8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  June 3, 2013 (May 31, 2013)

SANCHEZ ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	001-35372	45-3090102
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1111 Bagby Street
Suite 1800
Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

(713) 783-8000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240-14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.Entry into a Material Definitive Agreement

On May 31, 2013, Sanchez Energy Corporation (the “Company”), SEP Holdings III, LLC, SN Marquis LLC and SN Cotulla Assets, LLC became borrowers (collectively, the “Borrowers”) under a first lien revolving credit facility represented by a $500 million Amended and Restated Credit Agreement dated May 31, 2013 with Royal Bank of Canada as the administrative agent, Capital One, National Association as the syndication agent and RBC Capital Markets as sole lead arranger and sole book runner (the “First Lien Credit Agreement”). As of May 31, 2013, the Company had outstanding borrowings of approximately $96 million under the First Lien Credit Agreement, which were subject to an average interest rate of approximately 2.75%, and $79 million was available for additional borrowings under the First Lien Credit Agreement.  Additionally, the First Lien Credit Agreement provides for the issuance of letters of credit, limited in the aggregate to the lesser of $20 million and the total availability thereunder.  As of May 31, 2013, there were no letters of credit outstanding.  Availability under the First Lien Credit Agreement is at all times subject to customary conditions and the then applicable borrowing base, which is currently $175 million and subject to periodic redetermination.

The First Lien Credit Agreement matures on May 31, 2018, or November 16, 2015 if the Company’s Second Lien Term Credit Agreement dated November 15, 2012 with Macquarie Bank Limited as the administrative agent, sole lead arranger and sole book runner is not repaid in full on or before that date (the “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “Credit Agreements”).  The borrowing base under the First Lien Credit Agreement can be subsequently redetermined up or down by the lenders based on, among other things, their evaluation of the Company’s oil and natural gas reserves.  The next redetermination of the borrowing base is scheduled to occur on or before October 1, 2013, with other redeterminations scheduled to occur quarterly through July 1, 2014 and then semi-annually thereafter on April 1 and October 1 of each year.  The borrowing base is also subject to reduction by 25% of the amount of the increase in the Borrowers’ net debt resulting from the issuance of certain debt.

The Borrowers’ obligations under the First Lien Credit Agreement are secured by a first priority lien on substantially all of their assets and the assets of the Company’s existing and future subsidiaries not designated as ‘‘unrestricted subsidiaries,’’ including a first priority lien on all ownership interests in existing and future subsidiaries. The obligations under the First Lien Credit Facility are guaranteed by all of the Company’s existing and future subsidiaries not designated as ‘‘unrestricted subsidiaries.’’

At the Borrowers’ election, borrowings under the First Lien Credit Agreement may be made on an alternate base rate or an adjusted eurodollar rate basis, plus an applicable margin.  The applicable margin varies from 1.00% to 1.75% for alternate base rate borrowings and from 2.00% to 2.75% for eurodollar borrowings, depending on the utilization of the borrowing base. Furthermore, the Borrowers are also required to pay a commitment fee on the unused committed amount at a rate varying from 0.375% to 0.50% per annum, depending on the utilization of the borrowing base.

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The First Lien Credit Agreement contains various affirmative and negative covenants and events of default that limit the Borrowers’ ability to, among other things, incur indebtedness, make restricted payments, grant liens, consolidate or merge, dispose of certain assets, make certain investments, engage in transactions with affiliates and hedge transactions and make certain acquisitions. The First Lien Credit Agreement also provides for cross-default between the First Lien Credit Agreement and the Second Lien Credit Agreement.  Furthermore, the First Lien Credit Agreement contains financial covenants that require the Borrowers to satisfy certain specified financial ratios, including (i) current assets to current liabilities of at least 1.0 to 1.0 and (ii) net debt to consolidated EBITDA of not greater than 4.0 to 1.0.

The foregoing description of the First Lien Credit Agreement is a summary only and is qualified in its entirety by reference to the complete text of the First Lien Credit Agreement, a copy of which is attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.

In connection with the First Lien Credit Agreement, on May 31, 2013, the Borrowers entered into several conforming and technical amendments to the Second Lien Credit Agreement with Macquarie Bank Limited.  As a result, in the near future the Company and Macquarie Bank Limited intend for Macquarie Bank Limited to novate the Company’s two swaps and one costless collars to a lender under the First Lien Credit Agreement. If the novation of these three in-the-money contracts is not completed by June 28, 2013, then Macquarie Bank Limited has the right to terminate those contracts. At current market prices, such termination would result in an immaterial gain to the Company.

From time to time, the agents, arrangers, book runners and lenders under the Credit Agreements and their affiliates have provided, and may provide in the future, investment banking, commercial lending, hedging and financial advisory services to the Company and its affiliates in the ordinary course of business, for which they have received, or may in the future receive, customary fees and commissions for these transactions.

Item 2.01.Completion of Acquisition or Disposition of Assets

On May 31, 2013, the Company completed its previously announced acquisition of Eagle Ford Shale assets from Hess Corporation (“Hess” and the assets acquired in such acquisition, the “Hess Properties”) with an effective date of March 1, 2013.  Including the $13.25 million deposit previously paid, total consideration for the acquisition was $280.41 million, which includes the $265 million purchase price and $15.41 million in normal and customary closing adjustments.  The final purchase price is subject to further customary post-closing adjustments.  The transaction was funded from cash on hand from the net proceeds of the previously issued $225 million of 6.50% Cumulative Perpetual Convertible Preferred Stock, Series B and drawings under the Company’s first lien credit facility.

The foregoing description of the Company’s acquisition of the Hess Properties does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement (the “Purchase Agreement”) by and between Hess, as Seller, and the Company, as Buyer, dated March 18, 2013, which is filed as Exhibit 2.1 and incorporated by reference herein.

Item 2.03Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The information set forth above under Item 1.01 is incorporated herein by reference.

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Item 7.01.Regulation FD Disclosure

Pursuant to Regulation FD, the Company is hereby furnishing Exhibit 99.1 which contains additional information about the Company’s business, properties and operations.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing.

Item 8.01Other Events

On May 31, 2013, the Company issued a press release regarding the consummation of its acquisition of the Hess Properties, a copy of which is attached hereto as Exhibit 99.2.  On June 3, the Company issued a press release announcing a revised capital program and updated operating guidance for 2013, a copy of which is attached hereto as Exhibit 99.3.

Item 9.01.Financial Statements and Exhibits

The Purchase Agreement is being filed herewith solely to provide investors and security holders with information regarding its terms.  It is not intended to be a source of financial, business or operational information about the Company or any of its subsidiaries or affiliates or the Hess Properties.  The representations, warranties and covenants contained in the Purchase Agreement are made solely for purposes of the agreement and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of the Purchase Agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties instead of establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders.  Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates or the assets to be acquired.  Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in public disclosures.

(a) Financial Statements of Businesses Acquired

The Statements of Revenues and Direct Operating Expenses, including notes thereto, for the Hess Properties for each of the years in the two-year period ended December 31, 2012 (audited) and the independent auditor’s report related thereto and for the three months ended March 31, 2013 and 2012 (unaudited) are attached hereto as Exhibit 99.4 and incorporated herein by reference.

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(b) Pro Forma Financial Information

The unaudited pro forma balance sheet as of March 31, 2013 and the unaudited pro forma statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013, each of which give effect to the acquisition of the Hess Properties, are attached hereto as Exhibit 99.5 and incorporated herein by reference.

(d) Exhibits

The following materials are filed as exhibits to this Current Report on Form 8-K:

Exhibits
2.1	Purchase and Sale Agreement by and between Hess Corporation, as Seller, and Sanchez Energy Corporation, as Buyer, dated March 18, 2013.*
10.1	Amended and Restated Credit Agreement dated as of May 31, 2013 among Sanchez Energy Corporation, SEP Holdings III, LLC, SN Marquis LLC, and SN Cotulla Assets, LLC, as borrowers, Royal Bank of Canada, as administrative agent, Capital One, National Association, as syndication agent, RBC Capital Markets, as sole lead arranger and sole book runner, and the lenders party thereto.
23.1	Consent of BDO USA, LLP.
99.1	Additional information about the Company’s business, properties and operations.
99.2	Press Release dated May 31, 2013.
99.3	Press Release dated June 3, 2013.
99.4	The Statements of Revenues and Direct Operating Expenses, including notes thereto, for the Hess Properties for each of the years in the two-year period ended December 31, 2012 (audited) and for the three months ended March 31, 2013 and 2012 (unaudited).
99.5	The unaudited pro forma balance sheet as of March 31, 2013 and the unaudited pro forma statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013, each of which give effect to the acquisition of the Hess Properties.

*The exhibits and schedules to the Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K.  The Company will furnish copies of such omitted exhibits and schedules to the Securities and Exchange Commission upon request.  Descriptions of such exhibits and schedules are on pages iv and v of the Purchase Agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SANCHEZ ENERGY CORPORATION
Date: June 3, 2013	By:	/s/ Michael G. Long
		Michael G. Long
		Senior Vice President and
		Chief Financial Officer

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EXHIBIT INDEX

Exhibits
2.1	Purchase and Sale Agreement by and between Hess Corporation, as Seller, and Sanchez Energy Corporation, as Buyer, dated March 18, 2013.*
10.1	Amended and Restated Credit Agreement dated as of May 31, 2013 among Sanchez Energy Corporation, SEP Holdings III, LLC, SN Marquis LLC, and SN Cotulla Assets, LLC, as borrowers, Royal Bank of Canada, as administrative agent, Capital One, National Association, as syndication agent, RBC Capital Markets, as sole lead arranger and sole book runner, and the lenders party thereto.
23.1	Consent of BDO USA, LLP.
99.1	Additional information about the Company’s business, properties and operations.
99.2	Press Release dated May 31, 2013.
99.3	Press Release dated June 3, 2013.
99.4	The Statements of Revenues and Direct Operating Expenses, including notes thereto, for the Hess Properties for each of the years in the two-year period ended December 31, 2012 (audited) and for the three months ended March 31, 2013 and 2012 (unaudited).
99.5	The unaudited pro forma balance sheet as of March 31, 2013 and the unaudited pro forma statements of operations for the year ended December 31, 2012 and for the three months ended March 31, 2013, each of which give effect to the acquisition of the Hess Properties.

*The exhibits and schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K.  The Company will furnish copies of such omitted exhibits and schedules to the Securities and Exchange Commission upon request. Descriptions of such exhibits and schedules are on pages iv and v of the Purchase Agreement.

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EX-2.1

Exhibit 2.1

Execution Version

PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

HESS CORPORATION,

as Seller

AND

SANCHEZ ENERGY CORPORATION,

as Buyer

Dated March 18, 2013

EAGLE FORD ASSETS SALE

DIMMIT, FRIO, LASALLE AND ZAVALA COUNTIES,

TEXAS

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS AND REFERENCES		1
1.1	Certain Defined Terms	1
1.2	References, Construction and Joint Drafting	14
ARTICLE 2 PURCHASE AND SALE		15
2.1	Purchase and Sale	15
2.2	Purchase Price	15
2.3	Allocation of the Purchase Price	15
2.4	Adjustments to Purchase Price	17
2.5	Preliminary Settlement Statement	21
ARTICLE 3 BUYER’S INSPECTION; DUE DILIGENCE REVIEW		21
3.1	Due Diligence	21
3.2	Access to Records	21
3.3	On-Site Inspection	22
ARTICLE 4 TITLE MATTERS		24
4.1	Seller’s Title	24
4.2	Title Defects and Title Benefits	27
4.3	Title Dispute Resolution	33
4.4	Preferential Rights and Consents	34
ARTICLE 5 ENVIRONMENTAL MATTERS		37
5.1	Definitions	37
5.2	Exclusive Remedy	39
5.3	Environmental Defects	39
ARTICLE 6 SELLER’S REPRESENTATIONS AND WARRANTIES		43
6.1	Status	43
6.2	Power	43
6.3	No Conflicts	43
6.4	Authorization and Enforceability	44
6.5	Consents	44
6.6	Preferential Rights	44
6.7	Liability for Brokers’ Fees	44
6.8	Bankruptcy	44
6.9	Litigation	44
6.10	Material Agreements	44
6.11	AFEs	46
6.12	Taxes	46
6.13	Tax Partnerships	47
6.14	Compliance with Law and Government Authorizations	47
6.15	Environmental Matters	47

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TABLE OF CONTENTS

(continued)

		Page
6.16	Payments for Production; Calls on Production	48
6.17	Wells and Equipment	48
6.18	Bonds and Credit Support	49
6.19	Suspense Funds	49
6.20	Imbalances	49
6.21	Insurance	49
6.22	Royalties	49
6.23	Non-Consent Operations	49
6.24	Compliance with Leases and Surface Contracts	49
6.25	Access	50
6.26	Alexander Ranch Units	50
6.27	No Material Adverse Change	50
6.28	Prepaid Expenses	50
ARTICLE 7 BUYER’S REPRESENTATIONS AND WARRANTIES		50
7.1	Organization and Standing	50
7.2	Power	50
7.3	No Conflicts	51
7.4	Authorization and Enforceability	51
7.5	Consent	51
7.6	Liability for Brokers’ Fees	51
7.7	Bankruptcy	51
7.8	Litigation	51
7.9	Financial Resources and other Capability	51
7.10	Buyer’s Evaluation	52
7.11	Securities Law Compliance	52
ARTICLE 8 COVENANTS AND AGREEMENTS		52
8.1	Covenants and Agreements of Seller	52
8.2	Covenants and Agreements of Buyer	55
8.3	Covenants and Agreements of the Parties	55
ARTICLE 9 TAX MATTERS		59
9.1	Asset Tax Liability	59
9.2	Transfer Taxes	59
9.3	Asset Tax Returns	60
9.4	Tax Cooperation	60
9.5	Like Kind Exchange	60
ARTICLE 10 CONDITIONS PRECEDENT TO CLOSING		61
10.1	Conditions to Obligations of Both Parties	61
10.2	Seller’s Conditions	61
10.3	Buyer’s Conditions	62

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TABLE OF CONTENTS

(continued)

		Page
ARTICLE 11 RIGHT OF TERMINATION		62
11.1	Termination	62
11.2	Liabilities Upon Termination	63
11.3	Return of Documentation and Confidentiality	64
ARTICLE 12 CLOSING		64
12.1	Date of Closing	64
12.2	Place of Closing	64
12.3	Closing Obligations	64
ARTICLE 13 POST-CLOSING OBLIGATIONS		66
13.1	Post-Closing Adjustments	66
13.2	Records	67
13.3	Further Assurances	67
13.4	Transition Services	67
ARTICLE 14 ASSUMPTION AND RETENTION OF OBLIGATIONS AND INDEMNIFICATION; DISCLAIMERS		68
14.1	Buyer’s Assumption of Liabilities and Obligations	68
14.2	Indemnification	68
14.3	Claims Procedure	71
14.4	Survival of Warranties, Representations and Covenants	73
14.5	Reservation as to Non-Parties	74
14.6	Tax Treatment of Indemnity Payments	74
ARTICLE 15 MISCELLANEOUS		74
15.1	Schedules and Exhibits	74
15.2	Expenses	74
15.3	Notices	74
15.4	Amendments	75
15.5	Assignment	75
15.6	DISCLAIMERS	76
15.7	Counterparts Signatures	78
15.8	Governing Law	78
15.9	Entire Agreement	78
15.10	Binding Effect	78
15.11	No Third-Party Beneficiaries	78
15.12	Dispute Resolution	79
15.13	Publicity	80

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List of Exhibits
Exhibit A	Leases
Exhibit A-1	Target Formation Log
Exhibit A-2	Expiring Leases
Exhibit A-3	Alexander Ranch
Exhibit B	Wells
Exhibit C	Equipment
Exhibit D	Surface Contracts
Exhibit E	Excluded Assets
Exhibit F	Form of Assignment
Exhibit G	Form of Assignment of Dilley Office Lease
Exhibit H	Form of Specified Contracts Assignment and Assumption
Exhibit I	Form of Affidavit of Non-Foreign Status
Exhibit J	Form of Transition Services Agreement

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List of Schedules
Schedule 1.1(a)	Buyer’s Knowledge Representatives
Schedule 1.1(b)	Seller’s Knowledge Representatives
Schedule 1.1(c)	Specified Contracts
Schedule 1.1(d)	Master Service Agreements
Schedule 1.1(e)	Specified Consents
Schedule 1.1(f)	Hess Blanket Agreements; Blanket Agreement Transaction Confirmations
Schedule 1.1(g)	Certain Purchase Price Adjustments
Schedule 2.3	Allocated Values
Schedule 6.3	Conflicts
Schedule 6.5	Consents
Schedule 6.6	Preferential Rights
Schedule 6.9	Litigation
Schedule 6.10(a)	Material Agreements
Schedule 6.10(b)	Material Agreement Matters
Schedule 6.10(d)	Seismic & Geophysical Agreements
Schedule 6.10(e)	Blanket Agreement Confirmation Matters
Schedule 6.11	AFEs
Schedule 6.12	Taxes
Schedule 6.14	Compliance with Laws and Governmental Authorizations
Schedule 6.15	Environmental Matters
Schedule 6.18	Bonds and Credit Support
Schedule 6.19	Suspense Funds
Schedule 6.20	Imbalances
Schedule 6.21	Insurance
Schedule 6.22	Royalties
Schedule 6.23	Non-Consent Operations
Schedule 6.24	Compliance with Leases Matters
Schedule 6.26	Alexander Ranch Units
Schedule 6.27	No Material Adverse Change
Schedule 6.28	Prepaid Expenses
Schedule 8.1	Conduct of Business
Schedule 8.3(d)	Available Employees

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PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “Agreement”), is dated as of the 18th day of March, 2013 (the “Execution Date”), by and between Hess Corporation, a Delaware corporation, (“Seller”), and Sanchez Energy Corporation, a Delaware corporation, (“Buyer”).  Buyer and Seller are collectively referred to herein as the “Parties” and individually as, a “Party”.

RECITALS

WHEREAS, Seller owns certain oil and gas interests and associated assets located in Dimmit County, Frio County, LaSalle County and Zavala County, Texas (collectively, as more fully defined in Section 1.1, the “Assets”); and

WHEREAS, Seller desires to sell, and Buyer desires to purchase, the Assets upon the terms and conditions set forth in this Agreement.

NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:

ARTICLE 1
DEFINITIONS AND REFERENCES

1.1          Certain Defined Terms.  Capitalized terms used herein and not otherwise defined herein have the respective meanings assigned to them in this Section 1.1:

“AAA” means the American Arbitration Association.

“Access Period” has the meaning set forth in Section 8.3(g).

“Accounting Expert” has the meaning set forth in Section 13.1(b).

“AFE” has the meaning set forth in Section 6.11.

“Affected Asset” has the meaning set forth in Section 4.4(b)(1).

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such Person.  For purposes of the immediately preceding sentence, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

“Aggregate Defect Deductible” means 3% of the unadjusted Purchase Price.

“Agreement” has the meaning set forth in the Preamble and shall include all of the Exhibits and Schedules hereto.

“Alexander Ranch” means the area located in LaSalle County, Texas and demarcated in black on the plat attached hereto as Exhibit A-3.

“Allocated Value” has the meaning set forth in Section 2.3(a).

“Applicable Contracts” means those Contracts to which Seller is a party or is bound and that will be binding on Buyer or any of the Assets following Closing, including the master service agreements listed on Schedule 1.1(d); provided, however, that such Contracts shall be considered “Applicable Contracts” to the extent, and only to the extent, such Contracts relate to the Assets.  For the avoidance of doubt, no Excluded Asset shall be an “Applicable Contract”.

“Asset Taxes” means all ad valorem, property, production, excise, severance and all other similar Taxes assessed against the Assets or based on or measured by the value or ownership of the Assets, or the production of Hydrocarbons or the receipt of proceeds therefrom (but, for the avoidance of doubt, shall not include income, franchise or similar Taxes or Subject Transfer Taxes).

“Assets” means all of Seller’s right, title and interest in and to the following (but specifically excluding the Excluded Assets):

(a)           (1) those oil, gas and mineral leases and fee mineral interests described in Exhibit A (collectively, the “Leases”), including all leasehold estates, royalty interests, overriding royalty interests, net profits interests, or similar interests associated with such oil, gas and mineral leases and fee mineral interests and (2) the lands covered by the Leases and, to the extent and only to the extent of the subsurface depths so pooled, communitized or unitized, all lands pooled, communitized or unitized with the lands covered by the Leases (collectively, the “Lands”);

(b)           the Hydrocarbons under the Lands and that may be produced and saved under or otherwise be allocated or attributed to the Lands;

(c)           the oil, gas, water, injection or disposal wells located on the Lands, whether producing, shut-in, or temporarily or permanently abandoned, including those described in Exhibit B (the “Wells” and, together with the Leases and Lands, the “Properties”);

(d)           all equipment, machinery, fixtures and other tangible personal property and improvements located on the Lands or primarily used or primarily held for use (whether on or off the Lands) in connection with the operation of the Properties or the production, gathering, treatment, processing, storage, sale, disposal and other handling of Hydrocarbons attributable thereto, including any tanks, boilers, buildings, fixtures, injection facilities, saltwater disposal facilities, compression facilities, pumping units and engines, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, roads, and other appurtenances, improvements and facilities, including those described in Exhibit C (all of the foregoing, excluding the Wells, collectively “Equipment”);

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(e)           all surface leases, rights-of-way, licenses, easements and other surface rights agreements primarily used or primarily held for use in connection with the production, gathering, treatment, processing, storage, sale, disposal and other handling of Hydrocarbons or produced water from the Properties, including those described in Exhibit D (collectively, the “Surface Contracts”);

(f)            to the extent assignable, all Governmental Authorizations primarily used or primarily held for use in connection with the production, gathering, treatment, processing, storage, sale, disposal and other handling of Hydrocarbons or produced water from the Properties;

(g)           all existing and effective Applicable Contracts, including purchase contracts, joint operating agreements, exploration agreements, development agreements, unitization agreements, unit operating agreements, balancing agreements, farm-out agreements, drilling contracts, service agreements, transportation, processing, treatment or gathering agreements, equipment leases, other leases of personal property and other contracts, agreements and instruments;

(h)           to the extent assignable without the payment of fees or other penalties, unless Buyer has agreed in writing to pay the same, all geophysical and other seismic and related technical data and information primarily relating to the Properties;

(i)            originals (to the extent in Seller’s possession) or legible copies of all files, records, and data relating to the Assets described in clauses (a) through (f) above, which records shall include: lease records; well records; division order records; well files; title records (including abstracts of title, title opinions and memoranda, and title curative documents); engineering records; geological and geophysical data (including seismic data) and all technical evaluations, interpretive data and technical data and information relating to the other Assets; maps; production records; electric logs; core data; pressure data; decline curves and graphical production curves; reserve reports; environmental reports and records; appraisals, joint interest billing decks and other partner details, lease operating statements and Asset Tax records; provided, however, that (1) those items referenced above in this sub-section (i) that are subject to a valid legal privilege or to disclosure restrictions owing by Seller to a Third Party, (2) those items referenced above in this sub-section (i) that are not transferable without payment of additional consideration (and Buyer has not agreed in writing to pay such additional consideration), and (3) all e-mails and other electronic files on Seller’s servers and networks relating to the foregoing items referenced in this sub-section (i) in each case, shall be excluded (the foregoing items, taking into account the exclusions listed above, collectively, the “Records”);

(j)            that certain Lease Agreement, dated effective April 1, 2012 and that certain Lease Agreement, dated effective August 25, 2011, in each case, by and between Darla and Billy Hiner of Hiner Ranches and Seller (collectively, the “Dilley Office Lease”); and

(k)           the Control Systems.

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“Assignment” has the meaning set forth in Section 12.3(a).

“Assumed Liabilities” has the meaning set forth in Section 14.1.

“Available Employees” has the meaning set forth in Section 8.3(d).

“Blanket Agreement Confirmations” means those transaction confirmations, work orders and similar agreements set forth on Part II of Schedule 1.1(f) that are governed by the Hess Blanket Agreements.

“Blanket Agreement Counterparties” has the meaning set forth in Section 8.3(i).

“Business Day” means a day other than a Saturday, Sunday or a day on which commercial banks in Houston, Texas are authorized or required by applicable Law to be closed for business.

“Buyer” has the meaning set forth in the Preamble.

“Buyer Indemnified Parties” has the meaning set forth in Section 14.2(a).

“Buyer Taxes” means (a) all Subject Transfer Taxes, (b) all Taxes (other than Asset Taxes) imposed on or asserted against Buyer in respect of its business for any taxable period or portion thereof, and (c) all Asset Taxes for any taxable period or portion thereof on and after the Effective Time.

“Buyer Transaction Costs” means all fees, costs and expenses of any brokers, financial advisors, consultants, accountants, attorneys or other professionals payable by Buyer in connection with the structuring, negotiation or consummation of the transactions contemplated by this Agreement.

“Buyer’s Auditors” has the meaning set forth in Section 8.3(g).

“Buyer’s Knowledge” means the actual knowledge, without any obligation of investigation or inquiry, of those Persons listed on Schedule 1.1(a).

“Calculated Gas Price” means (a) the arithmetic average of the daily published price for each day in the month as published in Gas Daily (now published by McGraw Hill, Inc.) in the table titled “Daily Price Survey,” in the Midpoint column under the section titled “East-Houston-Katy” for “Houston Ship Channel”, minus (b) $0.10.

“Cap” has the meaning set forth in Section 14.2(c)(2).

“Casualty Loss” has the meaning set forth in Section 8.3(b).

“Claim” means any claim, demand, cause of action, petition or similar notice.

“Claim Notice” has the meaning set forth in Section 14.3(a).

“Closing” has the meaning set forth in Section 12.1.

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“Closing Amount” means the Preliminary Purchase Price, less the Performance Deposit.

“Closing Date” has the meaning set forth in Section 12.1.

“Code” means the Internal Revenue Code of 1986, as amended.

“Condition” has the meaning set forth in Section 5.1(a).

“Confidentiality Agreement” means that certain Confidentiality Agreement, dated November 13, 2012, by and between Seller and Buyer.

“Consent” has the meaning set forth in Section 6.5.

“Contract” means any written or oral contract or agreement, including farm-in and farm-out agreements; participation, exploration and development agreements; drilling contracts and service agreements; crude oil, condensate and natural gas purchase and sale, gathering, transportation and marketing agreements; joint operating agreements; balancing agreements; unitization agreements; unit operating agreements; processing agreements; facilities or equipment leases; office leases (including the Dilley Office Lease); and other similar Contracts, but excluding, however, master service agreements and any other blanket contracts (other than such agreements or contracts listed on Schedule 1.1(d)), the Surface Contracts, the Leases and any other instrument creating or evidencing any real property included in Assets.

“Control Systems” means equipment, software licenses, communication equipment, computer hardware, computer software, servers, networks, network connections, Distributed Control System (DCS) equipment, Programmable Logic Controllers (PLC) and other associated equipment, to the extent, and only to the extent, the same are used primarily as part of the process control and safety system of the production facilities included in the Assets, including, for the avoidance of doubt, SCADA systems and the supporting equipment required to operate SCADA systems, but excluding any licenses required to be obtained from any Governmental Entity for the operation of any of the foregoing or any software proprietary to Seller or its Affiliates being used with the Control Systems.

“Cure Period” has the meaning set forth in Section 4.2(i).

“Customary Post-Closing Consents” means the consents and approvals from Governmental Entities for the assignment of the Assets to another Person that are customarily obtained after the assignment of properties similar to the Assets.

“Deductible” has the meaning set forth in Section 14.2(c)(1).

“Defect Notice Date” means 5:00 p.m. Houston, Texas time on May 17, 2013.

“Defensible Title” has the meaning set forth in Section 4.1(b).

“Deposit Interest Rate” means the lesser of (a) 0.72% per annum and (b) the maximum rate allowed by applicable Law.

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“Dilley Office Lease” has the meaning set forth in Section 1.1 under the defined term “Assets”.

“Dispute” means any dispute, claim or controversy of any kind or nature related to, arising under, or connected with this Agreement or the transactions contemplated hereby (including disputes as to the creation, validity, interpretation, breach or termination of this Agreement).

