23.5

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the use of the name of Netherland, Sewell & Associates, Inc.; to references to Netherland, Sewell & Associates, Inc.; and to the inclusion of information taken from the following reports in the Shelf Registration Statement on Form S-1 to be filed on or about August 10, 2007 (collectively, the “Form S-1”) and in the notes to the financial statements included in the Form S-1:

December 31, 2006, SandRidge Energy, Inc. Interest in Certain Properties located in the United States — SEC Price Case

June 30, 2006, National Offshore LP Interest in Certain Properties located in the United States owned by National Energy Group — SEC Price Case

June 30, 2006, National Onshore LP Interest in Certain Properties located in the United States owned by National Energy Group — SEC Price Case

June 30, 2006, NEG Operating LLC Interest in Certain Properties located in the United States owned by National Energy Group — SEC Price Case

December 31, 2005, Riata Energy, Inc. Interest in Certain Properties located in the United States — SEC Price Case

We further consent to the reference to our firm as experts in the Form S-1, including the prospectus included therein.

NETHERLAND, SEWELL & ASSOCIATES, INC.
By:	/s/ Frederic D. Sewell
	Frederic D. Sewell
	Chairman and Chief Executive Officer

Dallas, Texas
August 13, 2007