“DOJ” means the U.S. Department of Justice.

“Due Diligence Period” has the meaning set forth in Section 3.1.

“Due Diligence Review” has the meaning set forth in Section 3.1.

“Effective Time” means March 1, 2013, at 12:01 a.m. local time where the Assets are located.

“Employees” shall mean all employees of Seller or any of its Affiliates (whether employed now or in the past), with respect to their period of employment (or their hiring or termination of employment) by Seller or any such Affiliate.

“Employee Benefit Plans” shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA, any employee welfare benefit plan as defined in Section 3(1) of ERISA, any plans that would be employee pension benefit plans or employee welfare benefit plans if they were subject to ERISA, such as any stock bonus, stock option, stock purchase, stock appreciation rights, phantom stock or other stock plan, deferred compensation plan and any bonus or incentive compensation plan.

“Environment” has the meaning set forth in Section 5.1(b).

“Environmental Adjustment Amount” has the meaning set forth in Section 5.3(c).

“Environmental Assessment” has the meaning set forth in Section 3.3(a).

“Environmental Defect” has the meaning set forth in Section 5.1(c).

“Environmental Defect Expert” has the meaning set forth in Section 5.3(f)(1).

“Environmental Defect Notice” has the meaning set forth in Section 5.3(a).

“Environmental Defect Property” has the meaning set forth in Section 5.3(a).

“Environmental Defect Value” has the meaning set forth in Section 5.3(a).

“Environmental Disputed Matters” has the meaning set forth in Section 5.3(f).

“Environmental Dispute Notice” has the meaning set forth in Section 5.3(f).

“Environmental Law” has the meaning set forth in Section 5.1(d).

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“Environmental Liabilities” has the meaning set forth in Section 5.1(e).

“Equipment” has the meaning set forth in Section 1.1 under the defined term “Assets”.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Liability” shall mean any Loss attributable to or arising out of (a) Seller’s or its Affiliates’ employment relationship with the Employees prior to Closing, (b) Seller’s or its Affiliates’ Employee Benefit Plans applicable to the Employees and (c) Seller’s or its Affiliates’ responsibilities under ERISA respecting Employee Benefit Plans applicable to the Employees.

“Event” has the meaning set forth in Section 1.1 under the defined term “Material Adverse Effect”.

“Excluded Assets” means (a) (1) all corporate, financial, income, Tax, legal and other records of Seller that relate to Seller’s business generally (whether or not relating to the Assets) and (2) all books, files and other records to the extent relating to the other Excluded Assets; (b) all rights to any refunds for Taxes or other costs or expenses borne by Seller or Seller’s predecessors in interest and attributable to periods prior to the Effective Time in accordance with the principles of Section 9.1; (c)  all production, trade credits, all accounts,  receivables, note receivables, take or pay amounts receivable, other receivables, proceeds, income or revenues attributable to the Assets with respect to any period of time prior to the Effective Time; (d) any refunds due Seller by a Third Party for any overpayment of rentals, royalties, production payments or other amounts attributable to the Assets with respect to any period of time prior to the Effective Time; (e) any causes of action, claims and other rights (including for indemnification and defense) of Seller to the extent arising prior to the Effective Time, other than any such causes of action, claims or other rights to the extent relating to the Assumed Liabilities; (f) all of Seller’s motor vehicles, trailers and associated personal property; (g) all of Seller’s radio equipment and associated licenses, other than the Control Systems; (h) all of Seller’s computers, computer hardware, software, servers, networks and network connections and associated information technology equipment, other than the Control Systems; (i) all of Seller’s proprietary technology, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (j) all data and Contracts that cannot be disclosed to Buyer as a result of confidentiality arrangements under agreements with Third Parties (provided that Seller shall use commercially reasonable efforts to obtain a waiver from such Third Party to disclose such data or Contract); (k) all geophysical and other seismic and related technical data and information primarily relating to the Properties to the extent that such geophysical and other seismic and related technical data and information is not transferable without payment of a fee or other penalty (unless Buyer agrees in writing to pay such fee or penalty); and (l) those Contracts and other assets described on Exhibit E.

“Execution Date” has the meaning set forth in the Preamble.

“Expiring Leases” means those Leases that, pursuant to their terms (a) expire prior to August 1, 2013, and (b) give the lessee thereunder the express right to extend the primary term

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thereof (or renew such Lease, as applicable) through the payment of money, including those Leases listed on Exhibit A-2.

“Expiring Lease Notice” has the meaning set forth in Section 8.3(j).

“Expiring Lease Payment” has the meaning set forth in Section 8.3(j).

“Filings” has the meaning set forth in Section 8.3(g).

“Final Purchase Price” has the meaning set forth in Section 13.1(a).

“Final Section 1060 Allocation Schedule” has the meaning set forth in Section 2.3(b).

“Final Settlement Date” has the meaning set forth in Section 13.1(a).

“Final Settlement Statement” has the meaning set forth in Section 13.1(a).

“Final Settlement Statement Due Date” has the meaning set forth in Section 13.1(a).

“FTC” means the Federal Trade Commission.

“Fundamental Representations” means the representations and warranties of (a) Seller contained in Section 6.1 (Status), Section 6.2 (Power), Section 6.4 (Authorization and Enforceability), Section 6.7 (Liability for Brokers’ Fees), Section 6.12 (Taxes) and Section 6.13 (Tax Partnership), and (b) Buyer contained in Section 7.1 (Organization and Standing), Section 7.2 (Power), Section 7.4 (Authorization and Enforceability), Section 7.6 (Liability for Brokers’ Fees), Section 7.9 (Financial Resources and other Capability) and Section 7.10 (Buyer’s Evaluation).

“GAAP” means generally accepted accounting principles in the United States.

“Governing Documents” means the documents governing the formation and internal operation of a Person, including (a) in the instance of a corporation, the articles/certificate of incorporation and bylaws of such corporation, and (b) in the instance of a limited liability company, the certificate of formation and limited liability company agreement of such limited liability company.

“Governmental Authorizations” means any federal, state or local governmental license, permit, franchise, order, exemption, variance, waiver, authorization or certificate, or any application therefor.

“Governmental Entity” means any instrumentality, subdivision, court, administrative agency, commission, official or other authority of the United States or any other country or any state, province, prefect, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any administrative, executive, judicial, legislative, police, regulatory, taxing, importing or other governmental or quasi-governmental authority.

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“Hazardous Materials” has the meaning set forth in Section 5.1(f).

“Hess Blanket Agreements” means those blanket agreements and master service agreements listed on Part I of Schedule 1.1(f).

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Hydrocarbons” means oil, gas, casinghead gas, coal bed methane, condensate and other gaseous and liquid hydrocarbons or any combination thereof.

“Imbalances” means, with respect to the Assets, any imbalance at (a) the wellhead between (1) the amount of Hydrocarbons produced from any of the Wells and allocated to the interests of Seller therein and (2) the shares of production from the relevant Well to which Seller was entitled, or (b) the pipeline flange (or inlet flange at a processing plant or similar location) between (1) the amount of Hydrocarbons nominated by or allocated to Seller and (2) the Hydrocarbons actually delivered on behalf of Seller.

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by notes, bonds, debentures or any other similar debt; (c) all amounts payable by such Person as deferred purchase price for property; (d) all obligations of such Person under any futures, hedge, swap, collar, put, call, floor, cap, option or other similar Contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons, securities, foreign exchange rates or interest rates; (e) all obligations of such Person as lessee under leases that are recorded as capital leases in accordance with either the past practices of such Person or GAAP and (f) all guarantees of or by such Person of any of the items described in clauses (a) through (e) hereof.

“Indemnified Party” has the meaning set forth in Section 14.3(a).

“Indemnifying Party” has the meaning set forth in Section 14.3(a).

“Individual Environmental Threshold” has the meaning set forth in Section 5.3(b).

“Individual Title Threshold” has the meaning set forth in Section 4.2(f).

“Lands” has the meaning set forth in Section 1.1 under the defined term “Assets.”

“Law” means any statute, law, principle of common law, rule, regulation, judgment, order, ordinance, requirement, code, writ, injunction, or decree of any Governmental Entity.

“Leases” has the meaning set forth in Section 1.1 under the defined term “Assets.”

“Lien” means any of the following: mortgage, lien (statutory or other), other security agreement or interest, hypothecation, pledge or other deposit arrangement, charge, levy, executory seizure, attachment, garnishment, encumbrance (including any easement, exception, reservation or limitation), conditional sale, title retention or other similar agreement, preemptive

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or similar right, or any option; provided, however, that the term “Lien” shall not include any of the foregoing to the extent created by this Agreement.

“Losses” has the meaning set forth in Section 14.2.

“Material Adverse Effect” means any state of facts, condition, change, event, effect or occurrence (each, an “Event”), when taken together with all other Events, that has had or would reasonably be expected to have a material adverse effect on (a) the ability of Seller to consummate the transactions contemplated by this Agreement or (b) the ownership or operation condition or value of the Assets (as currently owned, operated and valued), taken as a whole; provided, however, that none of the following Events shall be deemed to constitute, and none of the following Events shall be taken into account in determining whether there has been, a “Material Adverse Effect”: (1) general changes in national, international, regional or local business, economic or political conditions, including the engagement by the United States of America in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States of America or any of its respective territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States of America; (2) events affecting the financial, banking or securities markets generally (including any disruption thereof or any decline in the price of securities or any market or index); (3) conditions (or changes in such conditions) generally affecting the oil and gas and/or gathering, processing or transportation industry whether as a whole or specifically in any area or areas where the Assets are located, including, (A) increases in energy, electricity, natural gas, oil or other raw materials, or (B) changes in prices of Hydrocarbons, including changes in price differentials; (4) changes or reinterpretations in GAAP or Law; (5) the taking of any action required by this Agreement; (6) changes as a result of the negotiation, announcement, execution or performance of this Agreement, including by reason of the identity of Buyer or any communication by Buyer or any of its Affiliates of their plans or intentions regarding the operation of the Assets; (7) any actions taken or omitted to be taken by or at the written request or with the prior written consent of Buyer; (8) effects or changes that are cured or no longer exist by the earlier of the Closing or the termination of this Agreement pursuant to ARTICLE 11; (9) reclassifications or recalculations of reserves in the ordinary course of business; (10) natural declines in Well performance; or (11) orders, actions or inactions of any Governmental Entity; provided, however, that the foregoing exceptions do not, in each case of exceptions (1), (2), (3), (4), (9) or (10) above, affect the Assets disproportionately to other similar assets located in same area as the Assets, and in the case of exceptions (10) or (11) are not caused by the willful or grossly negligent acts of Seller.

“Material Agreements” has the meaning set forth in Section 6.10(a).

“Net Imbalance” means an amount equal to (a) the sum of all Imbalances attributable to (1) Seller being underproduced with respect to any Well or (2) having overdelivered with respect to any pipeline minus (b) the sum of all Imbalances attributable to (1) Seller being overproduced with respect to any Well or (2) having underdelivered with respect to any pipeline.

“Net Mineral Acre” means, as computed separately with respect to each Lease, (a) the number of gross acres in the lands covered by such Lease, multiplied by (b) the undivided

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percentage interest in oil, gas or other minerals covered by such Lease, as applicable, in such lands, multiplied by (c) Seller’s Working Interest in such Lease.

“Net Revenue Interest” means, with respect to any Person, the interest of such Person in and to the Hydrocarbons produced and saved from, or otherwise attributable to, a Lease or Well, as applicable, after satisfaction of all royalties, overriding royalties, net profits interests and other similar burdens on or measured by production of Hydrocarbons therefrom.

“Notice of Defective Interests” has the meaning set forth in Section 4.2(c).

“Outside Termination Date” means September 1, 2013; provided that such date shall be extended by the same number of days that the May 31, 2013 targeted date is extended by Seller pursuant to Section 12.1(a), if applicable.

“Party” or “Parties has the meaning set forth in the Preamble.

“Per Item Threshold” has the meaning set forth in Section 14.2(c)(1).

“Performance Deposit” has the meaning set forth in Section 2.2(a).

“Permitted Encumbrances” has the meaning set forth in Section 4.1(c).

“Person” means any individual or entity, including any corporation, limited liability company, partnership (general or limited), joint venture, association, joint stock company, trust, unincorporated organization or Governmental Entity.

“Phase I Environmental Site Assessment” means an environmental site assessment performed pursuant to the American Society for Testing and Materials E1527 - 05, or any similar environmental assessment.

“Plugging and Abandonment Obligations” has the meaning set forth in Section 5.1(g).

“Policies” has the meaning set forth in Section 6.21.

“Preferential Right” has the meaning set forth in Section 6.6.

“Preliminary Purchase Price” has the meaning set forth in Section 2.5.

“Preliminary Settlement Statement” has the meaning set forth in Section 2.5.

“Properties” has the meaning set forth in Section 1.1 under the defined term “Assets.”

“Property Expenses” has the meaning set forth in Section 2.4(b).

“Property Taxes” has the meaning set forth in Section 9.1.

“Property Valuation Expert” has the meaning set forth in Section 2.3(b).

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“Proposed Section 1060 Allocation Schedule” has the meaning set forth in Section 2.3(b).

“Purchase Price” has the meaning set forth in Section 2.2.

“Records” has the meaning set forth in Section 1.1 under the defined term “Assets.”

“Remediation” or “Remediate” has the meaning set forth in Section 5.1(h).

“Representatives” means, with respect to each Party, such Party’s Affiliates and such Party’s and such Party’s Affiliates’ respective directors, officers, members, employees, agents, brokers, accountants, consultants, financial advisors, counsel, financing sources and other representatives.

“Rules” has the meaning set forth in Section 15.12.

“Sanchez Blanket Agreements” has the meaning set forth in Section 8.3(i).

“Securities Act” means the Securities Act of 1933, as amended.

“Seller” has the meaning set forth in the Preamble.

“Seller Indemnified Parties” has the meaning set forth in Section 14.2(b).

“Seller Taxes” means (a) all Taxes (other than Asset Taxes and Subject Transfer Taxes) imposed on or asserted against Seller in respect of its business or the disposition of the Assets for any taxable period or portion thereof, and (b) all Asset Taxes for any taxable period or portion thereof ending immediately prior to the Effective Time.

“Seller Transaction Costs” means all fees, costs and expenses of any brokers, financial advisors, consultants, accountants, attorneys or other professionals payable by Seller in connection with the structuring, negotiation or consummation of the transactions contemplated by this Agreement.

“Seller’s Knowledge” means the actual knowledge, without any obligation of investigation or inquiry, of the Persons listed on Schedule 1.1(b).

“Specified Consent” has the meaning set forth on Schedule 1.1(e).

“Specified Contracts” means those Applicable Contracts listed on Schedule 1.1(c).

“Subject Transfer Taxes” has the meaning set forth in Section 9.2.

“Surface Contracts” has the meaning set forth in Section 1.1 under the defined term “Assets.”

“Target Formation” means the stratigraphic equivalent of that formation found in the Bridwell Limited Unit IV Well in LaSalle County, Texas, with a top at 7,902 ft TVD and base at

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8,064 ft TVD, as shown on the log display attached as Exhibit A-1, recognizing that the depth of such formation will vary across the area in which the Assets are located.

“Target Formation Net Mineral Acres” means, as computed separately with respect to each Lease, the number of Net Mineral Acres held by Seller in the Target Formation.

“Target Formation Net Mineral Acre Threshold” means 44,093 Target Formation Net Mineral Acres, as such aggregate number may be reduced by the number of Target Formation Net Mineral Acres set forth on Exhibit A for any Expiring Lease (a) that expires pursuant to its terms prior to Closing, (b) that is listed on Exhibit A-2, and (c) for which Buyer did not deliver an Expiring Lease Notice to Seller in accordance with the terms of Section 8.3(j).

“Tax” means (a) any taxes and assessments imposed by any Governmental Entity, including net income, gross income, profits, gross receipts, license, employment, stamp, occupation, premium, alternative or add-on minimum, ad valorem, real property, personal property, transfer, real property transfer, value added, sales, use, environmental (including taxes under Code Section 59A), customs, duties, capital stock, franchise, excise, withholding, social security (or similar), unemployment, disability, payroll, fuel, excess profits, windfall profit, severance, estimated or other tax, including any interest, penalty or addition thereto, whether disputed or not, and any expenses incurred in connection with the determination, settlement or litigation of the Tax liability, (b) any obligations to indemnify any other Person under any agreements or arrangements with respect to Taxes described in clause (a) above, and (c) any transferee liability in respect of Taxes described in clauses (a) and (b) above or payable by reason of assumption, transferee liability, operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law) or otherwise.

“Tax Partnership” has the meaning set forth in Section 6.13.

“Tax Proceeding” has the meaning set forth in Section 9.4.

“Tax Return” means any return, report or similar statement required to be filed with respect to any Taxes (including any attached schedules), including any information return, claim for refund, amended return and declaration of estimated Tax.

“Third Party” means any Person other than the Parties and their respective Affiliates.

“Third Party Claim” has the meaning set forth in Section 14.3(b).

“Third Party Proprietary Data” means all geological, geophysical, technical and other proprietary data and information, including as may be covered by any patent or other intellectual property right, that is owned or otherwise held by a Third Party and licensed to Seller, with no rights to transfer or disclose same to Buyer.

“Title Adjustment Amount” has the meaning set forth in Section 4.2(h).

“Title Benefit” has the meaning set forth in Section 4.2(b).

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“Title Benefit Amount” has the meaning set forth in Section 4.2(g).

“Title Benefit Notice” has the meaning set forth in Section 4.2(d).

“Title Benefit Property” has the meaning set forth in Section 4.2(d).

“Title Defect” has the meaning set forth in Section 4.2(a).

“Title Defect Amount” has the meaning set forth in Section 4.2(e).

“Title Defect Expert” has the meaning set forth in Section 4.3(a).

“Title Defect Property” has the meaning set forth in Section 4.2(c).

“Title Dispute Notice” has the meaning set forth in Section 4.3.

“Title Disputed Matter” has the meaning set forth in Section 4.3.

“Total Defect Sum” has the meaning set forth in Section 4.2(f).

“Transaction Documents” has the meaning set forth in Section 15.9.

“Transition Period” has the meaning set forth in Section 13.4.

“Transition Services Agreement” means a transition services agreement, in substantially the form of Exhibit J, pursuant to which Seller shall provide certain services to Buyer with respect to the Assets for a certain period of time following Closing.

“Unit” has the meaning set forth in Section 6.26.

“Wells” has the meaning set forth in Section 1.1 under the defined term “Assets.”

“Working Interest” means, with respect to any Person, the percentage of the costs and expenses to be borne by such Person for the maintenance, development and operation of a Lease or Well without regard to the effect of any and all royalties, overriding royalties, net profits interests and other similar burdens on or measured by production.

1.2References, Construction and Joint Drafting.

(a)References and Construction.  When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference will be to an Article, Section, Exhibit or Schedule to this Agreement unless otherwise indicated.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”  Unless the context otherwise requires, (1) words, terms and titles (including terms defined herein) in the singular include the plural and vice versa, (2) the words “herein,” “hereof,” “hereby,” “hereunder” and words of similar nature refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited, (3) the words “this Article,” “this Section” and “this subsection,” and words of similar import, refer only to the Article, Section or subsection hereof in which such words occur, (4) each accounting term not

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defined herein will have the meaning given to it under GAAP, (5) the use in this Agreement of a pronoun in reference to a Party includes the masculine, feminine or neuter, as the context may require, (6) all references to “$” shall be deemed references to United States Dollars, (7) the headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement, (8) the words “shall” and “will” are used interchangeably throughout this Agreement and shall accordingly be given the same meaning, regardless of which word is used, and (9) except as expressly provided otherwise in this Agreement, references to any Law or agreement means such Law or agreement as it may be amended from time to time.

(b)Joint Drafting.  The Parties have participated jointly in negotiating and drafting this Agreement.  In the event that an ambiguity or a question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

ARTICLE 2
PURCHASE AND SALE

2.1Purchase and Sale.  Subject to the terms and conditions of this Agreement, Buyer agrees to purchase from Seller at Closing, and Seller agrees to sell, assign and deliver to Buyer at Closing, the Assets for the consideration specified in this ARTICLE 2.

2.2Purchase Price.  The unadjusted purchase price for the Assets shall be $265,000,000 (the “Purchase Price”).  The Purchase Price shall be payable as follows:

(a)On the date that this Agreement is fully executed by all Parties, Buyer shall pay, by wire transfer of immediately available funds to Seller’s designated account, $13,250,000 (the “Performance Deposit”).  The Performance Deposit shall be held by Seller in accordance with this Agreement in order to secure Buyer’s performance of this Agreement.  Subject to Section 11.2(b) and Section 11.2(c), all interest earned on the Performance Deposit shall be retained by Seller.

(b)At Closing, Buyer shall pay to Seller the Closing Amount by wire transfer of immediately available funds to Seller’s designated account.

(c)After Closing, final adjustments to the Purchase Price shall be made (1) pursuant to the Final Settlement Statement to be delivered pursuant to Section 13.1(a) and the payments made by the owing Party as provided in Section 13.1(a), and (2) upon final resolution of any Title Disputed Matters and any Environmental Disputed Matters, in accordance with ARTICLE 4 and ARTICLE 5, respectively.

2.3Allocation of the Purchase Price.

(a)Solely for the purposes of ARTICLE 4, ARTICLE 5 and Schedule 1.1(e), Buyer and Seller have agreed upon an allocation of the Purchase Price among (1) the Target Formation Net Mineral Acres held by Seller with respect to the Leases set forth on Exhibit A and (2) the

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Wells set forth on Exhibit B (collectively, the “Allocated Values”), in each case, as set forth on Schedule 2.3.

(b)Seller may (but is not obligated to) prepare an allocation of the Final Purchase Price, as adjusted pursuant to Article 13, on a schedule (the “Proposed Section 1060 Allocation Schedule”) for purposes of, and in accordance with, Section 1060 of the Code and the regulations promulgated thereunder, within 30 days after the Final Settlement Date.  Within 60 days after delivery of such Proposed Section 1060 Allocation Schedule, if so prepared by Seller in accordance with the preceding sentence, Buyer and Seller shall reasonably endeavor to agree to a final allocation schedule to be used for income Tax reporting purposes (the “Final Section 1060 Allocation Schedule”); provided that if the Parties are unable to reach agreement within such 60-day period, then, immediately after the expiration of such period, either Party may invoke the Dispute resolution provisions immediately below upon the delivery of written notice thereof to the other Party and, within ten days thereafter, the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Property Valuation Expert”), failing which the Parties shall, within ten days after the expiration of such foregoing ten day period, request (and either Party may so request alone if the other Party refuses to jointly act in good faith to do so during such ten day period) that the AAA, acting through its offices in Houston, Texas, appoint the Property Valuation Expert.  The Property Valuation Expert shall be a licensed petroleum engineer, having a minimum of ten years’ experience with regard to the types of oil and assets involved in the Proposed Section 1060 Allocation Schedule Dispute, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for any Party (including its Affiliates) within the five year period preceding the submission of the Dispute.  Within 15 days following the appointment of the Property Valuation Expert, Seller and/or Buyer shall provide the Property Valuation Expert with a copy of this Agreement, and each Party shall provide, both to the Property Valuation Expert and to each other, a summary of its position with regard to the Proposed Section 1060 Allocation Schedule in a written document of ten pages or less.  The Parties shall instruct the Property Valuation Expert that, within 30 days after receiving the last of the Parties’ respective submissions or the expiration of such 15 day period if either Party fails to make a submission, the Property Valuation Expert shall render a written decision, choosing only either Buyer’s position or Seller’s position with respect to each Disputed matter.  Any decision rendered by the Property Valuation Expert pursuant hereto shall be final, conclusive and binding on Seller and Buyer, and will be enforceable against each Party in any court having jurisdiction hereof or jurisdiction of either or both Parties, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Property Valuation Expert and of the associated Dispute resolution process and proceedings.  In the case of such a Dispute resolution process regarding Seller’s Proposed Section 1060 Allocation Schedule Dispute, Seller will issue the Final Section 1060 Allocation Schedule consistent with the Property Valuation Expert’s decision, within 30 days after receiving the Property Valuation Expert’s decision with respect thereto.  For the avoidance of doubt, the Property Valuation Expert will function as an expert in accordance with the foregoing procedure, not as an arbitrator.  Seller and Buyer shall file all Tax Returns (including Internal Revenue Service Form 8594) consistent with any such Final Section 1060 Allocation Schedule.  Seller and Buyer shall take no position inconsistent with such allocations on any applicable Tax Return in any audit by or proceeding before any Governmental Entity related to Taxes, unless required by Law or with the written consent of the other Party (not to be unreasonably withheld, delayed

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or conditioned) provided, however, that nothing contained herein shall prevent Buyer or Seller from settling any proposed deficiency or adjustment by any Governmental Entity based upon or arising out of the allocation, and neither Buyer nor Seller shall be required to litigate before any court any proposed deficiency or adjustment by any Governmental Entity challenging such allocation.  In the event that the allocation described herein is disputed by any Governmental Entity, then the Party receiving notice of the dispute shall promptly notify, consult with and obtain the consent (not to be unreasonably withheld, conditioned or delayed) of the other Party concerning resolution of the dispute.  If either (i) Seller fails to deliver to Buyer a Proposed Section 1060 Allocation Schedule within 30 days after the Final Settlement Date or (ii) a Final Section 1060 Allocation Schedule is not agreed by the Parties (or otherwise determined by a Dispute resolution process in accordance with the foregoing provisions of this Section 2.3(b)), then each Party shall be responsible for its reporting requirements under Code Section 1060 and any other provisions that may apply; provided that the Parties shall reasonably coordinate with each other regarding any such filings, in order to avoid any material inconsistencies.

2.4Adjustments to Purchase Price.  The Purchase Price shall be adjusted according to this Section 2.4 without duplication.

(a)Proration of Costs and Revenues.

(1)Buyer shall be (A) entitled to (i) all production of Hydrocarbons from or attributable to the Properties from and after the Effective Time (and all products and proceeds attributable thereto), and (ii) excluding overhead charges arising under applicable joint operating agreements related to those Assets operated by Seller that are earned prior to Closing, all other income, proceeds, receipts and credits earned with respect to the Assets from and after the Effective Time, and (B) responsible for (and entitled to any refunds with respect to) all Property Expenses incurred from and after the Effective Time.

(2)Seller shall be (A) entitled to (i) all Hydrocarbon production from or attributable to the Properties prior to the Effective Time (and all products and proceeds attributable thereto), (ii) all other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and (iii) all overhead charges arising under applicable joint operating agreements related to the Assets operated by Seller that are earned prior to Closing, and (B) responsible for (and entitled to any refunds with respect to) all Property Expenses incurred prior to the Effective Time.

(3)“Earned” and “incurred”, as used in this Agreement shall be interpreted in accordance with GAAP and Council of Petroleum Accountants Society standards, except as otherwise specified herein.

(4)For purposes of allocating production (and proceeds and accounts receivable with respect thereto), under this Section 2.4, (A) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the pipeline connecting into the storage facilities into which they are run and (B) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the royalty measurement meters, delivery point sales meters or custody

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transfer meters on the gathering lines or pipelines through which they are transported (whichever meter is closest to the well).  Seller shall utilize reasonable interpolative procedures, consistent with industry practice, to arrive at an allocation of production when exact meter readings or gauging and strapping data are not available.

(5)After the Final Settlement Date, to the extent not taken into account in either the Preliminary Settlement Statement or the Final Settlement Statement, (A)(1) any proceeds received by Seller from the sale of any Hydrocarbons produced and saved from, or attributable to, the Assets from and after the Effective Time shall be paid by Seller to Buyer within 30 days after receipt of such proceeds, and (2) any proceeds received by Buyer from the sale of any Hydrocarbons that were produced from and saved, or attributable to, the Assets prior to the Effective Time shall be paid to Seller within 30 days after receipt of such proceeds, and (B)(1) each invoice (or a copy thereof) received by Buyer for Property Expenses applicable to time periods prior to the Effective Time shall be forwarded by Buyer to Seller following Buyer’s receipt thereof and, if such invoice has been paid by Buyer, Seller shall reimburse Buyer for such amounts paid by Buyer within 30 days after Seller’s receipt of such invoice or a copy thereof, and (2) each invoice (or a copy thereof) received by Seller for Property Expenses applicable to time periods from and after the Effective Time shall be forwarded by Seller to Buyer following Seller’s receipt thereof and, if such invoice has been paid by Seller, Buyer shall reimburse Seller for such amounts paid by Seller within 30 days after Buyer’s receipt of such invoice or a copy thereof.

(6)If, prior to the Final Settlement Date, any (A) proceeds are received by Seller that are attributable to the sale of any Hydrocarbons that were produced from and saved, or attributable to, the Assets and, in each case, from and after the Effective Time, (B) Property Expenses are paid by Seller that are attributable to the Assets from and after the Effective Time, (C) royalties, overriding royalties, net profit interests and similar burdens on or measured by production, in each case, attributable to the Assets from and after the Effective Time are paid by Seller, or (D) all prepaid expenses (including pre-paid bonuses, rentals, cash calls and advances to Third Party operators for expenses not yet incurred, prepaid Taxes, and scheduled payments) paid by Seller and attributable to the ownership or operation of the Assets from and after the Effective Time, and, in each of the cases in clauses (A), (B), (C) and (D) above, are properly accounted for pursuant to the Transition Services Agreement during the term of such agreement, then such amounts shall not be taken into account for the purposes of Section 2.4(c) or Section 2.4(d).

(b)Property Expenses.  The term “Property Expenses” means all (1) capital expenses attributable to the Assets in the ordinary course of business, (2) Asset Taxes (as apportioned as of the Effective Time pursuant to ARTICLE 9), (3) operating expenses incurred in the ownership, development, operation and production of the Assets in the ordinary course of business and, where applicable, in accordance with any relevant joint operating agreement (including lease rentals, if any), (4) overhead costs charged to the Assets under the applicable joint operating agreement and (5) extension and renewal payments with respect to the Leases, but excluding (in all cases) costs and expenses attributable to (A) obligations to pay an owner of any working interest, royalty, overriding royalty, net profits interests or other similar burdens on or measured by production any revenues or proceeds attributable to sales of Hydrocarbons

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relating to the Assets, including those held in suspense, (B) Losses for personal injury or death, property damage or loss (other than damage to structures, fences, irrigation systems and other fixtures, crops, livestock and other personal property in the ordinary course of business), torts, breach of Contract (other than failure to make payments due under the terms of a Contract) or violation of any Lease or Law (or private rights of action under any Law), (C) obligations to plug wells (including the Wells), dismantle or decommission facilities, close pits and restore the surface around such wells, facilities and pits, (D) Environmental Liabilities, including obligations to remediate any contamination of groundwater, surface water, soil, sediments or personal property under applicable Environmental Laws, (E) obligations with respect to Imbalances, and (F) claims for indemnification or reimbursement from any Third Party with respect to costs of the type described in preceding clauses (A) through (E), whether such claims are made pursuant to Contract or otherwise.

(c)Upward Adjustments.  To calculate the Preliminary Purchase Price and the Final Purchase Price, the Purchase Price shall be adjusted upward, without duplication, by the following:

(1)an amount equal to any proceeds received by Buyer from the sale of any Hydrocarbons that were produced from and saved, or attributable to, the Assets prior to the Effective Time, to the extent the same are not in storage or existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time;

(2)an amount equal to all Property Expenses (including any Expiring Lease Payment) and all royalties, overriding royalties, net profit interests and similar burdens on or measured by production, in each case, attributable to the Assets from and after the Effective Time that were paid by Seller, but excluding any adjustment previously made pursuant to Section 2.4(c)(4);

(3)an amount equal to the value of all Hydrocarbons that were produced and saved from, or attributable to, the Assets that are in storage or existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time, such value to be based upon the applicable Contract price in effect as of the Effective Time (or if there is no Contract price, then the market price in effect as of the Effective Time in the field in which such Hydrocarbons were produced), net of (A) all amounts payable as royalties, overriding royalties, net profit interests and other similar burdens on or measured by production and (B) all applicable severance Taxes;

(4)an amount equal to all prepaid expenses (including pre-paid bonuses, rentals, cash calls and advances to Third Party operators for expenses not yet incurred, prepaid Taxes, and scheduled payments) paid by Seller and attributable to the ownership or operation of the Assets from and after the Effective Time, other than, in each case, any of the foregoing to the extent the same is (A) an Excluded Asset, or (B) included in the adjustment covered by Item #1 of Schedule 1.1(g);

(5)an amount equal to the Subject Transfer Taxes paid by Seller with respect to the transactions contemplated by this Agreement;

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(6)with respect to those Assets operated by Seller an amount equal to all overhead charges arising under applicable joint operating agreements that are (A) attributable to such Seller operated Assets and the period of time prior to Closing and (B) which have been paid by Third Parties and received by Buyer;

(7)with respect to natural gas, if the Net Imbalance is positive, an amount equal to (A) (i) the Net Imbalance, multiplied by (ii) the Calculated Gas Price, less (B) (i) 0.07 multiplied by (ii) the Calculated Gas Price;

(8)with respect to crude oil, if the Net Imbalance is positive, an amount equal to (A) the Net Imbalance, multiplied by (B) (i) Calendar NYMEX, plus/minus, (ii) the Argus Trade Month Light Sweet, plus/minus (iii) the Argus Trade Month CMA, less (iv) $7.50; and

(9)any other amount provided for in this Agreement or otherwise agreed to in writing by Buyer and Seller, including those agreements set forth on Schedule 1.1(g).

(d)Downward Adjustments.  To calculate the Preliminary Purchase Price and the Final Purchase Price, the Purchase Price shall be adjusted downward, without duplication, by the following:

(1)an amount equal to the Title Adjustment Amount attributable to Title Defects for which the Parties have chosen the remedy set forth in Section 4.2(j)(1);

(2)an amount equal to the Environmental Adjustment Amount attributable to Environmental Defects, if any, for which the Parties have chosen the remedy set forth in Section 5.3(e)(1);

(3)an amount equal to (A) the Allocated Value (without duplication) of those Assets not transferred at Closing in accordance with Section 3.3(a), Section 4.2(j)(2), Section 4.4(a), Section 4.4(b), Section 5.3(e)(3) or Section 8.3(b)(1) or the terms and conditions of Schedule 1.1(e), plus (B) the Allocated Value, if any, or proceeds received by Seller, if any (whichever is greater), relating to any Equipment or Property not transferred at Closing due to such Equipment or Property being conveyed, sold, transferred or abandoned prior to Closing as permitted pursuant to Section 8.1(b)(1); provided, that, for the avoidance of doubt, any Lease which expires pursuant to its own terms shall not be considered to be abandoned for purposes of this Section 2.4(d)(3);

(4)an amount equal to all proceeds received by Seller from the sale of any Hydrocarbons produced and saved from, or attributable to, the Assets from and after the Effective Time;

(5)[Intentionally Omitted];

(6)with respect to natural gas, if the Net Imbalance is negative, an amount equal to (A) (i) the Net Imbalance, multiplied by (ii) the Calculated Gas Price, plus (B) (i) 0.07 multiplied by (ii) the Calculated Gas Price;

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(7)with respect to crude oil, if the Net Imbalance is negative, an amount equal to (A) the absolute value of the Net Imbalance, multiplied by (B) (i) Calendar NYMEX, plus/minus (ii) the Argus Trade Month Light Sweet plus/minus (iii) the Argus Trade Month CMA, less (iv) $7.50;

(8)an amount equal to all Property Expenses and all royalties, overriding royalties, net profit interests and similar burdens on or measured by production and all applicable severance taxes, in each case, attributable to the Assets prior to the Effective Time that were paid by Buyer;

(9)all funds held in suspense by Seller with respect to the operation, ownership, production and developments of the Assets, including those amounts set forth in Item #1 of Schedule 6.19;

(10)with respect to those Leases listed on Item #2, Item #3 and Item #4 of Schedule 6.19 only, the amount of funds held by Seller in segregated accounts as of Closing with respect to such Leases, such amount (for each such Lease) not to exceed the amount listed with respect to each such Lease on Item #2, Item #3 or Item #4 of Schedule 6.19, as applicable; and

(11)any other amount provided in this Agreement or otherwise agreed to in writing by Buyer and Seller.

2.5Preliminary Settlement Statement.  On or before the day that is three Business Days prior to Closing, Seller shall deliver to Buyer a statement (the “Preliminary Settlement Statement”) setting forth Seller’s good faith calculations of the adjustments to the Purchase Price set forth in Section 2.4 (the Purchase Price, as so adjusted “Preliminary Purchase Price”), the resulting Preliminary Purchase Price and the Closing Amount, in each case, prepared in good faith using the best information reasonably available to Seller at the Closing Date, along with such data in Seller’s possession as is reasonably necessary to support such calculations.  The Preliminary Settlement Statement also shall set forth Seller’s designated account for purposes of Buyer’s payment of the Closing Amount.  The Parties shall attempt to agree in writing upon the Preliminary Purchase Price prior to Closing, and in the event the Parties cannot agree upon the Preliminary Purchase Price prior to Closing, Seller’s calculation of the Preliminary Purchase Price and the Closing Amount as reasonably calculated and as set forth in the Preliminary Settlement Statement shall be used by the Parties for purposes of Closing.

ARTICLE 3
BUYER’S INSPECTION; DUE DILIGENCE REVIEW

3.1Due Diligence.  Subject to the provisions of this ARTICLE 3, from and after the Execution Date up to the Defect Notice Date (the “Due Diligence Period”), Seller will make the Assets available to Buyer and its Representatives for inspection and review to permit Buyer, at Buyer’s sole cost, to perform its due diligence with respect to the Assets (“Due Diligence Review”).

3.2Access to Records.  For purposes of the Due Diligence Review, Seller consents to, and agrees to use its commercially reasonable efforts to facilitate, Buyer’s discussions with

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Third Parties in connection with its Due Diligence Review (provided that a representative of Seller is present for any such discussions, unless Seller has consented in writing to be absent from such discussion) and will, upon reasonable (being no less than three Business Days’) advance notice from Buyer, make the Records available to Buyer for inspection or copying and shall provide a reasonable means of copying to Buyer at Seller’s offices, in each case, at Buyer’s sole cost and expense, at the offices of Seller located in Houston, Texas during normal business hours.  For the avoidance of doubt, any and all such Records inspected and/or copied by Buyer pursuant to this Section 3.2 remain subject to the provisions of Section 8.3(h).

3.3On-Site Inspection.

(a)Seller hereby consents to Buyer conducting, during the Due Diligence Period and for purposes of the Due Diligence Review, upon reasonable (being no less than three Business Days’) advance notice to Seller and at Buyer’s sole risk and expense, on-site inspections of the Assets and a Phase I Environmental Site Assessment, (each such inspection or assessment, an “Environmental Assessment”); provided, however, that if the consent of any Third Party is required to provide Buyer such access, and such consent is not granted following the commercially reasonable efforts of Seller, Buyer shall not have access to such affected Assets.  Should any such Third Party not grant such access following the commercially reasonable efforts of Seller, Buyer shall have the right, at its sole discretion, upon delivery of written notice to Seller on or before three Business Days prior to Closing, to exclude the Assets to which it was unable to receive access from the transactions contemplated by this Agreement, in which case the Purchase Price shall be reduced by the Allocated Value of such Assets and such Assets shall become Excluded Assets for all purposes hereunder.  Buyer shall not conduct any sampling, boring or other invasive activities without prior written notice to, and the written consent of, Seller.  If Seller does not give its consent for such invasive activity, then (A) Buyer shall have the right, at its sole discretion, upon delivery of written notice to Seller on or before three Business Days prior to Closing, to exclude such Asset from the transactions contemplated by this Agreement, (B) the Purchase Price shall be reduced by the Allocated Value of such Asset if it is so excluded, and (C) such Asset shall become an Excluded Asset for all purposes hereunder.  In connection with any Environmental Assessment or other inspection pursuant to this Section 3.3, Buyer agrees to comply with all safety policies and other requirements of Seller and the operator of the Assets (whether such operator is Seller, an Affiliate of Seller or a Third Party).  Buyer shall coordinate its access rights and Environmental Assessments of the Assets with Seller and any Third Party operator of the Assets to reasonably minimize any inconvenience to or interruption of the conduct of business by Seller or any such Third Party operator of the Assets.

(b)If Buyer or any of its Representatives prepares a written report with respect to any Environmental Assessment, Buyer will furnish a copy thereof to Seller as soon as practicable following the receipt thereof by Buyer, and in any event by the Defect Notice Date.  Within five Business Days following the Execution Date, Seller shall provide Buyer with copies of all Records that constitute environmental reports and records generated by Seller’s or its Affiliates’ consultants engaged in such parties’ acquisition or ownership of the Assets, and Seller shall allow Buyer to discuss such reports with such consultants.  Except (1) as may be required or permitted pursuant to the exercise of the rights and fulfillment of the obligation of a Party under this Agreement, including in connection with the resolution of any Environmental Disputed Matter pursuant to Section 5.3(f), (2) as may be required by applicable Law, (3) for information

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which is or becomes public knowledge through no fault of the Person against whom this sentence is sought to be enforced, or (4) as may be required by a Party in order to defend or prosecute any Claim related to the Assets, the Parties shall maintain the confidentiality of any Environmental Assessments conducted hereunder, and any reports created with respect thereto; provided that Buyer’s obligations with respect to such confidentiality shall cease upon the Closing.

(c)EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE SELLER INDEMNIFIED PARTIES AND SUBJECT TO SECTION 3.3(e), BUYER HEREBY WAIVES, RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS SELLER AND THE OTHER SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES ARISING IN ANY WAY OUT OF OR ATTRIBUTABLE TO THE ACCESS AFFORDED TO BUYER AND ITS REPRESENTATIVES PURSUANT TO THIS ARTICLE 3 OR THE ACTIVITIES (OR ACTS OF OMISSION) OF BUYER OR ITS REPRESENTATIVES RELATED TO SUCH ACCESS, INCLUDING WITH RESPECT TO ANY ENVIRONMENTAL ASSESSMENT (BUT NOT INCLUDING LOSSES RELATING TO ANY CONDITION DISCOVERED AS A RESULT OF SUCH ENVIRONMENTAL ASSESSMENT), IN EACH CASE, EVEN IF SUCH LOSSES ARISE OUT OF OR ARE ATTRIBUTABLE TO, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES.

(d)Upon completion of any Environmental Assessment, Buyer shall, at its sole cost and expense and without any cost or expense to Seller or its Affiliates (1) repair all physical damage, if any, done to the Assets or to the Environment in connection with Buyer’s Environmental Assessment, (2) restore each Asset to approximately the same physical condition that it was in prior to commencement of Buyer’s Environmental Assessment (if any such restoration is necessary as a result of Buyer’s Environmental Assessment) and (3) remove all equipment, tools or other property brought onto, and any wastes generated on, the Assets in connection with Buyer’s Environmental Assessment.  Any disturbance to the Assets (including the real property associated with the Assets) resulting from Buyer’s Environmental Assessment will be promptly corrected by Buyer.

(e)Notwithstanding the foregoing in this Section 3.3, subject to Section 5.3(e), prior to Closing, Buyer shall not be responsible for curing or Remediating any Condition existing at or on the Assets, even if the same were disturbed or released during Buyer’s Environmental Assessment or any invasive activity conducted by Buyer or its Representatives on the Assets and permitted by Seller pursuant to Section 3.3(a).  Buyer shall be solely responsible for properly disposing of any drilling, soils or other material generated or removed from the Assets in connection with its Environmental Assessment or any invasive activity conducted by Buyer or its Representatives on the Assets, including all costs related thereto; provided, however, that, prior to Closing, Buyer will not be obligated to execute any documents identifying Buyer as the owner or generator of these materials, which status will continue to be held by the owner of the Assets.

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ARTICLE 4
TITLE MATTERS

4.1Seller’s Title.

(a)Exclusive Remedy.  Other than Buyer’s remedies for breaches of Sections 8.1(b)(1) or Section 8.1(b)(3) respectively, Section 4.1, Section 4.2, Section 4.3 and the special warranty set forth in the assignment shall be the sole and exclusive rights and remedies of Buyer with respect to Seller’s failure to have Defensible Title with respect to the Assets or any other title matter with respect to the Assets.  OTHER THAN THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLER MAKES NO, AND DISCLAIMS ALL, WARRANTIES OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO ITS TITLE TO THE PROPERTIES AND OTHER ASSETS; AND BUYER HEREBY ACKNOWLEDGES AND AGREES THAT BUYER’S SOLE AND EXCLUSIVE REMEDY FOR ANY DEFECT OF TITLE WITH RESPECT TO THE PROPERTIES AND OTHER ASSETS (OTHER THAN FOR BREACHES OF SECTIONS 8.1(b)(1) OR SECTION 8.1(b)(3)), INCLUDING ANY TITLE DEFECT, SHALL BE AS PROVIDED FOR IN SECTION 4.1, SECTION 4.2 AND SECTION 4.3 AND UNDER THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT.  Buyer will not assert any claim under the special warranty set forth in the Assignment for any matters that do not exceed the Individual Title Threshold and Buyer will not be entitled to make a claim for an amount which, together with all claims of Buyer under this Agreement and any Transaction Document, exceed the Purchase Price.  Notwithstanding anything to the contrary in this Section 4.1 or the special warranty set forth in the Assignment, the aggregate value of all claims made under the special warranty with respect to any Asset shall not exceed the Allocated Value of such Asset.

(b)Defensible Title.  The term “Defensible Title” means such title of Seller to the Properties immediately prior to the Effective Time that, subject to and except for Permitted Encumbrances:

(1)in the case of any Lease or any Well, entitles Seller to receive a Net Revenue Interest with respect to the Target Formation throughout the productive life of each Lease or Well of not less than the Net Revenue Interest shown in Exhibit A or Exhibit B, as applicable, with respect to the Target Formation for such Lease or Well, except (A) as otherwise specifically set forth in such Exhibit, (B) for decreases in connection with those operations from and after the Execution Date in which Seller may be a non-consenting co-owner, (C) for decreases resulting from the establishment or amendment of pools or units from and after the Execution Date, and (D) for decreases required to allow other Working Interest owners to make up past underproduction or pipelines to make up past underdeliveries;

(2)in the case of any Well, obligates Seller to bear a Working Interest with respect to the Target Formation throughout the productive life of such Well not greater than the Working Interest shown in Exhibit B with respect to the Target Formation for such Well, without increase, except (A) as otherwise specifically set forth in such Exhibit, (B) for increases to the extent that they are accompanied by at least a proportionate increase in Seller’s Net Revenue Interest with respect to the Target Formation for such

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Well and (C) for increases resulting from contribution requirements with respect to defaults by co-owners under the applicable joint operating agreements;

(3)entitles Seller to not less than a number of Target Formation Net Mineral Acres equal to the Target Formation Net Mineral Acre Threshold in the aggregate; and

(4)is free and clear of Liens.

(c)Permitted Encumbrances.  The term “Permitted Encumbrances” means any and all of the following:

(1)lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens on or measured by production if the net cumulative effect of such burdens does not operate to: (A) reduce the Net Revenue Interest with respect to the Target Formation for any Lease or Well below the Net Revenue Interest set forth on Exhibit A or Exhibit B, as applicable, with respect to the Target Formation for such Lease or Well; (B) obligate Seller to bear a Working Interest with respect to the Target Formation throughout the productive life of such Well greater than the Working Interest set forth on Exhibit B with respect to the Target Formation for such Well (unless the Net Revenue Interest with respect to the Target Formation throughout the productive life of such Well is greater than the Net Revenue Interest with respect to the Target Formation set forth in on Exhibit B in the same or greater proportion as any increase in such Working Interest); or (C) reduce the aggregate number of Target Formation Net Mineral Acres below the Target Formation Net Mineral Acre Threshold;

(2)preferential rights to purchase the Assets or similar rights;

(3)Liens for Taxes that are not yet due and payable;

(4)all rights to consent by, required notices to, filings with, or other actions by Governmental Entities or other Persons in connection with the transfer of the Assets or the transactions contemplated hereby, including any Customary Post-Closing Consents;

(5)excepting circumstances where such rights have already been triggered, rights of reassignment upon final intention to surrender or abandon any Asset;

(6)easements, rights-of-way, servitudes, permits, surface leases and other rights with respect to surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the like, and easements for streets, alleys, highways, pipelines, telephone lines, power lines, distribution lines, railways and other easements and rights-of-way, on, over or in respect of any of the Assets or any restriction on access thereto, in each case, that do not materially interfere with the use, ownership or operation of the affected Asset, as the same is currently used, owned and operated;

(7)the terms and conditions of the Leases, Applicable Contracts or Surface Contracts or of any compulsory pooling or other order of the Texas Railroad Commission or any other Governmental Entity; provided, however, that the net cumulative effect of

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such items does not: (A) reduce the Net Revenue Interest with respect to the Target Formation throughout the productive life of any such Lease or Well below the Net Revenue Interest set forth on Exhibit A or Exhibit B, as applicable, with respect to the Target Formation for such Lease or Well; (B) obligate Seller to bear a Working Interest with respect to the Target Formation throughout the productive life of any Well greater than the Working Interest set forth on Exhibit B with respect to the Target Formation for such Well (unless the Net Revenue Interest with respect to such Well is greater than the Net Revenue Interest with respect to the Target Formation set forth in on Exhibit B in the same or greater proportion as any increase in such Working Interest); or (C) reduce the aggregate number of Target Formation Net Mineral Acres below the Target Formation Net Mineral Acre Threshold;

(8)materialmen’s, mechanics’, operators’ or other similar Liens arising (A) in the ordinary course of business or (B) incident to the construction or improvement of any property in the ordinary course of business, in each case for amounts not yet due and payable (including any amounts being withheld as provided by Law);

(9)such Title Defects and/or breaches of the special warranty contained in the Assignment that Buyer has waived in writing (or has been deemed to have waived pursuant to Section 4.2(c));

(10)Liens burdening the Assets that will be discharged or released at or before Closing;

(11)calls on production under existing Contracts;

(12)gas balancing and other production balancing obligations and obligations to balance or furnish make-up Hydrocarbons under Hydrocarbon sales, gathering, processing or transportation Contracts;

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

(14)zoning and planning ordinances and municipal regulations;

(15)the terms and conditions of this Agreement;

(16)with respect to non-wellbore sites existing as of the Execution Date, Liens created by landowners that (A) do not materially interfere with the use or ownership of the Assets subject thereto or affected thereby (as currently used or owned) and (B) secure amounts not yet due and payable by such landowners;

(17)all other Liens, Contracts, obligations, defects and irregularities affecting the Assets, provided that the net cumulative effect of such items does not: (A) reduce the

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Net Revenue Interest with respect to the Target Formation throughout the productive life of any Lease or Well below the Net Revenue Interest set forth on Exhibit A or Exhibit B, as applicable, with respect to the Target Formation for such Lease or Well; (B) obligate Seller to bear a Working Interest with respect to the Target Formation throughout the productive life of any such Well greater than the Working Interest set forth on Exhibit B with respect to the Target Formation for such Well (unless the Net Revenue Interest with respect to the Target Formation throughout the productive life of such Well is greater than the Net Revenue Interest set forth in on Exhibit B in the same or greater proportion as any increase in such Working Interest); (C) reduce the aggregate number of Target Formation Net Mineral Acres below the Target Formation Net Mineral Acre Threshold; or (D) materially interfere with operations currently conducted on the Assets; and

(18)following Closing, any matter of which Buyer has Knowledge prior to the Defect Notice Date that could have been claimed as a Title Defect pursuant to Section 4.2(c) but for which Buyer failed to deliver a Notice of Defective Interests with respect thereto in accordance with Section 4.2(c) prior to the Defect Notice Date.

4.2Title Defects and Title Benefits.

(a)Title Defect.  The term “Title Defect” means any Lien, obligation, defect, or other matter that causes Seller not to have Defensible Title to any Property, provided, however, that none of the following shall be considered Title Defects:

(1)defects in the chain of title consisting of the failure to recite marital status in a document, unless Buyer provides affirmative evidence that such failure could reasonably be expected to result in another Person’s superior claim of title to the relevant Assets;

(2)defects arising out of lack of survey or lack of metes and bounds description;

(3)defects asserting a change in Working Interest or Net Revenue Interest in a Well based on a change in drilling and spacing units, tract allocation or other changes in pool or unit participation occurring after the Effective Time by a Person other than Seller;

(4)defects arising out of lack of corporate or other entity authorization, unless Buyer provides affirmative evidence that such failure could reasonably be expected to result in another Person’s superior claim of title to the relevant Assets;

(5)defects that have been cured by applicable Laws of limitations, prescription, laches or otherwise;

(6)defects arising as a result of non-consent interests in any Well not being held of record by Seller;

(7)defects based on a gap in Seller’s chain of title in the State of Texas’ records as to any applicable Lease where the State of Texas or its agent is the lessor thereunder, or in the applicable county records in the State of Texas as to the other Leases,

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unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or landman’s title chain or runsheet, which documents shall be provided with delivery of a Title Defect Notice with respect to such defects;

(8)defects as a consequence of cessation of production, insufficient production, or failure to conduct operations on any of the Properties held by production, or lands pooled, communitized or unitized therewith, unless Buyer provides affirmative evidence that causes Buyer to reasonably believe the cessation of production, insufficient production or failure to conduct operations would give rise to a right to terminate the Lease in question, which evidence shall be provided with delivery of a Title Defect Notice with respect to such defects;

(9)defects or irregularities resulting from or related to probate proceedings or lack thereof, unless Buyer provides affirmative evidence that such failure could reasonably be expected to result in another Person’s superior claim of title to the relevant Assets;

(10)defects arising from prior oil and gas leases relating to the Lands that are terminated, expired or invalid but not surrendered of record;

(11)any defect that affects only which Person has the right to receive royalty payments (rather than the amount of such royalty) and that could not reasonably be expected to affect the validity or enforceability of the underlying Lease;

(12)defects based on references to lack of information (unless such information (A) is not reflected in the records of the applicable county and (B) is not in the Records made available to Buyer); and

(13)the expiration, pursuant to its terms, of any Expiring Lease listed on Exhibit A-2.

(b)Title Benefit.  The term “Title Benefit” means any right, circumstance or condition that operates to (1) increase the Net Revenue Interest of Seller with respect to the Target Formation in any Lease or Well above that shown in Exhibit A or Exhibit B, as applicable, with respect to the Target Formation for such Lease or Well, to the extent the same does not cause a greater than proportionate increase in Seller’s Working Interest with respect to the Target Formation for any such Well above that shown in Exhibit B with respect to the Target Formation for such Well or (2) increase the aggregate number of Target Formation Net Mineral Acres to which Seller is entitled with respect to the Assets above the Target Formation Net Mineral Acre Threshold.

(c)Notice of Defective Interest.  On or before the Defect Notice Date, Buyer shall notify Seller in writing of any matters that, in Buyer’s reasonable opinion, constitute a Title Defect (such notice, a “Notice of Defective Interests”).  To be effective, each Notice of Defective Interests shall be in writing and contain the following: (1) a clear description of the alleged Title Defect, (2) each Property affected by the alleged Title Defect (each such Property, a “Title Defect Property”), (3) the Allocated Value of each Title Defect Property, (4) supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by

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Seller) to verify the existence of the alleged Title Defect, and (5) the amount which Buyer reasonably believes to be the Title Defect Amount as provided for in Section 4.2(e), and the computations and information upon which Buyer’s beliefs are based.  To give Seller an opportunity to commence reviewing and curing Title Defects, prior to the Defect Notice Date, Buyer agrees to use its reasonable efforts to give Seller weekly notices of all Title Defects discovered by Buyer during the preceding week; provided that any such notice may be preliminary in nature and supplemented prior to the Defect Notice Date.  Other than with respect to Buyer’s (A) remedies for breaches of Section 8.1(b)(1) and Section 8.1(b)(3), and (B) rights under the special warranty set forth in the Assignment, any matters that may otherwise constitute a Title Defect, but of which Seller has not been notified by Buyer in a Notice of Defective Interests delivered in accordance with this Section 4.2(c) prior to the Defect Notice Date, shall be deemed to have been waived by Buyer for all purposes.

(d)Notice of Title Benefits.  On or prior to the Defect Notice Date, Buyer will promptly furnish Seller with written notice (in accordance with the requirements for a Title Benefit Notice below) of any matters that, in Buyer’s reasonable opinion, could constitute a Title Benefit, and that is discovered by any of Buyer’s or any of its Representatives (for the avoidance of doubt, including any title attorneys, landmen or other title examiners) while conducting Buyer’s Due Diligence Review.  On or before the Defect Notice Date, Seller shall advise Buyer in writing of any matters that, in Seller’s reasonable opinion, constitute a Title Benefit (each such notice, a “Title Benefit Notice”).  Each Title Benefit Notice shall be in writing and contain the following:  (1) a clear description of the Title Benefit, (2) each Property affected by the Title Benefit (each such Property, a “Title Benefit Property”), (3) the Allocated Value of each Title Benefit Property, (4) supporting documents reasonably necessary for Buyer (as well as any title attorney or examiner hired by Buyer) to verify the existence of the Title Benefit, and (5) the amount which Seller reasonably believes to be the Title Benefit Amount for each Title Benefit Property and the computations and information upon which Seller’s belief is based.  Subject to Seller’s remedy for a breach of this Section 4.2(d) by Buyer, Seller shall be deemed to have waived all Title Benefits of which it has not given, or received, notice on or before the Defect Notice Date.

(e)Title Defect Amount. Subject to the provisions of Section 4.2(f), the “Title Defect Amount” means the amount by which the Allocated Value of a Title Defect Property affected by a Title Defect is reduced as a result of the existence of such Title Defect, which amount shall be determined in accordance with the following methodology, terms and conditions:

(1)if Buyer and Seller agree in writing on the Title Defect Amount, that amount shall be the Title Defect Amount;

(2)if the Title Defect is a Lien that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount of the payment necessary to remove such Title Defect from the Title Defect Property;

(3)in the event that the Title Defect is the actual failure of Seller to own a number of Target Formation Net Mineral Acres equal to the Target Formation Net Mineral Acre Threshold in the aggregate, then the Title Defect Amount shall be an amount equal to the Allocated Value of the Leases multiplied by a fraction, (A) the

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numerator of which is the difference between (i) the actual aggregate number of Target Formation Net Mineral Acres covered by the Leases, and (ii) the Target Formation Net Mineral Acre Threshold, and (B) the denominator of which shall be the Target Formation Net Mineral Acre Threshold;

(4)in the event that the Title Defect for any Lease or Well is the actual failure of Seller to own the represented Net Revenue Interest with respect to the Target Formation for such Lease or Well set forth on Exhibit A or Exhibit B, as applicable, then the Title Defect Amount shall be equal to the Allocated Value of the Title Defect Property multiplied by a fraction, (A) the numerator of which is the difference between (i) the actual Net Revenue Interest with respect to the Target Formation for the Title Defect Property, and (ii) the Net Revenue Interest with respect to the Target Formation for such Title Defect Property as set forth on Exhibit A or Exhibit B, as applicable, and (B) the denominator of which is the Net Revenue Interest with respect to the Target Formation for such Title Defect Property as set forth on Exhibit A or Exhibit B, as applicable; and

(5)if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in subsections (1), (2), (3) or (4) above, the Title Defect Amount shall be determined by taking into account the following factors:  (A) any potential discrepancy between (i) the Net Revenue Interest with respect to the Target Formation or Working Interest with respect to the Target Formation for such Title Defect Property and (ii) the Net Revenue Interest with respect to the Target Formation or Working Interest with respect to the Target Formation as stated on Exhibit A or Exhibit B, as applicable; (B) the Allocated Value of the Title Defect Property; (C) the portion of the Title Defect Property affected by the Title Defect; (D) the legal effect of the Title Defect; (E) the values placed upon the Title Defect by Buyer and Seller; and (F) such other reasonable factors as are necessary to make a proper evaluation.

Notwithstanding anything to the contrary in this ARTICLE 4, the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of the Title Defect Property and if a Title Defect is reasonably susceptible to being cured, the Title Defect Amount attributable to such Title Defect shall not exceed the cost and expense to cure such Title Defect.

(f)Title Deductibles.  Notwithstanding anything to the contrary in this Agreement, (1) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller in connection with the transactions contemplated hereby for any Title Defect affecting a Title Defect Property for which the Title Defect Amount attributable thereto does not exceed $50,000 (“Individual Title Threshold”); and (2) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller in connection with the transactions contemplated hereby for any Title Defect Amount attributable to a Title Defect affecting a Title Defect Property that exceeds the Individual Title Threshold unless (A) the sum of (i) the aggregate Title Defect Amounts of all such Title Defects exceeding the Individual Title Threshold (i.e. the entire amount of any such Title Defect Amounts from the first dollar for those Title Defects which exceed the Individual Title Threshold), excluding any Title Defects cured by Seller, plus (ii) the aggregate Environmental Defect Values of all Environmental Defects that

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exceed the Individual Environmental Threshold (i.e. the entire amount of any such Environmental Defect Values from the first dollar for those Environmental Defects which exceed the Individual Environmental Threshold), excluding any Environmental Defects Remediated by Seller, minus (iii) all Title Benefit Amounts (the amount obtained pursuant to subsections (i) - (iii) above, the “Total Defect Sum”), exceeds (B) the Aggregate Defect Deductible, after which point, Buyer shall be entitled to adjustments to the Purchase Price or other remedies only with respect to the amount by which the Total Defect Sum exceeds the Aggregate Defect Deductible.  For the avoidance of doubt (I) in no event will Buyer be entitled to claim any remedies under Section 4.2(f), Section 4.2(j), Section 5.3(b) or Section 5.3(e) for any Title Defects and/or Environmental Defects to the extent any Title Defect Amounts or Environmental Defect Values attributable thereto, in the aggregate, exceed the Total Defect Sum minus the Aggregate Defect Deductible, and (II) once the Individual Title Threshold has been met with respect to a Title Defect Amount or the Individual Environmental Threshold has been met with respect to an Environmental Defect Value all of such amounts (relating back to the first dollar) shall be included in the determination of the Total Defect Sum.  If any Asset is excluded pursuant to Section 4.2(j)(2) or Schedule 1.1(e), any Title Defect Amount relating to such excluded Asset will not be counted towards the Aggregate Defect Deductible.

(g)Title Benefit Amount.  The “Title Benefit Amount” means the amount by which the Allocated Value of a Title Benefit Property affected by a Title Benefit is increased as a result of the existence of such Title Benefit.  Each Title Benefit Amount shall be determined in accordance with the same methodology, terms and conditions for determining each Title Defect Amount.  With respect to any Title Benefit reported under Section 4.2(d) and provided that the Title Benefit Amount with respect thereto is in excess of the Individual Title Threshold, the Title Benefit Amount attributable to such Title Benefit shall be used to reduce the amount of the aggregate Title Defect Amounts and Environmental Defect Values attributable to Title Defects and Environmental Defects properly and timely raised by Buyer after taking into account the Individual Title Threshold and the Individual Environmental Threshold, as applicable.  If the Parties cannot reach an agreement on alleged Title Benefits or Title Benefit Amounts by the scheduled Closing, then (1) the average of Seller’s and Buyer’s good faith estimate of such disputed Title Benefit Amount shall be used in calculating the reduction to the Title Defect Amounts and Environmental Defect Values pursuant to this Section 4.2(g) to the extent applicable, and (2) the provisions of Section 4.3 shall apply.  For the avoidance of doubt, Seller shall not be entitled to any remedy with respect to any claimed Title Benefit if the applicable Title Benefit Amount with respect thereto is not in excess of the Individual Title Threshold.

(h)Title Adjustment Amount.  The amount by which the Purchase Price is to be adjusted in accordance with this ARTICLE 4 for Title Defect Amounts (after, for the avoidance of doubt, taking into account any offsetting Title Benefit Amounts) shall be referred to as the “Title Adjustment Amount”.  For the avoidance of doubt, any Title Defect Amount attributable to any Asset excluded pursuant to Schedule 1.1(e) shall not be counted in determining the Title Adjustment Amount, including determining the Title Adjustment Amount for purposes of Section 2.4(d)(1) and Section 11.1(g).

(i)Seller’s Right to Cure.  Continuing until four Business Days prior to Closing (such period of time, the “Cure Period”), Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove any Title Defects timely asserted by Buyer pursuant to

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Section 4.2(c).  If Seller believes that it has cured any applicable Title Defect, Seller shall deliver written notice thereof to Buyer, together with supporting documents available to Seller and reasonably necessary for Buyer (as well as any title attorney or examiner hired by Buyer) to verify the cure of such Title Defect.  Buyer shall, at or prior to the end of the Cure Period, advise Seller in writing whether it agrees or (pursuant to a Title Dispute Notice, as described in Section 4.3) Disputes that any such Title Defect has been so cured; provided that Buyer’s failure to timely respond to Seller’s notice of cure shall be deemed Buyer’s rejection that such Title Defect has been cured.  If Buyer timely notifies Seller of a Dispute as to Seller’s attempted cure of any Title Defect or is deemed to reject such claim through its failure to timely respond, then (subject to Section 4.2(j)), the provisions of Section 4.3 shall apply to such Title Defect.

(j)Remedies for Title Defects.  Subject to Seller’s continuing right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto and subject to Section 4.2(f), in the event that any Title Defect timely asserted by Buyer in accordance with Section 4.2(c) is not waived in writing by Buyer or cured by Seller prior to the end of the Cure Period, then the Parties shall mutually agree in writing to one of the following remedies with respect to such Title Defect:

(1)reduce the Purchase Price by the Title Defect Amount applicable to such Title Defect;

(2)require Seller to retain the entirety of the Title Defect Property that is subject to such Title Defect (together with all related Assets) and reduce the Purchase Price by an amount equal to the Allocated Value of the Assets so retained; or

(3)require Seller to indemnify Buyer against all Losses resulting from such Title Defect with respect to the applicable Title Defect Property pursuant to an indemnity agreement mutually acceptable to the Parties;

provided, however, that in the event the Parties do not agree in writing by Closing on an election of alternative (1), (2) or (3) above with respect to any Title Defect, the Parties shall be deemed to have agreed to alternative (2) above with respect to such Title Defect.  As to any Title Defect timely asserted by Buyer in accordance with Section 4.2(c) which remains uncured by Seller prior to the end of the Cure Period and for which a corresponding Title Defect Amount is included in the Title Adjustment Amount at Closing (including, for the avoidance of doubt, any Title Defect which Seller has chosen to dispute pursuant to Section 4.3), Seller also shall retain the right, but not the obligation, to attempt to cure each such Title Defect after Closing at Seller’s sole cost and expense; provided that Seller shall furnish notice to Buyer of Seller’s belief that it has cured any such Title Defect (together with supporting documents available to Seller and reasonably necessary for Buyer, as well as any title attorney or examiner hired by it, to verify the cure of any such Title Defect), by no later 15 days prior to the Final Settlement Statement Due Date.  If Buyer disagrees that the Title Defect has been cured, it shall so advise Seller in writing within five Business Days after receipt of Seller’s notice as provided above, following which the provisions of Section 4.3 will apply to resolve such Dispute, and the Final Settlement Statement Due Date shall be extended to the extent necessary to complete the Dispute resolution procedure as provided for in Section 4.3.  Should Buyer (A) fail to respond to Seller’s notice of cure in such five Business Day period, then Buyer shall be deemed to have (i) agreed that the Title Defect has

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been cured and (ii) waived its Claim with respect to such Title Defect, or (B) agree that the Title Defect has been cured, and then, in each case, the Title Defect Amount attributable thereto and included in the Title Adjustment Amount used to adjust the Purchase Price at Closing shall be credited to Seller in the Final Settlement Statement.

4.3Title Dispute Resolution.  If prior to the Closing or, with respect to the adequacy of Seller’s Title Defect curative actions after Closing, after the Closing, the Parties are unable to resolve any Title Disputed Matter, then either Party shall have the right, upon the delivery of written notice to the other Party (each, a “Title Dispute Notice”), to Dispute such Title Disputed Matter and to invoke the Dispute resolution provisions below in this Section 4.3 in order to resolve any such Dispute.  As used herein, the term “Title Disputed Matter” means a Dispute regarding any of the following: (w) the existence and scope of a Title Defect or Title Benefit; (x) any Title Defect Amount or Title Benefit Amount, as the case may be; (y) the Title Adjustment Amount, if any; and (z) the adequacy of Seller’s Title Defect curative actions.  As to any Dispute regarding the adequacy of Seller’s Title Defect curative actions after Closing as provided for in Section 4.2(j), the Final Settlement Statement Due Date shall be extended to the extent necessary to complete the Dispute resolution procedure as provided for below in this Section 4.3.  Any Title Dispute Notice must be delivered on or before the tenth Business Day after Closing except with respect to Disputes relating to any of Seller’s Title Defect curative actions conducted post-Closing.  Any Title Dispute Notice relating to any of Seller’s Title Defect curative actions conducted post-Closing must be delivered within ten Business Days following Buyer’s receipt of notice from Seller that it has cured the applicable Title Defect.  In no event will Closing be delayed on account of any Title Disputed Matter and, if the Title Defect Property affected thereby is transferred to Buyer at Closing, the average of the Parties’ respective good faith estimates of the Title Defect Amounts attributable to such Title Defect Property shall be used in the calculation and determination of the Title Adjustment Amount to be used at Closing.

(a)The Parties shall attempt to resolve all Title Disputed Matters through good faith negotiations for a period of 20 days after the delivery of a Title Dispute Notice by either Party.  Following such negotiation period, if the Title Disputed Matter at issue remains in Dispute, such Title Disputed Matter shall be resolved pursuant to this Section 4.3 and the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Title Defect Expert”).  If the Parties are unable to mutually agree upon the Title Defect Expert, then the Parties shall, within ten days after the expiration of such negotiation period, request (and either Party may so request alone if the other Party refuses to jointly act in good faith to do so during such ten day period) that the AAA, acting through its offices in Houston, Texas, appoint the Title Defect Expert.  The Title Defect Expert shall be a licensed title attorney having a minimum of ten years’ experience with regard to the types of title defects affecting the Properties involved in the Title Disputed Matter, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for either Party or its Affiliates within the five year period preceding the submission of the Dispute.  For the avoidance of doubt, the Title Defect Expert will function as an expert in accordance with the procedures set forth in this Section 4.3, and not as an arbitrator.

(b)Within 30 days following the appointment of the Title Defect Expert, Seller and/or Buyer shall provide the Title Defect Expert with a copy of this Agreement, and each Party shall provide, both to the Title Defect Expert and each other, a summary of its position with

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regard to each such outstanding Title Disputed Matter in a written document of five pages or less per Title Disputed Matter.  The Parties shall instruct the Title Defect Expert that, within 30 days after receiving the Parties’ respective submissions, the Title Defect Expert shall render a written decision.  In rendering its decision, the Title Defect Expert shall not award (1) a higher Title Defect Amount than the lower of (A) the Allocated Value of the applicable Property or (B) the amount claimed by Buyer in its summary, (2) a higher Title Benefit Amount than the amount claimed by Seller in its summary, (3) a lower Title Benefit Amount than the amount claimed by Buyer in its summary or (4) a lower Title Defect Amount than that amount claimed by Seller in its summary, as applicable.  The Title Defect Expert shall determine the specific disputed Title Defect, Title Benefit, Title Defect Amount, Title Benefit Amount or the adequacy of Seller’s Title Defect curative actions, as the case may be, submitted by either Party and may not award damages, interest or penalties to either Party with respect to any other matter.  Any decision rendered by the Title Defect Expert pursuant hereto shall be final, conclusive, and binding on Seller and Buyer, and will be enforceable against each Party in any court having jurisdiction hereof or jurisdiction of either or both Parties, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Title Defect Expert and of any associated dispute resolution process and proceedings, except that the Parties shall each bear its own legal fees with respect to any Dispute.

(c)If the Title Defect Expert determines that a Title Defect did not exist or that a Title Defect existed but was cured by Seller, then any Title Defect Amount attributable thereto that was included in the Title Adjustment Amount used at Closing, if any, shall be credited to Seller in the Final Settlement Statement.

(d)If the Title Defect Expert determines that a Title Defect exists, but that the Title Defect Amount attributable thereto is a lesser amount than any Title Defect Amount with respect thereto that was included in the Title Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Seller in the Final Settlement Statement.

(e)If the Title Defect Expert determines that a Title Defect exists, such Title Defect has not been cured by Seller and the Title Defect Amount attributable thereto is a greater amount than any Title Defect Amount with respect thereto that was included in the Title Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Buyer in the Final Settlement Statement.

(f)Any such adjustments to the amount of the Purchase Price will be reflected in the Final Settlement Statement as applicable.

For the avoidance of doubt, if any Asset is retained by Seller pursuant to Section 4.2(j)(2), the Dispute resolution provisions set forth in this Section 4.3 will not apply and no conveyance of such Asset will thereafter be made to Buyer and no payment shall be required of Buyer in connection with any such Asset so retained.

4.4Preferential Rights and Consents.

(a)Preferential Purchase Rights.  Promptly following the Execution Date, and in any event within five Business Days following the Execution Date, Seller shall send notices to the

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holder of each Preferential Right listed on Schedule 6.6 in accordance with the terms of the instruments giving rise to such Preferential Rights.  Seller shall promptly provide a copy of each such notice to Buyer following the delivery thereof by Seller.  Seller shall use commercially reasonable efforts to cause written waivers of such Preferential Rights to be obtained and delivered prior to Closing; provided that Seller shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Preferential Rights in order to obtain the required waivers.  Buyer shall reasonably cooperate with Seller in seeking to obtain such waivers of Preferential Rights; provided that Buyer shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Preferential Rights in order to obtain the required waivers.  Any Preferential Right must be exercised subject to all terms and conditions set forth in this Agreement (including all thresholds, deductibles and other amounts except for the cash consideration, which shall equal the Allocated Value for such property), including the successful Closing of this Agreement pursuant to ARTICLE 12 as to those Assets for which Preferential Rights have not been exercised.  The consideration payable under this Agreement for any particular Asset for purposes of Preferential Rights notices shall be the Allocated Value for such Asset, subject to adjustment pursuant to Section 2.4 and Section 13.1.  If, prior to the Closing Date, either Party discovers any required Preferential Right for which notices have not been delivered pursuant to the first sentence of this Section 4.4(a), then (x) the Party making such discovery shall provide the other Party with written notification of such Preferential Right, (y) Seller, following delivery or receipt of such written notification, as applicable, will promptly send notices to the holders of such Preferential Rights in accordance with the terms of the instrument giving rise to such Preferential Right, and (z) the terms and conditions of this Section 4.4(a) shall apply to the Assets subject to such Preferential Right.

(1)If, prior to Closing, any holder of a Preferential Right notifies Seller that it intends to consummate the purchase of the Assets to which its Preferential Right applies or if the time for exercising such Preferential Right has not expired, then the Assets subject to such Preferential Right (together with all related Assets) shall be excluded from the Assets to be assigned to Buyer at Closing, and the Purchase Price shall be reduced by the sum of the Allocated Values of such Assets so excluded.

(2)Seller shall be entitled to all proceeds paid by any Person exercising a Preferential Right prior to Closing.  If such holder of such Preferential Right thereafter fails to consummate the purchase of the Assets subject to such Preferential Right (together with all related Assets) on or before the end of the time period for closing such sale or the time for exercising such Preferential Right expires without exercise by the holder thereof, then (A) Seller shall so notify Buyer, (B) Seller shall assign to Buyer, on the tenth Business Day following the end of such time period or termination of such right without exercise, such Assets that were so excluded at Closing pursuant to an instrument in substantially the same form as the Assignment, and (C) Buyer shall pay to Seller, by wire transfer of immediately available funds, the amount by which the Purchase Price was reduced at Closing with respect to such excluded Assets, as adjusted pursuant to Section 2.4 and Section 13.1.

(3)All Assets for which any applicable Preferential Right has been waived in writing, or as to which the time for exercising the applicable Preferential Right has

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expired, in each case, prior to Closing, shall be transferred to Buyer at Closing, subject to the other provisions of this Agreement.

(b)Consents.  Promptly following the execution of this Agreement, and in any event within five Business Days following the Execution Date, Seller shall send notices to the holder of each Consent listed on Schedule 6.5 requesting such holder’s applicable written Consent to the transactions contemplated hereby.  Seller shall use commercially reasonable efforts to cause such Consents to be obtained and delivered prior to Closing; provided that Seller shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Consents in order to obtain the required Consents.  Buyer shall reasonably cooperate with Seller in seeking to obtain such Consents to assignment; provided that Buyer shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Consents in order to obtain the required Consents.  If, prior to the Closing Date, either Party discovers any Consents for which notices have not been delivered pursuant to the first sentence of this Section 4.4(b), then (x) the Party making such discovery shall provide the other Party with written notification of such Consents, (y) Seller, following delivery or receipt of such written notification, as applicable, will promptly send notices to the holders of Consents requesting such Consents, and (z) the terms and conditions of this Section 4.4(b) shall apply to the Assets subject to such Consents.

(1)If (A) Seller fails to obtain any such Consent prior to Closing and the failure to obtain such Consent would (i) cause the assignment of the Assets affected thereby to Buyer to be void, (ii) give the holder of such Consent the right to terminate the applicable underlying Lease, Surface Contract or Applicable Contract under the express terms thereof or (iii) give the holder of such Consent a Claim for liquidated damages pursuant to the express terms of the applicable underlying Lease, Surface Contract or Applicable Contract, (B) Seller fails to obtain a Consent held by a Governmental Entity prior to Closing, or (C) a Consent requested by Seller is denied in writing, then, in each case, the Assets affected by such un-obtained Consent (together with all related Assets, the “Affected Assets”) shall be excluded from the Assets to be assigned to Buyer at Closing, and the Purchase Price shall be reduced by the sum of the Allocated Value of such Affected Assets.

(2)If any such Consent relating to Affected Assets that was not obtained prior to Closing is obtained within 60 days following the Closing, then (A) on the 15th Business Day after such Consent is obtained, Seller shall assign such Affected Assets to Buyer pursuant to an instrument in substantially the same form as the Assignment, and (B) Buyer shall pay to Seller, by wire transfer of immediately available funds, the amount by which the Purchase Price was reduced at Closing with respect to such Affected Assets, as adjusted pursuant to Section 2.4 and Section 13.1, and as would be further adjusted for such Affected Asset pursuant to Section 2.4 and Section 13.1 as if the Closing had occurred on the date of such assignment such that Buyer shall receive the benefit of such transferred asset and bear the burden of such transferred asset from the Effective Time.

(3)If Seller fails to obtain any such Consent prior to Closing and (A) the failure to obtain such Consent would not (i) cause the assignment of the Assets affected thereby to Buyer to be void, (ii) give the holder of such Consent the right to terminate the

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applicable underlying Lease, Surface Contract or Applicable Contract under the express terms thereof or (iii) give the holder of such Consent a Claim for liquidated damages pursuant to the express terms of the applicable underlying Lease, Surface Contract or Applicable Contract, (B) the holder of such Consent is not a Governmental Entity and (C) such Consent requested by Seller is not denied in writing by the holder thereof, then (I) the Assets subject to such un-obtained Consent shall nevertheless be assigned by Seller to Buyer at Closing as part of the Assets and Seller (for a period of 60 days following Closing) and Buyer shall each use their commercially reasonable efforts following Closing to obtain such Consent, (II) Buyer shall have no claim against Seller, and Seller shall have no liability for, the failure to obtain any such Consent and (III) Buyer shall be responsible from and after the Closing for any and all Losses arising from the failure to obtain such Consent.

ARTICLE 5
ENVIRONMENTAL MATTERS

5.1Definitions.  For the purposes of this Agreement, the following terms shall have the following meanings:

(a)“Condition” means any circumstance, status or defect that, with notice to the Governmental Entity with jurisdiction, would currently require Remediation under Environmental Laws.

(b)“Environment” means all or any of the following media: land (whether on or below the surface of the earth or beneath the surface of any waters); air or water, whether on or below the surface of the earth or whether contained within buildings or other natural or man-made structures above or below ground or below any waters; and any living organism (including man) supported by the foregoing media.

(c)“Environmental Defect” means a Condition of or affecting the Environment in, on, under or relating to a particular Asset (including air, land, soil, surface and subsurface strata, surface water, groundwater, or sediments).

(d)“Environmental Law” or “Environmental Laws” means any federal, tribal, state, local or foreign law (including common law), statute, rule, regulation, requirement, ordinance and any writ, decree, bond, authorization, approval, license, permit, registration, binding criteria, standard, consent decree, settlement agreement, judgment, order, directive or binding policy issued by or entered into with a Governmental Entity pertaining or relating to:  (1) pollution or pollution control, including, without limitation, storm water; (2) protection of the Environment or of human health, including from exposure to Hazardous Materials; (3) employee safety in the workplace; or (4) the management, presence, use, generation, processing, extraction, treatment, recycling, refining, reclamation, labeling, transport, storage, collection, distribution, disposal or release or threat of release of Hazardous Materials.  “Environmental Laws” shall include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., the Solid Waste Disposal Act (as amended by the Resource Conservation and Recovery Act), 42 U.S.C. § 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., the Toxic Substances Control Act, 15 U.S.C.

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§ 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Federal Safe Drinking Water Act, 42 U.S.C. §§ 300f et. seq, the Federal Air Pollution Control Act, 42 U.S.C. § 7401 et seq., the Oil Pollution Act, 33 U.S.C. § 2701 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Endangered Species Act, 16 U.S.C. § 1531 et seq., the National Historic Preservation Act, 16 U.S.C. §470 et seq. and the regulations and orders respectively promulgated thereunder, each as amended, or any equivalent or analogous state or local statutes, laws or ordinances, any regulation promulgated thereunder and any amendments thereto.

(e)“Environmental Liabilities” means all Losses involving any pollution of or other harm to or destruction of the Environment or any natural resources, including the payment of natural resource damages that are assessed by any Governmental Entity and any Losses attributable to the Remediation of any such damage, brought or assessed by or in favor of any Persons, including any Governmental Entity, to the extent any of the foregoing directly or indirectly involves the Assets or the presence, disposal, release or threatened release of any Hazardous Materials of any kind in, on or under the Assets or any other premises to the extent directly or indirectly relating to operations involving the Assets or the transportation, disposal or other handling of Hazardous Materials generated by or otherwise attributable to operations involving the Assets, whether any of the foregoing is created, arises or otherwise relates or is attributable to any period of time, whether before or after Seller acquired ownership of the Assets and whether before, on or after the Effective Time.

(f)“Hazardous Materials” means, without limitation, any waste, substance, product, or other material (whether solid, liquid, gas or mixed), which is or becomes identified, listed, published, or defined as a hazardous substance, hazardous waste, hazardous material, toxic substance, radioactive material, oil, or petroleum waste, subject to regulation, investigation, control, or Remediation under any Environmental Law.

(g)“Plugging and Abandonment Obligations” means any and all responsibility and liability, in accordance with all applicable Laws, Leases, Surface Contracts and other Contracts, permits or any orders, directives or other requirements of any applicable Governmental Entities or otherwise as required for reasonable and prudent oilfield operations, for all of the following, arising out of or otherwise relating to the ownership or operation of the Assets, directly or indirectly, whether attributable to any period of time before, on or after the Effective Time: (1) the necessary and proper plugging, replugging and abandonment of all Wells; (2) the necessary and proper removal, closure, abandonment, decontamination and disposal, as applicable, of all structures, facilities, pits, pipelines, Equipment, operating inventory, abandoned property, trash, refuse, wastes and junk located on, comprising part of or otherwise attributable to the Assets in connection with any activities referenced in this item (2) or the foregoing item (1); (3) the necessary and proper capping and burying of all associated flow lines and other pipelines located on or comprising part of the Assets, including in connection with any of the activities referenced in the foregoing items (1) or (2); and (4) the necessary and proper restoration of the surface and subsurface of the Properties to the condition as required pursuant to all applicable Laws, Leases, Surface Contracts and Contracts, in connection with any of the activities referenced in the foregoing items (1), (2) or (3).

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(h)“Remediation” or “Remediate” means investigation, assessment, characterization, delineation, monitoring, sampling, analysis, response action, removal, corrective action, mitigation, decontamination, treatment, cleanup and disposal of Hazardous Materials and restoration of any harm or damage to, or replacement of any destruction of, the Environment or any natural resources (including the payment of natural resource damages that are assessed by any Governmental Entity, including for the loss of use thereof), in each case, to the extent required by applicable Environmental Laws.

5.2Exclusive Remedy.  Other than Buyer’s remedies for breaches of Section 6.15, Section 5.3 shall constitute the sole and exclusive rights and remedies of Buyer as against Seller or its Affiliates with respect to any Environmental Defect, the existence of any Condition with respect to the Assets, the Remediation of any such Environmental Defect or Condition, or Seller’s or its predecessors’ failure to comply with Environmental Laws with respect to the Assets.

5.3Environmental Defects.

(a)Environmental Defect Notices.  On or before the Defect Notice Date, Buyer shall notify Seller in writing of any matters that, in Buyer’s reasonable opinion, constitute an Environmental Defect (such notice, an “Environmental Defect Notice”).  To be effective, each Environmental Defect Notice shall be in writing and contain the following: (1) a clear description of the alleged Environmental Defect, (2) each Asset affected by the alleged Environmental Defect (each such Asset, an “Environmental Defect Property”), (3) the Allocated Value, if any, of each Environmental Defect Property, (4) supporting documents that are in Buyer’s or its Representatives’ possession, if any, that are reasonably necessary for Seller (as well as any environmental consultant hired by Seller) to verify the existence of the alleged Environmental Defect, and (5) the amount that Buyer reasonably believes is the cost to Remediate each alleged Environmental Defect, net to Seller’s interest in the applicable Assets (the “Environmental Defect Value”), and the computations and information upon which Buyer’s belief is based.  To give Seller an opportunity to commence reviewing and curing Environmental Defects prior to the Defect Notice Date, Buyer agrees to use its reasonable efforts to give Seller weekly notices of all Environmental Defects discovered by Buyer during the preceding week; provided that any such notice may be preliminary in nature and supplemented prior to or on the Defect Notice Date.  Buyer’s failure to provide such weekly notices shall not constitute a waiver of an Environmental Defect provided an Environmental Defect Notice is delivered to Seller prior to the Defect Notice Date.  Other than with respect to Buyer’s remedies for breaches of Section 6.15, any matters that may otherwise constitute an Environmental Defect, but of which Seller has not been notified by Buyer in an Environmental Defect Notice delivered in accordance with this Section 5.3(a) prior to the Defect Notice Date, shall be deemed to have been waived by Buyer for all purposes.

(b)Environmental Deductibles.  Other than with respect to Buyer’s remedies for breaches of Section 6.15, notwithstanding anything to the contrary in this Agreement, (1) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller in connection with the transactions contemplated hereby for any Environmental Defect affecting an Environmental Defect Property for which the Environmental Defect Value attributable thereto does not exceed $100,000 (“Individual Environmental Threshold”); and (2) in no event shall

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there be any adjustments to the Purchase Price or other remedies provided by Seller in connection with the transactions contemplated hereby for any Environmental Defect Value attributable to an Environmental Defect affecting an Environmental Defect Property that exceeds the Individual Environmental Threshold unless the Total Defect Sum exceeds the Aggregate Defect Deductible, after which point, Buyer shall be entitled to adjustments to the Purchase Price or other remedies only with respect to the amount by which the Total Defect Sum exceeds the Aggregate Defect Deductible.  For the avoidance of doubt (I) in no event will Buyer be entitled to claim any remedies under Section 4.2(f), Section 4.2(j), Section 5.3(b) or Section 5.3(e) for any Title Defects or Environmental Defects to the extent any Title Defect Amounts and/or Environmental Defect Values attributable thereto, in the aggregate, exceed the Total Defect Sum minus the Aggregate Defect Deductible, and (II) once the Individual Title Threshold has been met with respect to a Title Defect Amount or the Individual Environmental Threshold has been met with respect to an Environmental Defect Value all of such amounts (relating back to the first dollar) shall be included in the determination of the Total Defect Sum.  If any Asset is excluded pursuant to Section 5.3(e)(3) or Schedule 1.1(e), any Environmental Defect Value relating to such excluded Asset will not be counted towards the Aggregate Defect Deductible.

(c)Environmental Adjustment Amount.  The amount by which the Purchase Price is to be adjusted in accordance with this ARTICLE 5 for Environmental Defect Values shall be referred to as the “Environmental Adjustment Amount”.  For the avoidance of doubt, any Environmental Defect Value attributable to any Asset excluded pursuant to Schedule 1.1(e) shall not be counted in determining the Environmental Adjustment Amount, including determining the Environmental Adjustment Amount for purposes of Section 2.4(d)(2) and Section 11.1(g).

(d)Seller’s Right to Remediate.  Continuing until the end of the Cure Period, Seller shall have the right, but not the obligation, to attempt, at its sole cost, to Remediate any Environmental Defects timely asserted by Buyer pursuant to Section 5.3(a).  If Seller believes that it has Remediated any applicable Environmental Defect, Seller shall deliver written notice thereof to Buyer, together with supporting documents available to Seller and reasonably necessary for Buyer (as well as any environmental consultant hired by Buyer) to verify the Remediation of the Environmental Defects.  Buyer shall, within two Business Days following the end of the Cure Period, advise Seller in writing whether it agrees or (pursuant to an Environmental Dispute Notice, as described in Section 5.3(f)) Disputes that the Environmental Defect has been so Remediated; provided that Buyer’s failure to timely respond to Seller’s notice of Remediation shall be deemed Buyer’s rejection of the claim that the Environmental Defect has been Remediated.  If Buyer timely notifies Seller of a Dispute as to Seller’s attempted Remediation of any Environmental Defect or is deemed to reject such claim through its failure to timely respond, then (subject to Section 5.3(e)) the provisions of Section 5.3(f) shall apply to such Environmental Defect.

(e)Remedies for Environmental Defects.  Subject to Seller’s continuing right to dispute the existence of an Environmental Defect and/or the Environmental Defect Value asserted with respect thereto and subject to Section 5.3(b), in the event that any Environmental Defect timely asserted by Buyer in accordance with Section 5.3(a) is not waived in writing by Buyer or Remediated by Seller prior to the end of the Cure Period, then the Parties shall mutually agree in writing to one of the following remedies with respect to such Environmental Defect:

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(1)reduce the Purchase Price by the Environmental Defect Value applicable to such Environmental Defect;

(2)require Seller to indemnify Buyer against all Losses resulting from such Environmental Defect and associated Remediation pursuant to an indemnity agreement mutually agreed by the Parties, under which Seller agrees to fully, unconditionally and irrevocably indemnify and hold harmless Buyer from any and all Losses arising out of or resulting from such Environmental Defect; or

(3)require Seller to retain the entirety of the Asset that is subject to such Environmental Defect (together with all related Assets), and reduce the Purchase Price by an amount equal to the sum of the Allocated Value of the Assets so retained;

provided, however, that in the event the Parties do not agree in writing by Closing on an election of alternative (1), (2) or (3) above with respect to any Environmental Defect, the Parties shall be deemed to have agreed to alternative (3) above with respect to such Environmental Defect.  If the Parties elect the option set forth in clause (1) above, then Buyer shall be deemed to have assumed responsibility for all costs and expenses attributable to the Remediation of the applicable Environmental Defect and all Losses with respect thereto, and Buyer’s obligations with respect thereto shall be deemed to constitute Assumed Liabilities.  If the Parties elect the option set forth in clause (2) above, Seller shall have the right to elect to assume responsibility for the Remediation of such Environmental Defect following Closing and, if Seller so elects (A) Seller shall use its reasonable efforts to implement such Remediation in a manner which is consistent with the requirements of Environmental Laws in a timely fashion for the type of Remediation that Seller elects to undertake and (B) Buyer, effective as of the Closing, hereby grants to Seller and its representatives access to the Assets to conduct such Remediation; provided that the indemnity agreement in place contains mutually acceptable indemnification and release and other procedures applicable in connection with Seller’s Remediation efforts that are similar in scope to the obligations of Buyer in ARTICLE 3 as if Seller were the Buyer in such instance.  If the Parties are unable to mutually agree upon acceptable access and indemnification and release procedures, Buyer shall assume responsibility for the Remediation of the Environmental Defect following Closing and shall implement such Remediation in a manner which is consistent with the requirements of Environmental Laws in a timely fashion for the type of Remediation that Buyer elects to undertake, and Seller agrees to indemnify and hold harmless Buyer from any and all Losses arising out of or resulting from such Remediation efforts.

(f)Environmental Dispute Resolution Procedure.  If prior to the Closing the Parties are unable to resolve any Environmental Disputed Matter, then either Party shall have the right, upon the delivery of written notice to the other Party (each, an “Environmental Dispute Notice”), to Dispute such Environmental Disputed Matter and to invoke the Dispute resolution provisions below in this Section 5.3(f) in order to resolve any such Dispute.  As used herein, the term “Environmental Disputed Matter” means a Dispute regarding any of the following:  (w) the existence and scope of an Environmental Defect; (x) any Environmental Defect Value; (y) the Environmental Adjustment Amount, if any; and (z) the adequacy of Seller’s Environmental Defect Remediation actions.  Any Environmental Dispute Notice must be delivered on or before the tenth Business Day after Closing.  In no event will Closing be delayed on account of any Environmental Disputed Matter and if the Environmental Defect Property affected thereby is

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transferred to Buyer at Closing, the average of the Parties’ respective good faith estimates of the Environmental Defect Values attributable to such Environmental Defect Property shall be used in the calculation and determination of the Environmental Adjustment Amount to be used at Closing.

(1)The Parties shall attempt to resolve all Environmental Disputed Matters through good faith negotiations for a period of 20 days after the delivery of an Environmental Dispute Notice by either Party.  Following such negotiation period, if the Environmental Disputed Matter at issue should remain in Dispute, such Environmental Disputed Matter shall be resolved pursuant to this Section 5.3(f) and the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Environmental Defect Expert”).  If the Parties are unable to mutually agree upon the Environmental Defect Expert, then the Parties shall, within ten days after the expiration of such negotiation period, request (and either Party may so request alone if the other Party refuses to jointly act in good faith to do so during such ten day period) that the AAA, acting through its offices in Houston, Texas, appoint the Environmental Defect Expert.  The Environmental Defect Expert shall be a certified environmental professional having a minimum of ten years’ experience with regard to the types of environmental defects affecting the Properties involved in the Environmental Disputed Matter, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for either Party or its Affiliates within the five year period preceding the submission of the Dispute.  For the avoidance of doubt, the Environmental Defect Expert will function as an expert in accordance with the procedures set forth in this Section 5.3(f), and not as an arbitrator.

(2)Within 30 days following the appointment of the Environmental Defect Expert, Seller and/or Buyer shall provide the Environmental Defect Expert with a copy of this Agreement, and each Party shall provide, both to the Environmental Defect Expert and each other, a summary of its position with regard to each such outstanding Environmental Disputed Matter in a written document of five pages or less per Environmental Disputed Matter.  The Parties shall instruct the Environmental Defect Expert that, within 30 days after receiving the Parties’ respective submissions, the Environmental Defect Expert shall render a written decision.  In rendering its decision, the Environmental Defect Expert shall not award a higher Environmental Defect Value than the good faith amount claimed by Buyer in its summary or a lower Environmental Defect Value than the good faith amount claimed by Seller in its summary, as applicable.  Any decision rendered by the Environmental Defect Expert pursuant hereto shall be final, conclusive, and binding on Seller and Buyer, and will be enforceable against each Party in any court having jurisdiction hereof or jurisdiction of either or both Parties, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Environmental Defect Expert and of any associated Dispute resolution process and proceedings, except the Parties shall each bear its own legal fees with respect to any Dispute.

(3)If the Environmental Defect Expert determines that an Environmental Defect did not exist or that an Environmental Defect existed but was Remediated by Seller, then any Environmental Defect Value attributable thereto that was included in the

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Environmental Adjustment Amount used at Closing, if any, shall be credited to Seller in the Final Settlement Statement.

(4)If the Environmental Defect Expert determines that an Environmental Defect exists, but that the Environmental Defect Value attributable thereto is a lesser amount than any Environmental Defect Value with respect thereto that was included in the Environmental Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Seller in the Final Settlement Statement.

(5)If the Environmental Defect Expert determines that an Environmental Defect exists, such Environmental Defect has not been Remediated by Seller and the Environmental Defect Value attributable thereto is a greater amount than the Environmental Defect Value with respect thereto that was included in the Environmental Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Buyer in the Final Settlement Statement.

(6)Any such adjustments to the amount of the Purchase Price will be reflected in the Final Settlement Statement as applicable.

For the avoidance of doubt, if any Asset is retained by Seller pursuant to Section 5.3(e)(3), the Dispute resolution provisions set forth in this Section 5.3(f) will not apply and no conveyance of such Asset would be made to Buyer and no payment will thereafter be required by Buyer in connection with any such Asset so retained.

ARTICLE 6
SELLER’S REPRESENTATIONS AND WARRANTIES

Seller represents and warrants to Buyer as follows:

6.1Status.  Seller is a corporation duly formed, validly existing and in good standing under the Laws of the State of Delaware and is qualified to carry on its business in such other jurisdictions as may be necessary, except where the failure to be so qualified would not be reasonably expected to have a Material Adverse Effect.

6.2Power.  Seller has all requisite corporate power and authority to carry on its business as presently conducted, to enter into this Agreement and the other documents to be delivered by Seller at Closing pursuant to this Agreement and to perform its obligations hereunder and thereunder.

6.3No Conflicts.  Except as disclosed in Schedule 6.3 and assuming the receipt of all Consents and the waiver of all Preferential Rights, the execution, delivery and performance by Seller of this Agreement and the other documents to be delivered by Seller at Closing pursuant to this Agreement and the consummation of the transactions contemplated herein and therein does not and will not (a) conflict with or result in a breach of any provisions of the Governing Documents of Seller, (b) result in a default or the creation of any Lien (other than a Permitted Encumbrance), or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions, or provisions of any Lease, Surface Contract, or Applicable Contract to which Seller is a party or by which Seller or the Assets may be bound or (c) violate

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any Law applicable to Seller or any of the Assets, except in the case of clauses (b) and (c) where such default, Lien, termination, cancellation, acceleration or violation would not have a Material Adverse Effect.

6.4Authorization and Enforceability.  Assuming the due authorization, execution and delivery by Buyer of this Agreement and the other documents to be delivered by Buyer at Closing pursuant to this Agreement, this Agreement constitutes, and the other documents to be delivered by Seller at Closing pursuant to this Agreement will constitute, Seller’s legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

6.5Consents.  Except as set forth on Schedule 6.5 and for Customary Post-Closing Consents, no consent, approval or authorization of any applicable Governmental Entity or other Third Party is required to be obtained in connection with the consummation of the transactions contemplated by this Agreement (each such required consent, a “Consent”) by Seller.

6.6Preferential Rights.  Except as set forth on Schedule 6.6, there are no preferential rights to purchase or similar rights with respect to the Assets that are applicable to the transactions contemplated by this Agreement (each such applicable preferential right, a “Preferential Right”).

6.7Liability for Brokers’ Fees.  Seller has not incurred any liability, contingent or otherwise, for investment bankers’, brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Buyer or any Affiliate of Buyer shall, directly or indirectly, have any responsibility whatsoever.

6.8Bankruptcy.  There are no bankruptcy or insolvency proceedings pending by or against, being contemplated by or, to the Knowledge of Seller, threatened against Seller or its Affiliates, and Seller is not insolvent or generally not paying its debts as they become due.

6.9Litigation.  Except as set forth on Schedule 6.9, there are no (a) actions, suits or proceedings pending by or against Seller with respect to the Assets, or, to Seller’s Knowledge, threatened, or (b) to Seller’s Knowledge, investigations by Governmental Entities, in each case, against Seller with respect to the Assets or that would have a Material Adverse Effect on the ability of Seller to consummate the transactions contemplated by this Agreement, and, in each case, in any court, arbitration proceeding or other Dispute resolution venue by or before any Governmental Entity.

6.10Material Agreements.

(a)Schedule 6.10(a)lists all of the following types of Applicable Contracts in effect as of the Execution Date (the “Material Agreements”):

(1)any Applicable Contract between Seller, on the one hand, and any Affiliate of Seller, on the other hand;

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(2)any Applicable Contract for (A) the sale, exchange, or other disposition of Hydrocarbons produced from or attributable to the Assets or (B) the purchase, sale, processing, transportation or other disposal of any such Hydrocarbons, in each case, that is not cancelable without penalty or other payment on not more than 60 days’ prior written notice, other than terms of joint operating agreements or gas balancing agreements which permit an operator or other co-owner to take or market production of a non-taking co-owner;

(3)any Applicable Contract requiring Seller to sell, lease, farm-out, or otherwise dispose of any interest in any of the Properties after the Execution Date, other than non-consent penalties for non-participation in operations under joint operating agreements or conventional rights of reassignment arising in connection with Seller’s surrender or release of any of the Properties;

(4)any Applicable Contract that creates any area of mutual interest or similar provision with respect to the Assets or contains any material restrictions on the ability of Seller to compete with any other Person;

(5)any Applicable Contract that can reasonably be expected to result in aggregate payments by, or revenues to, Seller, in each case, only with respect to the Assets, of more than $250,000 during the current fiscal year or $500,000 in the aggregate over the term of such Contract;

(6)any Applicable Contract that is an agreement for Indebtedness;

(7)any Applicable Contract that is a drilling contract, service agreement, unitization agreement, unit operating agreement, joint operating agreement, exploration agreement, development agreement, participation agreement, joint venture agreement or similar agreement;

(8)any Applicable Contract that contains any rights allowing a Third Party to participate in any sales or purchases of any of the Assets that are triggered by or applicable to the transactions contemplated by this Agreement; and

(9)any Applicable Contract that constitutes a lease under which Seller is the lessor or the lessee of personal property which lease (A) cannot be terminated by such Person without penalty upon 60 days or less notice and (B) involves an annual base rental of more than $250,000;

(10)any Applicable Contract that contains a call on production;

(11)any Applicable Contract where the primary purpose thereof was to indemnify another Person rather than the provision of goods or services; and

(12)any Applicable Contract that constitutes a lease for commercial space.

(b)As of the Execution Date, except as otherwise set forth on Schedule 6.10(b), all of the Material Agreements are in full force and effect as to Seller, and, to Seller’s Knowledge,

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each other party thereto.  Except as otherwise set forth on Schedule 6.10(b), Seller is not in default in any material respect under any Material Agreement and, to Seller’s Knowledge, no other party to any Material Agreement is in default in any material respect thereunder.  No event has occurred that, with notice, lapse of time or both, would constitute a default by Seller in any material respect under any Material Agreement.  Except as set forth on Schedule 6.10(b), as of the Execution Date, no notices have been received by Seller of the exercise of any premature termination, price redetermination, market-out or other curtailment of any Material Agreement.  As of the Execution Date, Seller has made available to Buyer true and complete copies of the Material Agreements, including all amendments thereto.

(c)Seller serves as operator of all of the Assets under each of the joint operating agreements and unit operating agreements applicable to the Assets, and no non-operator under any such joint operating agreement or unit operating agreement has attempted to remove Seller as operator thereunder.

(d)Schedule 6.10(d) lists all Applicable Contracts that are seismic or other geophysical acquisition agreements or licenses.

(e)As of the Execution Date, all of the Blanket Agreement Confirmations are in full force and effect as to Seller, and, to Seller’s Knowledge, each Blanket Agreement Counterparty.  Seller is not in default in any material respect under any Blanket Agreement Confirmation and, to Seller’s Knowledge, no Blanket Agreement Counterparty is in default in any material respect thereunder.  No event has occurred that, with notice, lapse of time or both, would constitute a default by Seller in any material respect under any Blanket Agreement Confirmation.  Except as set forth on Schedule 6.10(e), as of the Execution Date, no notices have been received by Seller of the exercise of any premature termination, price redetermination, market-out or other curtailment of any Blanket Agreement Confirmation.  As of the Execution Date, Seller has made available to Buyer true and complete copies of the Blanket Agreement Confirmations, including all amendments thereto.

6.11AFEs.  As of the Execution Date, all outstanding authorities for expenditures or other similar capital commitments relating to the Assets, including those to drill or rework Wells or build gathering systems or other facilities (“AFEs”), that in each case, will be binding upon Buyer or the Assets as of the Effective Time, are set forth in Schedule 6.11, other than any AFEs that, individually, do not exceed $500,000, net to the applicable Assets.  As of the Execution Date, the value of those AFE’s that are not set forth on Schedule 6.11 are not, in the aggregate, in excess of $2,500,000.  For the avoidance of doubt, the amounts shown on Schedule 6.11 with respect to such AFEs are estimates.

6.12Taxes.  Except as disclosed on Schedule 6.12, (a) all Tax Returns relating to or in connection with Seller’s acquisition, ownership, or operation of the Assets required to be filed have been timely filed and all such Tax Returns are correct and complete in all material respects; (b) subject to any Taxes which Seller disputes in good faith and which are listed on Schedule 6.12, all Taxes relating or applicable to Seller’s acquisition, ownership or operation of the Assets that are or have become due have been timely paid, and Seller is not delinquent in the payment of any such Taxes; (c) there is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax of

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Seller relating to Seller’s acquisition, ownership or operation of the Assets; (d) there are no administrative or judicial proceedings pending or threatened in writing against the Assets or against Seller relating to or in connection with the Assets by any taxing authority with respect to Taxes; (e) there are no Liens on any of the Assets that arose in connection with Seller’s failure (or alleged failure) to pay any Tax other than Permitted Encumbrances; (f) Seller is not a foreign person within the meaning of Section 1445(f) of the Code; (g) all Tax withholding and deposit requirements imposed by applicable Law with respect to any of the Assets or the business of Seller have been satisfied in all material respects; (h) Buyer will not be liable as a successor or transferee for any unpaid Taxes as a result of purchasing the Assets; and (i) each of the Assets, other than intangible assets have been properly listed and described on the property tax rolls for all periods prior to Closing and no portion of the Assets constitutes omitted property for property tax purposes.

6.13Tax Partnerships.  None of the Assets is held by or is subject to any arrangement between Seller and any other Persons, whether owning undivided interests therein or otherwise, that is treated as or constitutes a partnership for purposes of Subchapter K of Chapter 1 of Subtitle A of the Code (a “Tax Partnership”).

6.14Compliance with Law and Government Authorizations.

(a)Seller has obtained (or has filed to obtain) and is maintaining all material Governmental Authorizations that are presently necessary or required to own and operate the Assets as the Assets are presently owned and operated.

(b)Seller is in compliance in all material respects with all Governmental Authorizations that are presently necessary or required to own and operate the Assets as the Assets are presently owned and operated.

(c)Except as provided on Schedule 6.14, no written notice of violation of Law or a Governmental Authorization has been received by Seller or any Affiliate thereof from a Governmental Entity with respect to the Assets.

(d)Except as provided on Schedule 6.14, the Assets are being operated in compliance in all material respects with all applicable Laws.

Notwithstanding the foregoing, this Section 6.14 does not relate to any Tax matters, which are exclusively addressed in Section 6.12 and Section 6.13, or Environmental Laws, which are exclusively addressed in ARTICLE 5 and in Section 6.15.

6.15Environmental Matters.  Except as referenced in Schedule 6.15 or as would not have a Material Adverse Effect:

(a)Seller has obtained (or has filed to obtain) and is maintaining all material Governmental Authorizations relating to Environmental Laws that are presently necessary or required by such Person to own and operate the Assets as the Assets are presently owned and operated.

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(b)Seller is in compliance in all material respects with all Governmental Authorizations relating to Environmental Laws that are presently necessary or required to own and operate the Assets as the Assets are presently owned and operated.

(c)To Seller’s Knowledge, none of the following exists at any property or facility included in the Assets: (1) underground gasoline or other refined Hydrocarbons products storage tanks, (2) asbestos containing material in any form or condition, (3) materials or equipment containing polychlorinated biphenyls, or (4) Hazardous Material landfills, surface impoundments or disposal areas.

(d)Seller has not entered into any and, to Seller’s Knowledge, there exist no threatened, agreements, orders, decrees, judgments, license or permit conditions, or other directives of any Governmental Entity, in each case, in existence as of the Execution Date based on any prior violations of Environmental Laws that impair the future ownership or use of any of the Assets or that currently require any Remediation as to any of the Assets.

(e)As of the Execution Date, neither Seller nor any of its Affiliates has received written notice from any Governmental Entity of any Condition concerning any Asset that (1) actually or allegedly interferes with or prevents compliance by Seller or the Assets with any Environmental Law or the terms of any Governmental Authorization relating to Environmental Laws, or (2) actually or allegedly gives rise to or results in any common Law or other liability of Seller to any Person.

6.16Payments for Production; Calls on Production.

(a)Seller (1) has not received (and is not bound to accept) any advance, “take-or-pay” or other similar payments under production sales Contracts applicable to the Assets that entitle the purchasers to “make up” or otherwise receive deliveries of Hydrocarbons without paying at such time the contract price therefor; or (2) has not, other than in accordance with gas balancing arrangements and non-consent provisions in Contracts, received any advance payment or other similar payment to deliver Hydrocarbons produced from, or attributable to, the Assets, or proceeds from the sale thereof, at some future time, without receiving payment therefor at or after the time of delivery.

(b)No Person has any call upon, option to purchase or similar rights with respect to the Hydrocarbon production from the Assets, except as may be provided in the Material Agreements.

6.17Wells and Equipment.

(a)All Wells included in the Assets have been drilled and completed at legal locations and within the limits permitted by all applicable Law, Applicable Contracts, the Leases and the Surface Contracts.

(b)No Well included in the Assets is subject to penalties on allowables due to overproduction or any other violation of Law.

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(c)There are no Wells or Equipment included in the Assets and located on the Lands that (1) Seller or its Affiliate is currently obligated by any Law or contract to currently plug, dismantle or abandon, or (2) have been plugged, dismantled or abandoned in a manner that does not comply in all material respects with applicable Law.

(d)Exhibit B contains a list of all producing Wells, all shut-in Wells, two monitoring Wells, one salt water disposal Well and all Wells being drilled as of the Execution Date, in each case, that are included in the Assets and located on the Lands.

6.18Bonds and Credit Support.  Except as referenced on Schedule 6.18, there are no bonds, letters of credit and other similar credit support instruments maintained by Seller or its Affiliates with respect to Seller’s ownership and operation of the Assets.

6.19Suspense Funds.  Except as set forth in Schedule 6.19, as of the date set forth on such Schedule, Seller does not hold any Third Party funds in suspense with respect to production of Hydrocarbons from any of the Properties other than amounts less than the statutory minimum amount that Seller is permitted to accumulate prior to payment.

6.20Imbalances.  Schedule 6.20 sets forth all material Imbalances associated with the Assets as of the Effective Time.

6.21Insurance.  Schedule 6.21 lists each material insurance policy maintained by Seller that relate or provide coverage to the Assets (the “Policies”).  Except as set forth on Schedule 6.21, there are no claims pending with respect to any such Policies with respect to the Assets or the operation thereof.  Each Policy is in full force and effect.

6.22Royalties.  Except as disclosed on Schedule 6.22 and for such items that are not yet due or are being held in suspense as permitted pursuant to applicable Law, Seller has paid, in all material respects, all royalties, overriding royalties and other burdens on production due by Seller with respect to the Properties.

6.23Non-Consent Operations.  Seller has not elected not to participate in any operation or activity proposed with respect to the Properties which could result in any of Seller’s interest in such Properties becoming subject to a penalty or forfeiture as a result of such election not to participate in such operation or activity.  Schedule 6.23 accurately reflects all payout balances attributable to Seller’s interest in the Wells as of the date set forth with respect to each payout balance on Schedule 6.23.

6.24Compliance with Leases and Surface Contracts.

(a)Except as set forth on Schedule 6.24, no default exists in the performance of any obligation of Seller under the Leases that would entitle the counterparty thereto to cancel or terminate such Leases; provided, however, if Seller cures any such default prior to Closing, then Seller shall not be in breach of the foregoing representation.  As of the Execution Date, Seller has not received notice of any action to terminate, cancel, rescind or procure judicial reformation of any such Lease from any party to any such Lease (or successor to the interest of any such party), and, to Seller’s Knowledge, no such action has been threatened.

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(b)All of the Surface Contracts are in full force and effect and no default exists in the performance of any obligation of Seller under the Surface Contracts that would entitle the counterparty thereto to cancel or terminate such Surface Contracts.  Seller has not received notice of any action to terminate, cancel, rescind or procure judicial reformation of any such Surface Contract from any party to any such Surface Contract (or successor to the interest of any such party), and, to Seller’s Knowledge, no such action has been threatened.

(c)Seller has made available to Buyer, or will make available to Buyer at least 30 days prior to the Defect Notice Date, true and complete copies of the Leases and Surface Contracts, including all amendments thereto as of such date.

6.25Access.  Seller has such legal rights of access to the Leases and the Wells as will allow the conduct of business with respect thereto as currently conducted by Seller.

6.26Alexander Ranch Units.  Schedule 6.26 sets forth each unit (and the name and field designation of each unit) that is located in Alexander Ranch and comprises part of the Assets as of the Execution Date (the “Units”).  Provided that the applicable Specified Consent has been obtained (a) the amount of acreage of each Lease contributed to a Unit is permitted by the terms of such Lease or by the rules of the Texas Railroad Commission, and (b) each Unit holds by production the number of lease acres set forth beside each Unit as enumerated in Schedule 6.26.

6.27No Material Adverse Change.  Except as set forth on Schedule 6.27, since the Effective Time up to the Execution Date, there has been no (a) material damage, destruction or loss to the Assets or (b) Material Adverse Effect.

6.28Prepaid Expenses.  Schedule 6.28 sets forth, as of the Effective Time, all those prepaid expenses (including pre-paid bonuses, rentals, cash calls and advances to Third Party operators for expenses not yet incurred, prepaid Taxes and scheduled payments) paid by Seller and attributable to the ownership or operation of the Assets from and after the Effective Time, in each case, to the extent such prepaid expenses are, individually, in excess of $25,000.  The value of such prepaid expenses that are not required to be set forth on Schedule 6.28 is not, in the aggregate, in excess of $500,000.

ARTICLE 7
BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to Seller as follows:

7.1Organization and Standing.  Buyer is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to carry on its business in such other jurisdictions as may be necessary, except where the failure to be so qualified would not be reasonably expected to have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement and perform its obligations hereunder.

7.2Power.  Buyer has all requisite corporate power and authority to carry on its business as presently conducted, to enter into this Agreement and the other documents to be

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delivered by Buyer at Closing pursuant to this Agreement and to perform its obligations hereunder and thereunder.

7.3No Conflicts.  The execution, delivery and performance by Buyer of this Agreement and the other documents to be delivered by Buyer at Closing pursuant to this Agreement and the consummation of the transactions contemplated herein and therein does not and will not (a) conflict with or result in a breach of any provisions of the Governing Documents of Buyer, (b) result in a default or the creation of any Lien or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions, or provisions of any note, bond, mortgage or indenture to which Buyer is a party or by which Buyer or any of its property may be bound or (c) violate any Law applicable to Buyer or any of its property, except in the case of clauses (b) and (c) where such default, Lien, termination, cancellation, acceleration or violation would not, individually or in the aggregate, have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations hereunder.

7.4Authorization and Enforceability.  Assuming the due authorization, execution and delivery by Seller of this Agreement and the other documents to be delivered by Seller at Closing pursuant to this Agreement, this Agreement constitutes, and the other documents to be delivered by Buyer at Closing pursuant to this Agreement will constitute, Buyer’s legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

7.5Consent.  No Consent is required to be obtained with respect to the consummation of the transactions contemplated by this Agreement by Buyer.

7.6Liability for Brokers’ Fees.  Buyer has not incurred any liability, contingent or otherwise, for investment bankers’, brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Seller or any Affiliate of Seller shall, directly or indirectly, have any responsibility whatsoever.

7.7Bankruptcy.  There are no bankruptcy or insolvency proceedings pending by or against, being contemplated by or, to the Knowledge of Buyer, threatened against Buyer or its Affiliates, and Buyer is not insolvent or generally not paying its debts as they become due.

7.8Litigation.  There is no action, suit, proceeding, Claim or investigation by any Governmental Entity, court, arbitral authority or other Person pending by or against Buyer or, to Buyer’s Knowledge, threatened against Buyer, in each case, in any court, arbitration proceeding or other Dispute resolution venue by or before any Governmental Entity that impedes or is likely to impede Buyer’s ability to consummate the transactions contemplated by this Agreement and to perform its obligations hereunder.

7.9Financial Resources and other Capability.  Buyer has the financial resources available to consummate the transactions contemplated by this Agreement, to pay the Purchase Price and to pay any and all fees and expenses incurred by Buyer in connection with the

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transactions contemplated by this Agreement.  Buyer has the financial, technical and other capabilities to perform all of Buyer’s other obligations under this Agreement and all of the obligations assumed from Seller under the Assets.

7.10Buyer’s Evaluation.

(a)Review.  Buyer is an experienced and knowledgeable investor in the oil and gas industry and is aware of the possibility of risks in the acquisition of oil and gas assets.  Buyer acknowledges that Seller has not made any representations or warranties as to the Assets except as expressly and specifically provided in ARTICLE 6, the affirmations of such representations and warranties contained in the certificate to be delivered by Seller at Closing pursuant to Section 10.3(c) and the special warranty contained in the Assignment, and that Buyer may not rely on any other representations or warranties made by Seller or Seller’s Representatives or on any of Seller’s estimates with respect to reserves or the value of the Assets, or any projections as to future events or other analyses or forward looking statements.

(b)Independent Evaluation.  In entering into this Agreement, except for the representations and warranties expressly and specifically provided in ARTICLE 6, the affirmations of such representations and warranties contained in the certificate to be delivered by Seller at Closing pursuant to Section 10.3(c) and the special warranty contained in the Assignment, Buyer acknowledges and affirms that it has relied and will rely solely on the terms of this Agreement and the Assignment and upon its independent analysis, evaluation and investigation of, and judgment with respect to, the business, economic, legal, tax or other consequences of this transaction, including its own estimate and appraisal of the extent and value of the Hydrocarbon reserves or other value of the Assets.

7.11Securities Law Compliance.  Buyer is acquiring the Assets for its own account for use in its trade or business, and not with a view toward or for sale associated with any distribution thereof, nor with any present intention of making a distribution thereof within the meaning of the Securities Act and applicable state securities Laws.  Buyer is an “accredited investor” within the meaning of Regulation D of the Securities Act.

ARTICLE 8
COVENANTS AND AGREEMENTS

8.1Covenants and Agreements of Seller.  Except (v) as set forth in Schedule 8.1, (w) for and in connection with the operations pursuant to any AFE listed on Schedule 6.11, (x) as required pursuant to the terms of any Material Agreement, Lease or Surface Contract, (y) as consented to in writing in advance by Buyer, or (z) as provided in Section 8.3(j):

(a)Operations Prior to Closing.  Seller shall:

(1)cause the Assets to be operated in a manner consistent in all material respects with past practice and (A) in compliance in all material respects with the terms of the Applicable Contracts and applicable Law, and (B) except as would not have a Material Adverse Effect, in compliance with the terms of the Leases and Surface Contracts; provided, however, that if Seller cures any non-compliance with respect to any of the matters described above prior to Closing, then Seller shall be deemed to have

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complied with this Section 8.1(a)(1);

(2)promptly notify Buyer if Seller receives written notice of any Third Party Claim affecting the Assets or written notice of any default by Seller under any Material Agreement, Lease or Surface Contract or otherwise obtains Knowledge of any such Third Party Claim or default; and

(3)provide Buyer on a daily basis with copies of all drilling reports, completion reports and other reports that relate in any manner to the Assets, together with a weekly written summary of all operational activities and Well production on a Well by Well basis.

(b)Restriction on Operations.  Seller shall not:

(1)convey, sell, transfer, mortgage, pledge, encumber, dispose or abandon any part of the Assets except (A) Leases that have terminated in the ordinary course of business based upon the expiration of the primary terms of such Leases, (B) upon prior written approval of Buyer (which approval shall not be unreasonably conditioned, delayed or withheld) Leases that are, in Seller’s good faith and reasonable opinion, no longer capable of production in paying quantities, (C) sales of Equipment in the ordinary course of business that have been decommissioned, (D) sales of Hydrocarbons produced from, or attributable to, the Assets in the ordinary course of business, or (E) for Permitted Encumbrances;

(2)approve or propose any operations anticipated in any instance to cost the owner of the Assets more than $200,000, net to the Assets, per activity or per any series of related activities, except for (A) emergency operations, (B) any operations required under applicable Laws, or (C) any operations necessary to avoid a material monetary penalty or forfeiture provision under any applicable Lease, Surface Contract, Applicable Contract or Law; provided, however, that Seller shall forward to Buyer the applicable AFE with respect to any operation that does not require approval pursuant to this Section 8.1(b)(2);

(3)enter into any farm-out, farm-in or other similar Contract affecting the Assets;

(4)let lapse any of Seller’s insurance now in force with respect to the Assets;

(5)modify or terminate any Material Agreement, other than any such Material Agreement that terminates according to its terms other than a termination resulting from a breach by Seller or its Affiliates of such Material Agreement;

(6)enter into any Contract that, if in existence as of the Execution Date, would be a Material Agreement;

(7)waive, release, assign, settle or compromise any claim, action or proceeding relating to the Assets, other than waivers, releases, assignments, settlements or compromises that involve only the payment of monetary damages not in excess of

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$100,000 individually or in the aggregate, net to the Assets, (excluding amounts to be paid under insurance policies); provided, however that the $100,000 monetary restriction contained in this Section 8.1(b)(7) shall not apply to any of the claims, actions or proceedings listed on Schedule 6.9; or

(8)authorize or agree, in writing or otherwise, to take any of the actions prohibited by this Section 8.1(b).

(c)Consents.  For the purposes of obtaining the written consents for AFEs required in Section 8.1(b)(2), Buyer designates the following contact Person: Joseph DeDominic, at the address and telephone number for Buyer set forth in Section 15.3.  Such consents may be obtained in writing by overnight courier or given by .pdf via email or facsimile transmission.  Buyer agrees that it will (1) timely respond to any written request for consent pursuant to Section 8.1(b)(2), and (2) consent to any written request for approval of any AFE that the officers of Buyer reasonably consider to be economically viable.  Buyer’s consent shall be considered granted within ten days (unless a shorter time, not to be less than 48 hours, is reasonably required by the circumstances and the applicable joint operating agreement and such shorter time is specified in Seller’s request for consent) after Buyer’s receipt of such request for such consent, unless Buyer notifies Seller to the contrary during that period.

(d)Disclaimer.  Buyer agrees that the acts or omissions of the other Working Interest owners who are not Seller or any of Seller’s Affiliates and which Seller does not have the contractual right to control shall not constitute a breach of the provisions of Section 8.1, nor shall any action required by a vote of Working Interest owners in and of itself constitute such a breach so long as Seller has voted its interest in a manner that complies with the provisions of Section 8.1.

(e)Post-Closing Confidentiality.  Following Closing, except (1) as may be required or permitted pursuant to the exercise of the rights and fulfillment of the obligations of Seller under this Agreement, (2) as may be required by applicable Law, by any Governmental Entity, by any arbitration proceedings or the rules of any applicable stock exchange, (3) for information which is or becomes public knowledge through no fault of Seller or any of its Affiliates, or (4) as may be required by in order to defend or prosecute any Claim related to the Assets, Seller shall maintain in confidence and not divulge any confidential data in its possession as of Closing and relating primarily to the Assets, including geological, geophysical, land, engineering, environmental, well, and technical information; provided, that for the avoidance of doubt, none of Seller’s technical or other information relating to the methodology of the drilling or fracking of any well shall be considered confidential for purposes of this Section 8.1(e).  If Seller is requested or required to disclose any such protected information in connection with any judicial or administrative proceedings, by any Governmental Entity, by any arbitration proceedings or by any applicable stock exchange, in each case, having appropriate jurisdiction (by order, deposition, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process), Seller will, unless prohibited by Law or any such order, deposition, interrogatory, request for information or documents, subpoena, civil investigative demand or similar process, notify Buyer promptly in writing of the existence, terms and circumstances surrounding such a request or requirement so that Buyer may, in its sole discretion, seek a protective order or other appropriate remedy.

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8.2Covenants and Agreements of Buyer.

(a)Change of Name.  As promptly as practicable, but in any case within 120 days after the Closing Date, Buyer shall use its reasonable efforts to (1) eliminate the name “Hess” and any variants thereof from the Assets, (2) cease using in any way the word “Hess” with respect to the Assets, and (3) remove and cease to use all trademarks associated with Seller or its Affiliates with respect to the Assets.  Except with respect to such grace period for eliminating existing usage, for the avoidance of doubt, Buyer shall have no right to use any logos, trademarks or trade names belonging to Seller or any of its Affiliates.  FROM AND AFTER THE CLOSING, BUYER HEREBY WAIVES, RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS SELLER AND THE OTHER SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY LOSSES ARISING OUT OF, OR IN ANY WAY ATTRIBUTABLE TO, THE USE OF THE WORD “HESS” AFTER THE CLOSING DATE AND WITH RESPECT TO THE ASSETS IN RELATION TO ANY BREACH BY BUYER OF ITS OBLIGATIONS UNDER THIS SECTION 8.2(a), EVEN IF SUCH LOSSES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES.

(b)Governmental Bonds.  Buyer acknowledges that none of the bonds, letters of credit and guarantees, if any, posted by Seller or its Affiliates with Governmental Entities and relating to the Assets are transferable to Buyer.  On or before the Closing Date, Buyer shall obtain, or cause to be obtained in the name of Buyer, replacements for such bonds, letters of credit and guarantees to the extent such replacements are necessary (1) for Buyer’s ownership and, as applicable, operation of the Assets and (2) to permit the cancellation of the bonds, letters of credit and guarantees posted by Seller and/or its Affiliates with respect to the Assets.  In addition, at or prior to Closing, Buyer shall deliver to Seller evidence of the posting of bonds or other security with all applicable Governmental Entities meeting the requirements of such authorities to own and, where appropriate, operate, the Assets.

8.3Covenants and Agreements of the Parties.

(a)Communication Between the Parties Regarding Breach.  If Buyer or Seller obtains Knowledge prior to Closing that leads either Party to believe that the other Party has breached a representation or warranty or failed to perform a covenant or agreement under this Agreement, the non-breaching Party shall inform the alleged breaching Party in writing of such potential breach as soon as reasonably practicable so that the breaching Party may attempt to remedy or cure such breach prior to the Closing.  If such breach or failure is thereafter cured to the reasonable satisfaction of the non-breaching Party by the Closing (or, if the Closing does not occur, by the date this Agreement terminates), then such breach or failure shall be deemed not to have occurred for all purposes of this Agreement.

(b)Casualty Loss.  Prior to Closing, if a portion of the Assets is destroyed or materially damaged by fire or other casualty or if any portion of the Assets is taken or threatened to be taken in condemnation or under the right of eminent domain (each, a “Casualty Loss”), Seller shall promptly advise Buyer in writing of such Casualty Loss and shall elect, by the

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delivery of written notice to Buyer at least five Business Days prior to the Closing Date (or, if the Casualty Loss occurs after such date and prior to Closing, as soon as reasonably practicable prior to the Closing Date), either of the following: (1) to retain the Asset affected by the Casualty Loss and reduce the Purchase Price by the Allocated Value of such Asset; or (2) with the prior written consent of Buyer, to assign such Asset to Buyer without any reduction of the Purchase Price, subject to the assignment to Buyer of all insurance proceeds received by Seller as to such Casualty Loss.

(c)Operatorship.  Buyer specifically acknowledges and agrees that Seller has made no representation, warranty or other guarantee that Buyer will succeed Seller as operator under any joint operating agreement; provided that Seller shall use its commercially reasonably efforts to support Buyer’s succession of Seller as operator as to any of the Assets (subject to the provisions of any applicable joint operating agreement), including soliciting the written vote of any co-working interest owner of the Assets to Buyer’s succession of Seller as operator.  Prior to Closing, Seller shall not voluntarily resign as operator under any joint operating agreements and unit operating agreements covering the Assets.

(d)Employees of Seller.  Buyer agrees that, without Seller’s prior written consent and excepting only as expressly otherwise provided below, until one year after the Closing Date, Buyer will not, directly or indirectly, solicit for employment any employee of Seller or any of its Affiliates who have provided services in relation to the Assets or with whom Buyer has had contact or who became known to Buyer in connection with Buyer’s consideration of the transactions contemplated by this Agreement, except as to the Available Employees, as defined below; provided that, so long as Buyer has not breached its obligations hereunder, Buyer shall not be precluded from hiring any such employee or other Person who (1) responds to any advertisement to the public or the industry generally that is not directly or indirectly targeted at employees of Seller or any of its Affiliates, or (2) has been terminated (and not rehired) by Seller or any of its Affiliates prior to commencement of employment discussions between Buyer and such employee or other Person.  Buyer or its Affiliates, in its and their sole discretion, may make offers of employment to those certain of Seller’s employees listed in Schedule 8.3(d) (the “Available Employees”).  From and after the Execution Date until the Closing Date, Seller shall reasonably cooperate with Buyer in permitting Buyer or its Affiliates, upon reasonable notice to Seller, reasonable access to the Available Employees to interview such Available Employees during normal business hours and to communicate any information concerning employment offers and employment with Buyer or its Affiliates.  Without limitation to the foregoing, however, Seller shall have the right to make competing offers to the Available Employees to remain employees of Seller.

(e)Government Reviews.  In a timely manner and at least 30 days prior to Closing, the Parties shall (1) make all required filings, prepare all required applications and conduct negotiations with each Governmental Entity as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby and (2) provide such information as each may reasonably request to make such filings, prepare such applications and conduct such negotiations.  Each Party shall reasonably cooperate with and use all commercially reasonable efforts to assist the other with respect to such filings, applications, and negotiations.  Without limiting the foregoing, if the Parties determine that a filing under the HSR Act is required, then, within ten Business Days following the Execution Date, the Parties

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will prepare and file with the DOJ and the FTC the notification and report form required by the HSR Act for the transactions contemplated by this Agreement, and request early termination of the waiting period thereunder.  Each of the Parties agree to respond promptly to any inquiries from the DOJ or the FTC concerning such filings and to comply in all material respects with the filing requirements of the HSR Act.  The Parties shall cooperate with each other and shall promptly furnish all information to the other Parties that is necessary in connection with Buyer’s compliance with the HSR Act.  The Parties shall use their commercially reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to consummate the transactions consummated hereby; provided, however, that Buyer will not be required to sell or dispose of any of its assets or businesses in connection therewith.  All filing fees incurred in connection with the HSR Act filings made pursuant to this Section 8.3(e) shall be borne one-half by Buyer and one-half by Seller.

(f)Amendment of Schedules.  Buyer agrees that Seller shall have the continuing right until Closing to add, supplement or amend the Schedules and Exhibits with respect to any matter hereafter arising or discovered which, if existing or known as of the Execution Date or thereafter, would have been required to be set forth or described in such Schedules and Exhibits and that Seller shall simultaneously with any addition, supplement or amendment, provide copies thereof to Buyer.  For purposes of determining whether the conditions set forth in ARTICLE 10 or otherwise in this Agreement have been fulfilled and for purposes of determining any indemnity or other claim pursuant to this Agreement, the Schedules and Exhibits contained in this Agreement shall be deemed to only include that information contained therein on the Execution Date.

(g)Financial Information.  From and after the Execution Date until the third anniversary of the Closing Date (the “Access Period”), Seller shall, and shall cause its Affiliates and their respective officers, directors, managers, employees, agents and representatives to, provide reasonable cooperation to Buyer, its Affiliates and their agents and representatives in connection with Buyer’s or its Affiliates’ filings, if any, that may be required by the Securities and Exchange Commission, under securities Laws applicable to Buyer and its Affiliates (collectively, the “Filings”).  During the Access Period, Seller agrees to make available to Buyer and its Affiliates and their agents and representatives any and all books, records, information and documents that are attributable to the Assets in Seller’s or its Affiliates’ possession or control and access to Seller’s and its Affiliates’ personnel, in each case as reasonably required by Buyer, its Affiliates and their agents and representatives in order to prepare, if required, in connection with the Filings, financial statements meeting the requirements of Regulation S-X under the Securities Act, along with any documentation attributable to the Assets or otherwise related to Seller or its Affiliates required to complete any audit associated with such financial statements (it being acknowledged that Seller shall not be required to provide any pro-formas and forward-looking statements).  During the Access Period, Seller shall, and shall cause its Affiliates to, provide reasonable cooperation to the independent auditors chosen by Buyer (“Buyer’s Auditor”) in connection with any audit by Buyer’s Auditor of any financial statements of the Assets or of Seller or its Affiliates that Buyer or any of its Affiliates requires to comply with the requirements of the Securities Act or the Securities Exchange Act of 1934 with respect to any Filings.  During the Access Period, Seller and its Affiliates shall retain all books, records, information and documents relating to the Assets for the three fiscal years prior to January 1, 2013 and the period from January 1, 2013 through the Closing Date.  Buyer will reimburse Seller and its Affiliates,

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within ten Business Days after demand in writing therefor, for any reasonable out-of-pocket costs incurred by Seller and its Affiliates in complying with the provision of this Section 8.3(g).  Notwithstanding the foregoing, nothing herein shall expand Seller’s representations, warranties, covenants or agreements set forth in this Agreement or give Buyer, its Affiliates or any Third Party any rights to which it is not entitled hereunder.  Buyer hereby releases the Seller Indemnified Parties from, and shall fully protect, defend, indemnify and hold the Seller Indemnified Parties harmless from and against, in each case, any and all Losses (including costs of investigation and attorneys’ and experts’ fees and expenses) relating to, arising out of or connected with, directly or indirectly, any actions, representations or certifications of Seller’s and its Affiliates’ personnel or auditors with respect to the access, records and cooperation provided pursuant to this Section 8.3(g), or Buyer’s use of the information contained in such records, or the inclusion of such financial records in any debt or equity offering documents or related materials.  THESE INDEMNITY AND DEFENSE OBLIGATIONS APPLY REGARDLESS WHETHER SUCH LOSSES ARE ATTRIBUTABLE TO OR ARISE OUT OF, SOLELY OR IN PART, THE SOLE, ACTIVE, GROSS, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES; PROVIDED HOWEVER THE FOREGOING INDEMNITY AND DEFENSE OBLIGATIONS SHALL NOT APPLY WITH RESPECT TO THE WILLFUL MISCONDUCT OF ANY SELLER INDEMNIFIED PARTY.

(h)Confidentiality.  The Parties acknowledge and agree that (1) the provisions of the Confidentiality Agreement are incorporated herein by reference, and (2) upon the Closing Date, the Parties agree that the Confidentiality Agreement shall terminate.

(i)Blanket Agreement Confirmations.  Buyer shall use its commercially reasonable efforts to, on or before three days prior to Closing, enter into blanket agreements, master service agreements or similar agreements, as applicable, with the counterparties to the Hess Blanket Agreements (such counterparties, the “Blanket Agreement Counterparties”, and such new blanket agreements, master service agreements or similar agreements, the “Sanchez Blanket Agreements”).  Such Sanchez Blanket Agreements shall (1) allow Seller to assign to Buyer the Blanket Agreement Confirmations applicable to the corresponding Hess Blanket Agreements, and (2) provide that Seller shall have no liability relating to matters arising after the Effective Time under such Blanket Agreement Confirmations, except as otherwise provided herein.  Buyer agrees that it shall enter into any such Sanchez Blanket Agreement if the applicable Blanket Agreement Counterparty offers Buyer terms that are commercially acceptable to Buyer.  If Buyer enters into any Sanchez Blanket Agreements in accordance with the terms set forth above, Seller shall, at Closing, assign to Buyer the Blanket Agreement Confirmations related to such Sanchez Blanket Agreements.

(j)Expiring Leases.  From and after the Execution Date, Buyer shall have the right, upon written notice to Seller (each such notice, an “Expiring Lease Notice”), to require that Seller pay, to the applicable lessor, any extension or renewal payments, as applicable, provided for by the express terms of any Expiring Lease.  Each such Expiring Lease Notice shall be delivered to Seller on or before ten Business Days prior to the date such Expiring Lease would otherwise expire pursuant to its terms.  For the avoidance of doubt, any amounts paid by Seller pursuant to this Section 8.3(j) shall result in an upward Purchase Price adjustment pursuant to

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Section 2.4(c)(2) (any such payment, an “Expiring Lease Payment”).  If Closing does not occur for any reason, in any event Buyer shall nevertheless be required to reimburse Seller, by wire transfer of immediately available funds, for each Expiring Lease Payment made by Seller pursuant to this Section 8.3(j).  Promptly following the termination of this Agreement (and in any event within five Business Days following such termination), Buyer shall make the reimbursements of any such Expiring Lease Payments to Seller and, simultaneously with the receipt of such reimbursement of such Expiring Lease Payments from Buyer, Seller shall assign and deliver to Buyer the Expiring Lease(s) related to such Expiring Lease Payment(s) pursuant to a transfer instrument in form substantially similar to the Assignment.

(k)Other Covenants.  The Parties acknowledge and agree that certain covenants and agreements of the Parties are set forth in Schedule 1.1(e) and Schedule 1.1(g).

ARTICLE 9
TAX MATTERS

9.1Asset Tax Liability.  Subject to the treatment of real property Taxes, personal property Taxes and similar ad valorem Taxes (“Property Taxes”) provided below, all Asset Taxes for Tax periods that begin before and end on or after the Effective Time shall be allocated between Buyer and Seller as of the Effective Time for all taxable periods that include the Effective Time.  All Asset Taxes that are not Property Taxes shall be allocated to Seller to the extent they relate to Hydrocarbon production prior to the Effective Time and to Buyer to the extent they relate to Hydrocarbon production on or after the Effective Time.  No liability for Asset Taxes shall duplicate an adjustment to Purchase Price made pursuant to Section 2.4.  Property Taxes for each assessment period shall be allocated to Seller based on the percentage of the assessment period occurring before the Effective Time and to Buyer based on the percentage of the assessment period occurring on or after the Effective Time.  Each Party shall promptly furnish to the other Party copies of any Asset Tax assessments and statements (or invoices therefor from any applicable Third Party operator of the Assets) received by it, to the extent such assessment, statement, or invoice relates to an Asset Tax allocable to the other Party under this Section 9.1.  Seller shall estimate all Asset Taxes asserted against it that are attributable to the ownership or operation of the Assets to the extent relating to the period on and after the Effective Time and through the Closing Date, together with all Subject Transfer Taxes, and incorporate such estimates into the Preliminary Settlement Statement.  The actual amounts (to the extent the actual amounts differ from the estimates included in the Preliminary Settlement Statement and are known at the time of the Final Settlement Statement) shall be accounted for in the Final Settlement Statement. If the actual amounts are not known at the time of the Final Settlement Statement, the amounts shall be re-estimated, as necessary, based on the best information available at the time of the Final Settlement Statement.

9.2Transfer Taxes.  All sales, use, transfer, stamp, documentary, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes but excluding Taxes on gross income, net income, gross receipts or margin), duties, levies, recording fees or other governmental charges incurred by or imposed with respect to the property transfers undertaken pursuant to this Agreement (“Subject Transfer Taxes”) shall be the responsibility of, and shall be paid by, Buyer.  The Parties shall reasonably cooperate in taking steps that would minimize or eliminate any Subject Transfer Taxes.  Buyer agrees to file all Subject Transfer Tax

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Returns relating to such Subject Transfer Taxes and to reasonably consult with Seller regarding any such filing.

9.3Asset Tax Returns.  Seller shall provide Buyer with any information Seller has that is reasonably necessary for Buyer to file any required Tax Return with respect to Asset Taxes that are due after the Closing Date.  All such Tax Returns shall be prepared by Buyer in a manner consistent with the prior practice of Seller, to the extent permitted by Law and in a manner consistent with the allocation described in Section 2.3(a), Section 2.3(b) and, if applicable, the final Section 1060 Allocation Schedule.  Buyer shall provide Seller with copies of completed drafts of such Tax Returns at least ten days prior to the due date for filing thereof, to the extent reasonably practicable, along with supporting work papers, for Seller’s review.  Buyer shall consider in good faith any comment that Seller submits to Buyer no less than five days prior to the due date of such Tax Returns.  Buyer shall file all such Tax Returns and, subject to the provisions of Section 9.1, pay all Asset Taxes due and payable with respect to such Tax Returns.  To the extent Buyer makes any payment of Asset Taxes pursuant to this Section 9.3 for which Seller is liable pursuant to Section 9.1 and which exceeds the amount taken into account in the Final Settlement Statement, Seller shall reimburse Buyer for such excess amount no later than ten days after Buyer delivers a statement to Seller setting forth the amount of reimbursement to which Buyer is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement.

9.4Tax Cooperation.  Buyer and Seller shall each cooperate fully as and to the extent reasonably requested by the other Party, in connection with the filing of any Tax Returns and any audit, litigation or other proceeding (each, a “Tax Proceeding”) with respect to Taxes relating to or in connection with the Assets.  Such cooperation shall include the retention and (upon the other Party’s request) the provision of such Records and information which are reasonably relevant to any such Tax Return or Tax Proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

9.5Like Kind Exchange.  Buyer and Seller agree to use commercially reasonable efforts and cooperation (without risk, expense or extraordinary commitment of personnel or other resources) in any attempt to qualify (a) the transfer of the Assets by Seller with respect to this transaction or (b) the purchase of the Assets by Buyer, with respect to a separate transaction whereby Buyer transfers other oil and gas properties to a Third Party, as part of a like-kind exchange of property within the meaning of Section 1031 of the Code, through a trust, escrow or other reasonable means; provided, however, that (1) Seller shall defend, indemnify and hold Buyer harmless for any cost, expense, obligation or other liability, without limitation, which Buyer may suffer in connection with or arising out of Buyer’s cooperation with Seller’s treatment of the sale of the Assets as part of a like-kind exchange and on account of Buyer’s cooperation with Seller’s attempt to qualify the transfer of the Assets by Seller with respect to this transaction as a like-kind exchange, and (2) Buyer shall defend, indemnify and hold Seller harmless from any cost, expense, obligation or other liability, without limitation, which Seller may suffer in connection with or arising out of Seller’s cooperation with Buyer’s treatment of the purchase of the Assets as part of a separate like-kind exchange and on account of Seller’s cooperation with Buyer’s attempt to qualify the purchase of the Assets by Buyer with respect to this transaction as a like-kind exchange.  Each Party shall have the right to assign its rights, but

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not its obligations, under this Agreement, in whole or in part, to a “qualified intermediary” (as defined in Treasury Regulations Section 1.1031(k)- l(g)(4)) or as otherwise necessary or appropriate to effectuate a like-kind exchange, and each other Party agrees to recognize said qualified intermediary.  Each Party shall be solely responsible for assuring the effectiveness of any exchange for its Tax purposes, and each other Party makes no representation or undertaking with regard to such effectiveness.  In no event shall any like-kind exchange contemplated by this provision cause an extension of the Closing Date set forth herein, except as may otherwise be mutually agreed by the Parties in writing.

ARTICLE 10
CONDITIONS PRECEDENT TO CLOSING

10.1Conditions to Obligations of Both Parties.  The obligations of each Party at the Closing are subject to the satisfaction (or written waiver by both Parties) at or prior to the Closing of the following conditions precedent:

(a)Governmental Entity Consents.  All consents and approvals of any Governmental Entity (including those required by the HSR Act, if applicable) required for the consummation of the transactions contemplated hereby, except for Customary Post-Closing Consents, shall have been granted, or the necessary waiting period shall have expired, or early termination of the waiting period shall have been granted;

(b)No Governmental Injunctions or Restraints.  No temporary restraining order, preliminary or permanent injunction, or other legal restraint, prohibition or order issued by any court of competent jurisdiction or Governmental Entity preventing the consummation of the transactions contemplated by this Agreement will be in effect; and

(c)No Action.  No action will have been taken, nor any statute, rule, or regulation will have been enacted, by any Governmental Entity that makes the consummation of the transactions contemplated by this Agreement illegal.

10.2Seller’s Conditions.  The obligations of Seller at the Closing are subject, at the option of Seller, to the satisfaction or waiver at or prior to the Closing of the following conditions precedent:

(a)All representations and warranties of Buyer contained in ARTICLE 7 will be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of the Closing Date as though made on and as of the Closing Date (except to the extent that such representations and warranties are made as of another specified date, in which case such representations and warranties shall be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of such specified date); provided, that the foregoing condition shall be deemed to have been satisfied unless the individual or aggregate impact of all inaccuracies of such representations and warranties would have had or would reasonably be expected to have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement;

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(b)Buyer shall have performed and satisfied in all material respects all covenants and agreements required by this Agreement to be performed and satisfied by Buyer (individually or as to its share of any joint obligations with Seller) at or prior to the Closing;

(c)Buyer shall deliver to Seller a certificate to be executed by an authorized officer of Buyer certifying to the satisfaction of the foregoing conditions contained in Section 10.2(a)and Section 10.2(b); and

(d)Buyer shall have delivered, or be ready, willing and able to deliver, to Seller the deliverables of Buyer set forth in Section 12.3.

10.3Buyer’s Conditions.  The obligations of Buyer at the Closing are subject, at the option of Buyer, to the satisfaction or waiver at or prior to the Closing of the following conditions precedent:

(a)All representations and warranties of Seller contained in ARTICLE 6 will be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of the Closing Date as though made on and as of the Closing Date (except to the extent that such representations and warranties are made as of another specified date, in which case such representations and warranties shall be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of such specified date); provided, that the foregoing condition shall be deemed to have been satisfied unless the individual or aggregate impact of all inaccuracies of such representations and warranties would constitute a Material Adverse Effect;

(b)Seller shall have performed and satisfied in all material respects all covenants and agreements required by this Agreement to be performed and satisfied by Seller (individually or as to its share of any joint obligations with Buyer) at or prior to the Closing;

(c)Seller shall deliver to Buyer a certificate to be executed by an authorized officer of Seller certifying to the satisfaction of the foregoing conditions contained in Section 10.3(a)and Section 10.3(b); and

(d)Seller shall have delivered, or be ready, willing and able to deliver, to Buyer the deliverables of Seller set forth in Section 12.3.

ARTICLE 11
RIGHT OF TERMINATION

11.1Termination.  This Agreement may be terminated prior to Closing as follows:

(a)by the mutual written agreement of Seller and Buyer;

(b)by Buyer, if any of the conditions set forth in Section 10.3 have not been satisfied by Seller on or before the Outside Termination Date;

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(c)by Seller, if any of the conditions set forth in Section 10.2 have not been satisfied by Buyer on or before the Outside Termination Date;

(d)by Buyer, if all of the conditions set forth in Section 10.1, Section 10.2 and Section 10.3 have been satisfied (or, with respect to the conditions set forth in Section 10.3, waived in writing by Buyer), in each case, on or before the Outside Termination Date and Seller nevertheless refuses or fails to close the transactions contemplated by this Agreement;

(e)by Seller, if all of the conditions set forth in Section 10.1, Section 10.2 and Section 10.3 (or, with respect to the conditions set forth in Section 10.2, waived in writing by Seller) have been satisfied, in each case, on or before the Outside Termination Date and Buyer nevertheless refuses or fails to close the transactions contemplated by this Agreement;

(f)automatically, unless otherwise agreed by Seller and Buyer, if any of the conditions set forth in Section 10.1 are not satisfied on or before the Outside Termination Date; or

(g)by either Seller or Buyer, if the sum of (1) the Title Adjustment Amount, (2) the Environmental Adjustment Amount; (3) the Allocated Value, without duplication, of any Assets removed from the transactions contemplated by this Agreement pursuant to Section 3.3(a), Section 4.2(j)(2), Section 4.4(a), Section 4.4(b), Section 5.3(e)(3) or Section 8.3(b)(1) or the terms and provisions of Schedule 1.1(e); and (4) the Allocated Value of any Assets removed from the transactions contemplated by this Agreement due to such Assets being conveyed, sold, transferred or abandoned prior to Closing as permitted pursuant to Section 8.1(b)(1), exceeds, in the aggregate (i.e. collectively as to clauses (1), (2), (3) and (4) above), 25% of the unadjusted Purchase Price; provided, that, for the avoidance of doubt, any Lease which expires pursuant to its own terms shall not be considered to be abandoned for purposes of this Section 11.1(g);

provided, however, that neither Buyer nor Seller shall have the right to terminate this Agreement pursuant to Section 11.1(b) or Section 11.1(c) if such Party is at such time in material breach of any provision of this Agreement.

11.2Liabilities Upon Termination.  If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 11.1, then, except (x) for the provisions of Sections 1.1, 1.2, 3.3(b), 3.3(c), 3.3(d), 3.3(e), 8.3(h), 8.3(j), 11.2, 11.3, and 14.2(e) and ARTICLE 15, this Agreement shall forthwith terminate and become void, and (y) as is expressly provided in this Section 11.2, the Parties shall have no further liability or obligation hereunder and each Party waives all remedies available at law or in equity on account of the termination of this Agreement.

(a)If Seller has the right to terminate this Agreement pursuant to (1) Section 11.1(c)due to a willful breach of this Agreement by Buyer or (2) Section 11.1(e), then, in each case, Seller shall be entitled to (A) terminate this Agreement and retain the Performance Deposit, free and clear of any Claims thereon by Buyer or its Affiliates, as liquidated damages, or (B) seek enforcement of specific performance of this Agreement, in either case, as Seller’s sole remedy hereunder.  Buyer and Seller each agrees to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

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(b)If Buyer has the right to terminate this Agreement pursuant to Section 11.1(b) due to a willful breach of this Agreement by Seller or Section 11.1(d), then, in each case, Buyer shall be entitled to (A) terminate this Agreement and require Seller to return the Performance Deposit, together with interest accrued thereon from the Execution Date up to the date of the return of the Performance Deposit at the Deposit Interest Rate, free and clear of any Claims thereon by Seller or its Affiliates, as liquidated damages, and (B) seek enforcement of specific performance of this Agreement, in either case, as Buyer’s sole remedy hereunder it being understood and agreed that if specific performance is sought by Buyer and subsequently granted that the Performance Deposit will be redelivered to Seller at Closing.  Buyer and Seller each agrees to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

(c)If this Agreement is terminated for any reason other than as set forth in Section 11.2(a), then Seller shall return the Performance Deposit to Buyer, together with interest accrued thereon from the Execution Date up to the date of the return of the Performance Deposit at the Deposit Interest Rate, free and clear of any claims thereon by Seller or its Affiliates, and Seller and Buyer shall have no further liability hereunder, except as set forth in Section 11.2(b).

11.3Return of Documentation and Confidentiality.  Upon termination of this Agreement, Buyer shall return to Seller or destroy all title, engineering, geological and geophysical data, environmental assessments and/or reports, maps and other information whatsoever furnished by Seller to Buyer or prepared by or on behalf of Buyer in connection with the Due Diligence Review or the transactions contemplated hereby.  An officer of Buyer shall certify same to Seller in writing.

ARTICLE 12
CLOSING

12.1Date of Closing.  Subject to the conditions stated in this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall occur on (a) May 31, 2013; provided that (i) Seller shall the right, exercisable in its sole discretion by written notice to Buyer (for the avoidance of doubt, such right may be exercised twice, but only twice), to extend the May 31, 2013 date (as such date may have been previously extended pursuant to Seller’s election under this Section 12.1) by, in each case, up to 30 days, and (ii) if the conditions set forth in Section 10.1, Section 10.2, and Section 10.3 (other than any such conditions that by their nature cannot be satisfied until the Closing Date) have not been satisfied or waived in writing as of such date (as such date may have been extended), then on the fifth Business Day after satisfaction (or waiver) of such conditions, or (b) such other date as Buyer and Seller may agree upon in writing.  The date Closing occurs shall be the “Closing Date”.

12.2Place of Closing.  The Closing shall be held at the offices of Seller at 10:00 a.m. Houston, Texas time or at such other time and place as Buyer and Seller may agree in writing.

12.3Closing Obligations.  At Closing, the following events shall occur, each being a condition precedent to the others and each being deemed to have occurred simultaneously with the others:

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(a)Seller and Buyer shall each execute, acknowledge and deliver counterparts of the Assignment, Bill of Sale and Conveyance of the Assets, other than the Dilley Office Lease and the Specified Contracts, effective as of the Effective Time, substantially in the form of Exhibit F (the “Assignment”), for recordation in each jurisdiction in which the Assets are located,

(b)Seller and Buyer shall each execute, acknowledge and deliver counterparts of an Assignment and Assumption of the Dilley Office Lease, effective as of the Effective Time, substantially in the form of Exhibit G;

(c)Seller and Buyer shall each execute and deliver counterparts of an Assignment and Assumption Agreement with respect to the Specified Contracts, effective as of the Effective Time, substantially in the form of Exhibit H;

(d)Seller and Buyer shall execute, acknowledge and deliver counterparts of such other assignments, bills of sale, certificates of title, or deeds necessary to transfer the Assets to Buyer, including any federal and state forms of assignment, as applicable;

(e)Seller and Buyer shall each execute and deliver an acknowledgment of the Preliminary Settlement Statement;

(f)Buyer shall cause the Closing Amount to be paid to Seller by wire transfer of immediately available funds to an account designated by Seller in the Preliminary Settlement Statement;

(g)Seller shall execute, acknowledge and deliver transfer orders or letters in lieu thereof (on a form reasonably acceptable to Buyer), notifying all purchasers of production of the change in ownership of the Assets and directing all purchasers of production to make payment to Buyer of proceeds attributable to production from the Assets;

(h)Seller shall execute and deliver to Buyer (and to the other Working Interest owners of the Assets which Seller or any Affiliate of Seller or any contractor of any such Person operates, if any) all documents necessary for Seller to resign as operator of all the Assets and for Buyer or an Affiliate thereof to succeed Seller as operator of all the Assets, including Railroad Commission of Texas Form P-4s executed by Seller;

(i)Seller shall execute and deliver to Buyer an affidavit of non-foreign status under Section 1445 of the Code in the form of Exhibit I;

(j)Seller and Buyer shall each execute and deliver counterparts of the Transition Services Agreement;

(k)Seller shall deliver IRS Form W-9 to Buyer;

(l)Seller and Buyer shall take such other actions and deliver such other documents as are contemplated by this Agreement.

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ARTICLE 13
POST-CLOSING OBLIGATIONS

13.1Post-Closing Adjustments.

(a)Final Settlement Statement.  As soon as practicable after the Closing, but in no event earlier than 90 days or later than 180 days after Closing except as may be otherwise expressly provided herein (the “Final Settlement Statement Due Date”), Seller will cause to be prepared and delivered to Buyer, in accordance with GAAP and customary industry accounting practices, a settlement statement setting forth each adjustment to the Purchase Price in accordance with Section 2.4 and showing the calculation of such adjustments and the resulting final purchase price (the “Final Purchase Price” and such statement, the “Final Settlement Statement”).  Within 30 days after its receipt of the Final Settlement Statement, Buyer shall deliver to Seller a written report containing any changes that Buyer proposes to make to the Final Settlement Statement.  Buyer’s failure to deliver to Seller a written report detailing proposed changes to the Final Settlement Statement by such date shall be deemed to be an acceptance by Buyer of the Final Settlement Statement delivered by Seller.  The Parties shall endeavor to agree in writing with respect to the changes proposed by Buyer, if any, by no later than 60 days after Buyer’s receipt of Seller’s proposed Final Settlement Statement.  Should the Parties fail to agree on the Final Settlement Statement and Final Purchase Price by such date, either Party may invoke the Dispute resolution procedures provided for in Section 13.1(b).  The date upon which such agreement is reached or upon which the Final Purchase Price is determined pursuant to Section 13.1(b)shall be herein called the “Final Settlement Date.”  If such agreed or determined Final Purchase Price is more than the Preliminary Purchase Price, Buyer shall pay to Seller the amount of such difference by wire transfer in immediately available funds no later than five Business Days after the Final Settlement Date.  If such agreed or determined Final Purchase Price is less than the Preliminary Purchase Price, Seller shall pay the amount of such difference to Buyer by wire transfer in immediately available funds no later than five Business Days after the Final Settlement Date.

(b)Dispute Resolution.  Within ten days after either Party invokes the Dispute resolution procedures of this Section 13.1(b)pursuant to Section 13.1(a), the Parties shall mutually appoint (and either Party may on its own appoint such expert if the other Party refuses to act in good faith to jointly appoint such expert during such ten day period) an independent expert having the qualifications specified below (the “Accounting Expert”).  If the Parties are unable to mutually agree upon the Accounting Expert within such ten day period, then the Parties shall, within ten days after the expiration of such foregoing ten day period, request that the AAA, acting through its offices in Houston, Texas, appoint the Accounting Expert.  The Accounting Expert shall be a certified public accountant having a minimum of ten years’ experience with regard to the types of matters involved in the Dispute, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for either Party or its Affiliates within the five year period preceding the submission of the Dispute.  For the avoidance of doubt, the Accounting Expert will function as an expert in accordance with the foregoing procedure, not as an arbitrator.  Within 15 days following the appointment of the Accounting Expert, Seller and/or Buyer shall provide the Accounting Expert with a copy of this Agreement, and each Party shall provide, both to the Accounting Expert and to each other, a summary of its position with regard to each such

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outstanding matter involving the Final Settlement Statement in a written document of five pages or less per outstanding Disputed matter.  The Parties shall instruct the Accounting Expert that, within 30 days after receiving the last of the Parties’ respective submissions or the expiration of such 15 day period if either Party fails to make a submission, the Accounting Expert shall render a decision, choosing only either Buyer’s position or Seller’s position with respect to each Disputed matter.  Any decision rendered by the Accounting Expert pursuant hereto shall be final, conclusive and binding on Seller and Buyer, and will be enforceable against each Party in any court having jurisdiction hereof or jurisdiction of either or both Parties, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Accounting Expert and of any associated Dispute resolution proceedings.  The Final Settlement Statement shall be re-issued by Seller if and as necessary to conform to the Accounting Expert’s decision.

13.2Records.  Seller shall, at its office located in Houston, Texas, make (a) the Records, as the same existed as of the Effective Time, available for pick up by Buyer upon the Closing Date, and (b) those Records that would need to be updated, supplemented or modified between the Effective Time and Closing, available for pick up by Buyer within 45 days of the Closing Date.  Seller may retain copies of the Records, and Seller shall, at its sole cost, expense and risk, have the right to review and copy the original Records during standard business hours and upon reasonable notice to Buyer for a period of six years after the Closing Date.  Buyer agrees that the Records will be maintained in compliance with all applicable Laws governing document retention.

13.3Further Assurances.  From time to time after Closing, Seller and Buyer shall each execute, acknowledge and deliver to the other such further instruments and take such other action as may be reasonably requested by the other Party, at such requesting Party’s cost, and as are commercially reasonable to be performed in order to accomplish more effectively the purposes of the transactions contemplated by this Agreement, including those post-Closing actions contemplated by Section 4.4(a) and Section 4.4(b).  Promptly after Closing, Buyer shall:  (a) record the Assignments of the Assets and all state and federal assignments executed at the Closing in all applicable real property records and/or, if applicable, all state and federal Governmental Entities, and Buyer shall provide to Seller copies of such recorded documents; (b) actively pursue the approval of all Customary Post-Closing Consents from the applicable Governmental Entities; and (c) actively pursue all other consents and approvals that may be required in connection with the assignment of the Assets to Buyer and the assumption of the rights, interests, obligations and liabilities assumed by Buyer hereunder that have not been obtained prior to Closing, provided that Seller shall reasonably cooperate with Buyer in obtaining such other consents and approvals, at Buyer’s cost.

13.4Transition Services  Seller shall, pursuant to the Transition Services Agreement, provide certain services to Buyer with respect to the Assets from and after the Closing Date until all of such services are terminated according to the terms of the Transition Services Agreement (such period of time, the “Transition Period”).

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ARTICLE 14
ASSUMPTION AND RETENTION OF OBLIGATIONS AND INDEMNIFICATION; DISCLAIMERS

14.1Buyer’s Assumption of Liabilities and Obligations.  Upon Closing, but (i) subject to and without limiting Buyer’s rights to indemnification pursuant to Section 14.2(a), and (ii) without limiting the amounts or benefits to Buyer with respect to the downward adjustments to the Purchase Price contemplated by Section 2.4(d) to which Buyer is entitled, Buyer shall assume and pay, perform, fulfill and discharge all Claims, costs, expenses, and other obligations and liabilities whatsoever accruing or relating to (a) the ownership and operation of the Assets, including owning, developing, exploring, operating and maintaining the Assets and the production, transportation and marketing of Hydrocarbons from the Assets, the payment of Property Expenses and the make-up and balancing obligations for overproduction of Hydrocarbons from the Wells; (b) all Plugging and Abandonment Obligations and Environmental Liabilities involving the Assets (except as provided in any indemnity agreement entered into by the Parties pursuant to Section 5.3(e)(2)); and (c) all liabilities for royalty and all overriding royalty payments with respect to the Assets, in each case with respect to clauses (a), (b) and (c) above, whether such Claims, costs, expenses or other obligations and liabilities relate to, arise from or are attributable to the period of time prior to, on or after the Effective Time (all of the foregoing, collectively, the “Assumed Liabilities”).

14.2Indemnification.  For purposes hereof, “Losses” shall mean any and all costs (including court costs, reasonable fees and expenses of attorneys, technical experts and expert witnesses and the costs of investigation), expenses (including interest), charges, judgments, awards, settlements, damages, penalties, fines, prosecutions, duties, obligations and other liabilities of any type, including those incurred pursuant to or otherwise involving any Claim, and including those pertaining to or in any way derivative from any personal injury, illness or death, damage, loss or destruction of real or personal property or of any natural resources, any pollution of other harm to or destruction of the Environment or infringement upon or other impairment of any intellectual property rights.

(a)Seller’s Indemnification of Buyer.  Effective as of Closing, Seller hereby defends, indemnifies, and saves and holds harmless Buyer, Buyer’s Affiliates and Buyer’s and Buyer’s Affiliates’ respective officers, directors, members, managers, employees, representatives and agents (the “Buyer Indemnified Parties”) from and against all Losses, to the extent attributable to or arising out of: (1) any breach by Seller of any of Seller’s representations and warranties contained in Article 6 (or the corresponding affirmations of such representations and warranties made by Seller in the certificate delivered pursuant to Section 10.3(c)); (2) other than with respect to Seller’s covenants contained in this Section 14.2(a), any breach by Seller of its covenants and agreements hereunder; (3) Seller Taxes; (4) any Claims for bodily injury, illness or death to the extent attributable to, arising out of, incident to or in connection with the operation of the Assets by Seller prior to the Closing Date; (5) the matters described on Schedule 6.9, Schedule 6.14 and Schedule 6.15; (6) the arrangement by Seller during the period of time prior to the Closing Date (i) for disposal of, or (ii) transportation of, any Hazardous Materials at or to, respectively, any real property that is not included in the Assets or at any real properties pooled or unitized with any Asset, where such Hazardous Materials arose out of or in connection with or were otherwise resulting from the operation of the Assets by Seller prior to

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the Closing Date; (7) ERISA Liabilities; (8) any Claim by ZaZa Energy Corporation or ZaZa Energy, LLC under that certain Texas Division of Assets Agreement dated as of July 25, 2012 by and among Seller, ZaZa Energy Corporation, and ZaZa Energy, LLC, except to the extent that any such Claim (A) is related to any Environmental Liabilities or Plugging and Abandonment Obligations, or (B) arises from, in connection with or relates to, or the Losses with respect to such Claim result from, Buyer’s ownership or operation of the Assets from and after Closing; (9) obligations of Seller with respect to the period prior to the Closing Date and payable to any Affiliate of Seller with respect to the Assets, other than for goods or services furnished in the ordinary course of business; (10) Seller’s gross negligence in connection with its operation prior to the Closing Date of any of the Assets; (11) Seller’s willful misconduct in connection with its operation prior to the Closing Date of any of the Assets; or (12) the ownership, use or operation of those Properties not transferred at Closing pursuant to with Section 3.3(a), Section 4.2(j)(2), Section 4.4(a), Section 4.4(b), Section 5.3(e)(3), Section 8.3(b)(1) or the terms and provisions of Schedule 1.1(e); EVEN IF SUCH LOSSES, OTHER THAN ANY LOSSES COVERED BY BUYER’S INDEMNITY OBLIGATIONS PURSUANT TO SECTION 3.3(C), ARE ATTRIBUTABLE TO OR ARISE OUT OF, SOLELY OR IN PART, THE SOLE, ACTIVE, GROSS, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE BUYER INDEMNIFIED PARTIES.

(b)Buyer’s Indemnification of Seller.  Effective as of Closing, Buyer hereby releases, defends, indemnifies, and saves and holds harmless Seller, Seller’s Affiliates and Seller’s and Seller’s Affiliates’ respective officers, directors, members, managers, employees, representatives and agents (the “Seller Indemnified Parties”) from and against all Losses to the extent attributable to or arising out of: (1) the Assumed Liabilities; (2) any breach by Buyer of any of Buyer’s representations or warranties in Article 7 (or the corresponding affirmations of such representations and warranties made by Buyer in the certificate delivered pursuant to Section 10.2(c)); (3) other than with respect to Buyer’s covenants contained in this Section 14.2(b), any breach by Buyer of its covenants and agreements hereunder; or (4) Buyer Taxes, EVEN IF SUCH LOSSES ARE ATTRIBUTABLE TO OR ARISE OUT OF, SOLELY OR IN PART, THE SOLE, ACTIVE, GROSS, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES.

(c)Limitations on Indemnity.

(1)Notwithstanding anything to the contrary set forth herein, Seller shall have no liability for defense and indemnification hereunder or for any Loss pursuant to Section 14.2(a)unless (A) the amount of an applicable indemnifiable Loss exceeds $100,000 (the “Per Item Threshold”) and (B) the total value of all such Losses in excess of the Per Item Threshold, in the aggregate, exceeds 2.5% of the unadjusted Purchase Price (the “Deductible”), after which point the Buyer Indemnified Parties shall be entitled to defense and indemnification pursuant to Section 14.2(a)only to the incremental extent of the value of any such Losses in excess of the Deductible (including for the avoidance of doubt, any amount below the Per Item Threshold if such Loss exceeds the Per Item Threshold).

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(2)The maximum liability of Seller for all of its obligations hereunder and under any Transaction Document, including for defense and indemnification pursuant to Section 14.2(a)with respect to Losses suffered by the Buyer Indemnified Parties (including Losses for which the Deductible applies), shall not exceed, in the aggregate, 20% of the unadjusted Purchase Price (the “Cap”).

(3)Notwithstanding the foregoing or anything to the contrary in this Section 14.2(c), the Per Item Threshold, Deductible and Cap will not apply to the indemnification obligations of Seller (A) with respect to any breach by Seller of any of its Fundamental Representations or the representations of Seller set forth in Section 6.19 or Section 6.22, (B) under Section 14.2(a)(2), Section 14.2(a)(3), Section 14.2(a)(4), Section 14.2(a)(5), Section 14.2(a)(6), Section 14.2(a)(7), Section 14.2(a)(8), Section 14.2(a)(9), Section 14.2(a)(11) or Section 14.2(a)(12), or (C) with respect to any breach by Seller of its obligations under Section 13.1; provided, however, that in no event shall Seller’s aggregate liability under the aforementioned provisions of this Agreement, together with all other liabilities of Seller under this Agreement and under the Transaction Documents (including with respect to the special warranty contained in the Assignment), exceed 100% of the Purchase Price.

(d)Sole Remedy.  Notwithstanding anything to the contrary contained in this Agreement, from and after Closing, Seller’s and Buyer’s sole and exclusive remedies against each other with respect to any and all Claims for breaches of the representations, warranties, covenants and agreements contained in this Agreement or under any other agreement, contract or instrument contemplated herein (including the affirmations of the representations and warranties contained in the certificates delivered by each Party at Closing pursuant to Section 10.2(c)and Section 10.3(c), as applicable) or otherwise in connection with the transactions contemplated hereby, are exclusively set forth in Section 3.3(c), Section 8.2(a), Section 8.3(g), Section 9.3, Section 9.5 and this Section 14.2, and if no such right of defense or indemnification or to be held harmless is expressly provided in Section 3.3(c), Section 8.2(a), Section 8.3(g), Section 9.3, Section 9.5 or this Section 14.2, then such Claims are hereby waived by the Parties to the fullest extent permitted by Law.  Except for the remedies contained in Section 3.3(c), Section 8.2(a), Section 8.3(g), Section 9.3, Section 9.5 and this Section 14.2, each Party (including as to its respective Indemnified Parties) releases, remises, and forever discharges the other Party (including as to its respective Indemnified Parties) from any and all suits, legal or administrative proceedings, Claims, demands, damages, Losses, costs, liabilities, interest, causes of action and other obligations whatsoever, in Law or in equity, known or unknown, which such Parties might now or subsequently may have, based on, relating to, or arising out of this Agreement or any other agreement, contract or instrument contemplated herein, Seller’s ownership, use, or operation of the Assets, or the condition, quality, status, or nature of the Assets, INCLUDING RIGHTS TO CONTRIBUTION OR COST RECOVERY UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, BREACHES OF STATUTORY AND IMPLIED WARRANTIES, NUISANCE OR OTHER TORT ACTIONS, RIGHTS TO PUNITIVE DAMAGES, COMMON LAW RIGHTS OF CONTRIBUTION, ANY RIGHTS UNDER INSURANCE POLICIES ISSUED OR UNDERWRITTEN BY THE OTHER PARTY OR ANY OF ITS AFFILIATES (IN EACH CASE) EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER ACTIVE, PASSIVE,

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SIMPLE, SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY RELEASED PERSON, INVITEE OR THIRD PERSON, OR BY A PREEXISTING CONDITION.

(e)Waiver of Non-Compensatory Damages.  None of the Buyer Indemnified Parties or Seller Indemnified Parties shall be entitled to recover from Seller, Buyer, or their respective Affiliates or other Representatives, any special, indirect, consequential, punitive, exemplary, remote or speculative damages, including damages for lost profits of any kind, arising under or in connection with this Agreement, any other agreement, contract or instrument contemplated herein or the transactions contemplated hereby, except to the extent any such Party suffers such damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending of such damages) to a Third Party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder.  Subject to the preceding sentence, Buyer, on behalf of each of the Buyer Indemnified Parties, and Seller, on behalf of each of Seller Indemnified Parties, waive any right to recover any special, indirect, consequential, punitive, exemplary, remote or speculative damages, including damages for lost profits of any kind, arising in connection with or with respect to this Agreement, any other agreement, contract or instrument contemplated herein or the transactions contemplated hereby.

(f)Materiality Qualifiers.  For purposes of determining a Loss resulting from a breach of any of Seller’s representations and warranties for which Buyer would be entitled to indemnification under Section 14.2(a)(1), any dollar or materiality qualifications in Seller’s representations and warranties shall be disregarded.

14.3Claims Procedure.  The defense, indemnification and hold harmless obligations contained in Section 3.3(c), Section 8.2(a), Section 8.3(g), Section 9.5 and Section 14.2 shall be implemented as follows:

(a)Claim Notice.  The Party seeking defense and indemnification under the terms of this Agreement (“Indemnified Party”) shall submit a written “Claim Notice” to the other Party (“Indemnifying Party”) which, to be effective, must be delivered prior to the end of the survival period applicable under Section 14.4 to the particular Loss that is the subject of such Claim Notice and must state, to the extent of the information reasonably available to the Indemnified Party:  (1) the amount of each payment or other obligation claimed by an Indemnified Party to be owing or other Loss for which the Indemnified Party is seeking defense, indemnification and to be held harmless, (2) the basis for such Claim, with supporting documentation if available, and (3) a list identifying, to the extent reasonably possible, each separate item of Loss for which payment or any other obligation is so Claimed.  Within 30 days of receipt of a Claim Notice, the Indemnifying Party may provide written notice to the Indemnified Party that it accepts, contests or rejects the Losses identified in such Claim Notice or its responsibility for same.  Any failure of the Indemnifying Party to provide such notice within such time period shall be deemed to be a rejection by such Indemnifying Party of such Losses and its responsibility for same.  If the Indemnifying Party objects to a Claim Notice on the basis that it lacks sufficient information, it shall promptly request from the Indemnified Party any specific additional information reasonably necessary for it to assess such indemnification Claim, and the Indemnified Party shall provide

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the additional information reasonably requested to the extent reasonably available to it.  Upon receipt of such additional information, the Indemnifying Party shall notify the Indemnified Party of any withdrawal or modification of the objection.  All disputed defense, indemnification and hold harmless Claims shall be resolved by Buyer and Seller in accordance with either (A) a mutual agreement between Buyer and Seller, which shall be memorialized in writing, or (B) final arbitration in accordance with Section 15.12, which may be invoked by either Party at any time when it reasonably believes that the Parties are unable to reach mutual agreement as to any defense, indemnification and hold harmless Claim arising under this Agreement.

(b)Information.  Promptly after the Indemnified Party receives notice of a Claim or legal action by a Third Party that may result in a Loss for which defense, indemnification and the right to be held harmless may be sought under this ARTICLE 14 (a “Third Party Claim”), the Indemnified Party shall give written notice of such Third Party Claim to the Indemnifying Party.  If the Indemnifying Party or its counsel so requests, the Indemnified Party shall furnish the Indemnifying Party with copies of all pleadings and other material information reasonably available to the Indemnified Party with respect to such Third Party Claim.  If the Indemnifying Party assumes and acknowledges its responsibility for such Third Party Claim, then at the election of the Indemnifying Party, made within 30 days after receipt of such notice, the Indemnified Party shall permit the Indemnifying Party to assume sole management and control of such Third Party Claim (to the extent only that such Third Party Claim relates to a Loss for which the Indemnifying Party has agreed and acknowledges that it is liable), including the determination of all appropriate actions, the negotiation of settlements on behalf of the Indemnified Party, and the conduct of litigation through attorneys of the Indemnifying Party’s choice; provided, however, that no such settlement can result in any cost or other liability to the Indemnified Party without its consent.  If the Indemnifying Party elects to assume such control, (i) any and all expense incurred by the Indemnified Party thereafter for investigation, defense or other handling of the matter shall be borne by the Indemnified Party, except as to those reasonable expenses incurred in responding to any request or instruction by the Indemnifying Party and (ii) the Indemnified Party shall give all reasonable information and assistance, other than pecuniary, that the Indemnifying Party shall reasonably request as necessary for the proper defense of such Third Party Claim.  In the absence of such an election, the Indemnified Party will reasonably endeavor to defend, at the Indemnifying Party’s expense, any Third Party Claim to which such Indemnifying Party’s defense, indemnification and hold harmless obligation under this ARTICLE 14 applies until the Indemnifying Party assumes such defense, and, if the Indemnifying Party fails to assume such defense the Indemnified Party may settle or otherwise resolve the same in the Indemnified Party’s reasonable discretion at the Indemnifying Party’s expense and liability, subject to the Indemnifying Party’s consent, which shall not be unreasonably withheld, conditioned or delayed; provided, further, that if the Indemnifying Party fails to grant such consent, it shall immediately assume such defense, indemnification and hold harmless obligation from the Indemnified Party and reimburse the Indemnified Party for all expenses and other obligations and liabilities incurred by it prior to such point in time.  If any such Third Party Claim requires immediate action, both the Indemnified Party and the Indemnifying Party will cooperate in good faith to take appropriate action so as not to jeopardize the defense of such Third Party Claim or either Party’s position with respect to such Third Party Claim.  If the Indemnifying Party is entitled to, and does, assume the defense of any such Third Party Claim, the Indemnified Party shall have the right to employ separate counsel at its own expense and to participate in the defense thereof, subject to the Indemnifying Party’s sole

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management and control of the defense of any such Third Party Claim in its sole good faith judgment; provided, however, that, notwithstanding the foregoing, the Indemnifying Party shall pay the reasonable attorneys’ fees of the Indemnified Party if the Indemnified Party’s counsel shall have advised the Indemnified Party in writing that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel for the Indemnifying Party and the Indemnified Party (provided that the Indemnifying Party shall not be responsible for paying for more than one separate firm of attorneys and one local counsel to represent all of the Indemnified Parties subject to such Third Party Claim).  In the event that the Indemnifying Party has any Dispute regarding whether it is obligated to defend, indemnify and hold harmless the Indemnified Party as to any Third Party Claim or other Claim or any Dispute as to the scope of any such defense, indemnity and hold harmless obligation as to a Third Party Claim or other Claim, such Dispute shall be resolved in accordance with Section 15.12, which Dispute resolution process may be invoked by either Party at any time when it reasonably believes that the Parties are unable to reach mutual agreement as to any defense, indemnification or hold harmless Claim arising under this Agreement.

14.4Survival of Warranties, Representations and Covenants.

(a)Subject to Section 14.4(c), (1) the representations and warranties of the Parties in ARTICLE 6 and ARTICLE 7 (other than the Fundamental Representations and the representations and warranties contained in Section 6.15(a), Section 6.15(b), Section 6.15(c), Section 6.19, Section 6.22 and Section 6.26) and the affirmations of such representations and warranties contained in the certificates to be delivered at Closing pursuant to Section 10.2(c)and Section 10.3(c), as applicable, shall, in each case, survive the Closing for a period of twelve months, (2) the representations and warranties contained in Section 6.15(a), Section 6.15(b), Section 6.15(c) and Section 6.26 (and the affirmations of such representations and warranties contained in the certificate to be delivered at Closing pursuant to Section 10.2(c)and Section 10.3(c), as applicable) will expire at Closing, (3) the representations and warranties contained in Section 6.19 and Section 6.22 (and the affirmations of such representations and warranties contained in the certificate to be delivered at Closing pursuant to Section 10.2(c)and Section 10.3(c), as applicable) shall, in each case, survive the Closing for a period of nine months, (4) the Fundamental Representations (and the affirmations of such representations and warranties contained in the certificate to be delivered at Closing pursuant to Section 10.2(c)and Section 10.3(c), as applicable) shall survive the Closing until 30 days after the expiration of the statute of limitations applicable thereto, and if there is no applicable statute of limitations, such Fundamental Representations and affirmations shall survive the Closing indefinitely, (5) the covenants of Seller contained in Section 8.1 shall survive the Closing for a period of twelve months, and (6) the remaining covenants and agreements of the Parties contained herein (other than those contained in Section 14.1 and Section 14.2, which shall survive as specified in Section 14.4(c)), shall survive the Closing for a period of 24 months.  It is the intent of the Parties to shorten the application of the statute of limitations as set forth in this Section 14.4(a).

(b)Representations, warranties, covenants and agreements (and any certificate related thereto) shall be of no further force and effect after the date of their expiration; provided that there shall be no termination of any bona fide Claim asserted through a Claim Notice delivered pursuant to Section 14.3 with respect to such a representation, warranty, covenant or agreement prior to its expiration date.

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(c)The indemnities in (1) Section 14.2(a)(1), Section 14.2(a)(2), Section 14.2(b)(2)and Section 14.2(b)(3)shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification, except in each case as to matters for which a Claim Notice has been delivered to the Indemnifying Party on or before such termination date, (2) Section 14.2(a)(10)shall survive the Closing for a period of 12 months, (3) Section 14.2(a)(4), Section 14.2(a)(6), Section 14.2(a)(8) and Section 14.2(a)(11) shall survive the Closing for a period of 24 months, (4) Section 14.2(a)(3), Section 14.2(a)(7)and Section 14.2(b)(4)shall survive the Closing until 30 days after the expiration of the statute of limitations applicable thereto and if there is no applicable statute of limitations, such indemnities shall survive the Closing indefinitely, and (5) Section 14.2(a)(5), Section 14.2(a)(9), Section 4.2(a)(12) and Section 14.2(b)(1)shall survive the Closing without time limit. Buyer’s agreement to assume the Assumed Liabilities set forth in Section 14.1 shall survive the Closing without time limit.

14.5Reservation as to Non-Parties.  Nothing herein is intended to limit or otherwise waive any recourse Buyer or Seller may have against any Third Party for any obligations or liabilities that may be incurred with respect to the Assets.

14.6Tax Treatment of Indemnity Payments.  Any payment pursuant to this ARTICLE 14 shall be treated for Tax purposes as an adjustment to the Purchase Price, except to the extent otherwise required by applicable Law.

ARTICLE 15
MISCELLANEOUS

15.1Schedules and Exhibits.  The Schedules and Exhibits hereto constitute a part of this Agreement. The disclosure of any matter or item in the Schedules shall not be deemed to constitute an acknowledgment that any such matter is required to be disclosed or is material or that such matter would or would reasonably be expected to result in a Material Adverse Effect.

15.2Expenses.  Except as may be otherwise specifically provided herein, all fees, costs and expenses incurred by Buyer or Seller in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Party incurring the same, including engineering, land, title, legal and accounting fees, costs and expenses.  Notwithstanding any other provision of this Agreement, Seller shall pay all Seller Transaction Costs and Buyer shall pay all Buyer Transaction Costs.

15.3Notices.  All notices and communications required or permitted under this Agreement shall be in writing and addressed as set forth below.  Any communication or delivery hereunder shall be deemed to have been duly made and the receiving Party charged with notice as follows: (a) if personally delivered, when received; (b) if sent by facsimile, with electronic confirmation of delivery, if sent during normal business hours on a Business Day, and if not sent during normal business hours on a Business Day, on the next subsequent Business Day; (c) if mailed certified mail, return receipt requested, on the day such notice is received, and if such day is not a Business Day, on the next subsequent Business Day, or (d) if sent by overnight courier, the next Business Day after placement into the custody of the overnight courier.  All notices shall be addressed as follows:

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If to Buyer:	If to Seller:
Sanchez Oil and Gas 1111 Bagby Street, Suite 1800 Houston, TX 77002 Attn: Joseph DeDominic Chief Operating Officer Phone: (713) 783-8000 Fax: (713) 783-5323	Hess Corporation Hess Tower 1501 McKinney Street Houston, TX 77010 Attn: Louis Jones, Vice President, Global New Business Development Phone: (713) 496-5940 Fax: (713) 496-8052
With a copy to: (which shall not constitute notice hereunder)	With a copy to: (which shall not constitute notice hereunder)
Sanchez Oil and Gas 1111 Bagby Street, Suite 1800 Houston, TX 77002 Attn: Bob Ramsey Vice President — Land Phone: (713) 783-8000 Fax: (713) 783-5323 Akin Gump Strauss Hauer & Feld LLP 1111 Louisiana, 44th Floor Houston, TX 77002 Attn: David Elder Phone: (713) 220-5881 Fax: (713) 236-0822	Hess Corporation 1185 Avenue of the Americas New York, New York 10036 Attn: Timothy B. Goodell Senior Vice President & General Counsel Phone: (212) 536-8004 Fax: (212) 536-8241

Either Party may, by three Business Days’ prior written notice so delivered to the other Party, change the address or individual to which delivery shall thereafter be made.

15.4Amendments.  This Agreement may not be amended except by an instrument expressly modifying this Agreement signed by each of the Parties.  Except for waivers specifically provided for in this Agreement, no waiver by either Party of any breach of any provision of this Agreement shall be binding unless made expressly in writing.  No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision hereof (regardless of whether similar), and no such waiver shall constitute a continuing waiver unless expressly so provided.  Delay in the exercise, or non-exercise, of any such right is not a waiver of that right.

15.5Assignment.  Except as otherwise provided in Section 9.5 and as set forth in the succeeding sentence, neither Party shall assign all or any portion of its respective rights or delegate all or any portion of its respective duties and obligations hereunder without the prior written consent of the other Party which consent may be withheld for any reason or no reason.  Any such attempted assignment which does not comply with the foregoing provisions shall be deemed null and void.  Notwithstanding the foregoing (a) Buyer may assign all of its rights and

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delegate all of its duties and obligations hereunder to any direct or indirect wholly-owned subsidiary of Buyer, (b) no assignment or delegation hereunder by Sanchez Energy Corporation, as Buyer, shall relieve Sanchez Energy Corporation (or any of its successors) of any of Buyer’s liabilities and obligations hereunder, and (c) prior to making any such permitted assignment to a direct or indirect wholly-owned subsidiary, Buyer must obtain Seller’s consent to the form of assignment used for such assignment, such consent not to be unreasonably withheld.  In the event of an assignment hereunder pursuant to subsection (a) above, the assignee shall be entitled to and undertake the same rights and obligations herein of Buyer as if such assignee were a party hereto and the Parties agree that in the event of such assignment Buyer or its assignee may deliver the required closing deliverables with such modifications as to which the Parties reasonably agree.

15.6DISCLAIMERS.

(a)EXCEPT FOR THE SPECIFIC REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATE TO BE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 10.3(c) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLER MAKES NO, AND DISCLAIMS ALL, WARRANTIES OR REPRESENTATIONS OF ANY KIND AS TO ANY INFORMATION OBTAINED BY BUYER OR ITS REPRESENTATIVES PURSUANT TO ARTICLE 3, INCLUDING THE RECORDS AND ANY INFORMATION CONTAINED THEREIN.  BUYER AGREES THAT ANY CONCLUSIONS DRAWN FROM, OR ANY ACTIONS (OR INACTIONS) OF BUYER FOLLOWING, ITS DUE DILIGENCE REVIEW SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT AND SHALL BE AT BUYER’S SOLE RISK AND LIABILITY.

(b)EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATE TO BE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 10.3(c) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, NEITHER SELLER NOR ANY OTHER PERSON MAKES (AND BUYER IS NOT RELYING UPON) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE ASSETS (INCLUDING THE VALUE, CONDITION OR USE OF ANY ASSET) OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND SELLER DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES (WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) OR OTHER UNDERTAKINGS NOT CONTAINED IN THIS AGREEMENT, WHETHER MADE BY SELLER, ANY AFFILIATE OF SELLER OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AGENTS, CONSULTANTS OR OTHER REPRESENTATIVES.

(c)EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATE TO BE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 10.3(c) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLER DISCLAIMS ALL LIABILITY AND

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RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, PROJECTION, FORECAST, STATEMENT OR INFORMATION MADE, COMMUNICATED OR FURNISHED (ORALLY OR IN WRITING) TO BUYER OR ANY OF ITS AFFILIATES OR ANY OF ITS REPRESENTATIVES, INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER BY ANY REPRESENTATIVE OF SELLER OR ANY OF ITS AFFILIATES.

(d)EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATE TO BE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 10.3(c) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO (1) SELLER’S TITLE TO ANY OF THE ASSETS, (2) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING OR OTHER CONSULTANT, ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, OR ANY OTHER TECHNICAL, FINANCIAL, COMMERCIAL OR OTHER ANALYSIS OR EVALUATION RELATING TO THE ASSETS, (3) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (4) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR PAST, PRESENT OR FUTURE REVENUES OR PROFITS GENERATED BY THE ASSETS, (5) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS, OR WHETHER PRODUCTION FROM THE ASSETS HAS BEEN CONTINUOUS OR IN PAYING QUANTITIES, (6) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, OR (7) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN OR THAT MAY BE MADE AVAILABLE OR COMMUNICATED TO BUYER OR ITS AFFILIATES, OR ITS OR THEIR RESPECTIVE REPRESENTATIVES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO.

(e)EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATE TO BE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 10.3(c) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLER FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT BUYER SHALL BE DEEMED TO BE OBTAINING THE ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS”, WITH ALL FAULTS AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS APPROPRIATE.

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(f)EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 7, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATE TO BE DELIVERED BY BUYER AT CLOSING PURSUANT TO SECTION 10.2(c), NEITHER BUYER NOR ANY AFFILIATE OF BUYER MAKES (AND SELLER IS NOT RELYING UPON) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND BUYER DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES (WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) OR OTHER UNDERTAKINGS NOT CONTAINED IN THIS AGREEMENT, WHETHER MADE BY BUYER, ANY AFFILIATE OF BUYER OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AGENTS, CONSULTANTS OR OTHER REPRESENTATIVES.

15.7Counterparts Signatures.  This Agreement may be executed and delivered in one or more counterparts, each of which when executed and delivered shall be an original, and all of which when executed shall constitute one and the same instrument.  The exchange of copies of this Agreement and of signature pages by facsimile or by electronic transmission in .pdf format shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes.  Signatures of the Parties transmitted by facsimile or electronic image scan transmission in .pdf format shall be deemed to be their original signatures for all purposes.  Any Party that delivers an executed counterpart signature page by facsimile or by electronic scan transmission in .pdf format shall promptly thereafter deliver a manually executed counterpart signature page to the other Party; provided, however, that the failure to do so shall not affect the validity, enforceability, or binding effect of this Agreement.

15.8Governing Law.  THIS AGREEMENT, ALL ISSUES ARISING HEREUNDER, ALL TRANSACTIONS CONTEMPLATED HEREBY AND ANY ARBITRATION OR EXPERT DISPUTE RESOLUTION PROCEDURE CONDUCTED PURSUANT HERETO SHALL BE CONSTRUED EXCLUSIVELY IN ACCORDANCE WITH, AND EXCLUSIVELY GOVERNED BY, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY CONFLICTS OF LAWS OR CHOICE OF LAW PRINCIPLES OR RULES WHICH MAY REFER ANY MATTER TO ANOTHER JURISDICTION FOR RESOLUTION.

15.9Entire Agreement.  This Agreement, the Exhibits, the Schedules, the Confidentiality Agreement and the documents delivered at Closing by or on behalf of each Party and its Affiliates (collectively, the “Transaction Documents”) constitutes the entire agreement and understanding between the Parties and their respective members, shareholders, officers, directors and employees with respect to the subject matter hereof, superseding all prior negotiations, discussions, agreements and understandings relating to such subject matter.

15.10Binding Effect.  This Agreement shall be binding upon, and shall inure to the benefit of, the Parties and their respective successors and permitted assigns.

15.11No Third-Party Beneficiaries.  This Agreement is intended to benefit only the Parties and their respective Indemnified Parties and their respective successors and permitted

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assigns; provided that only the Parties will have the right (but not the obligation) to enforce the provisions of this Agreement on its own behalf or on behalf of any of its respective Indemnified Parties.

15.12Dispute Resolution.  Except as otherwise provided in Section 2.3(b), Section 4.3, Section 5.3(f) and Section 13.1(b), any Dispute shall be determined by arbitration administered by the AAA in accordance with its Commercial Arbitration Rules (the “Rules”) and the provisions of this Section 15.12.

(a)The arbitration shall be conducted by three arbitrators.  The place of arbitration shall be Houston, Texas.  Within 30 days of either Party providing notice to the other Party of a Dispute, each Party to such Dispute shall appoint one arbitrator, and the two arbitrators so appointed shall select the third and presiding arbitrator within 30 days following appointment of the second Party-appointed arbitrator.  If either Party fails to appoint an arbitrator within the permitted time period, then the missing arbitrator shall be selected by the AAA as appointing authority in accordance with the AAA Rules.  Any arbitrator nominated or appointed by the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA.  In addition to the rules of the AAA and applicable Law on arbitrator neutrality, no arbitrator shall have been an employee or consultant to either Party or any of its Affiliates within the five year period preceding the arbitration, or have any financial interest in the Dispute.

(b)All awards of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating, modifying or correcting such under the Federal Arbitration Act (9 U.S.C. § 1 et seq.).  Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

(c)Notwithstanding the agreement to arbitrate Disputes in this Section 15.12 (except as provided in Section 2.3(b), Section 4.3, Section 5.3(f)or Section 13.1(b)), either Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment and conservation orders.  The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive a Party’s right to arbitration.  Additionally, the arbitrators (or in an emergency the chairperson acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments and conservation orders in appropriate circumstances, which measures may be immediately enforced by court order.  Hearings on requests for interim measures may be held in person, by telephone or video conference or by other means that permit the Parties to present evidence and arguments.  The arbitrators (or chairperson, as the case may be) may require either Party to provide appropriate security in connection with such measures.

(d)The arbitral tribunal is authorized to award costs, attorneys’ fees and expert witness fees and to allocate such costs and fees between the Parties.  The award may include interest from the date of any default, breach or other accrual of a claim until the arbitral award is paid in full.  The arbitrators may not award indirect, consequential, special, punitive or exemplary damages except to the extent allowed under the terms of Section 14.2(e).  Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.  The cost of the arbitrators shall be split evenly between the Parties.

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(e)All negotiations, mediation, arbitration and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates or any of their respective employees, officers, directors, counsel, consultants and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award or expert determination, to enforce other rights of a Party, as required by Law or any applicable stock exchange rule or regulation or for a bona fide business purpose, such as disclosure to accountants, shareholders or Third Party purchasers; provided, however, that breach of this Section 15.12(e)shall not void any settlement, expert determination or award.

(f)Any papers, notices or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 15.3.

15.13Publicity.  Neither Buyer nor Seller nor any of their respective Representatives shall issue or cause the publication of any press release or other announcement with respect to the transactions contemplated by this Agreement without the prior written consent of the other Party (which shall not be unreasonably withheld, conditioned, or delayed), except as may be required by applicable Law or by the applicable rules, regulations or orders of any Governmental Entity or stock exchange, in which case, each Party shall provide the other Party a draft of such release or other announcement prior to the issuance thereof, and give reasonable consideration to such comments as the other Party may have, prior to such release or other announcement.

[Signature page follows]

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

SELLER:
HESS CORPORATION
By:	/s/ Louis D. Jones
Name:	Louis D. Jones
Title:	Vice President, Global New Business Development
BUYER:
SANCHEZ ENERGY CORPORATION
By:	/s/ Tony Sanchez, III
Name:	Tony Sanchez, III
Title:	President & CEO

SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT

EX-10.1

Exhibit 10.1

EXECUTION

AMENDED AND RESTATED CREDIT AGREEMENT

dated as of

May 31, 2013

among

SANCHEZ ENERGY CORPORATION,

SEP HOLDINGS III, LLC

SN MARQUIS LLC,

And

SN COTULLA ASSETS, LLC
as Borrowers,

ROYAL BANK OF CANADA
as Administrative Agent,

CAPITAL ONE, NATIONAL ASSOCIATION

as Syndication Agent

RBC CAPITAL MARKETS
as Sole Lead Arranger and
Sole Book Runner

and

THE LENDERS PARTY HERETO

Sanchez Energy Amended

And Restated Credit Agreement

TABLE OF CONTENTS

ARTICLE I Definitions and Accounting Matters		4
Section 1.01	Terms Defined Above	4
Section 1.02	Certain Defined Terms	4
Section 1.03	Types of Loans and Borrowings	36
Section 1.04	Terms Generally; Rules of Construction	36
Section 1.05	Accounting Terms and Determinations; GAAP	37
ARTICLE II The Credits		37
Section 2.01	Commitments	37
Section 2.02	Loans and Borrowings	37
Section 2.03	Requests for Borrowings	39
Section 2.04	Interest Elections	40
Section 2.05	Funding of Borrowings	41
Section 2.06	Changes in the Aggregate Maximum Credit Amounts	41
Section 2.07	Borrowing Base	42
Section 2.08	Letters of Credit	46
ARTICLE III Payments of Principal and Interest; Prepayments; Fees		50
Section 3.01	Repayment of Loans	50
Section 3.02	Interest	50
Section 3.03	Alternate Rate of Interest	51
Section 3.04	Prepayments	52
Section 3.05	Fees	53
ARTICLE IV Payments; Pro Rata Treatment; Sharing of Set-offs		54
Section 4.01	Payments Generally; Pro Rata Treatment; Sharing of Set-offs	54
Section 4.02	Presumption of Payment by the Borrowers	56
Section 4.03	Certain Deductions by the Administrative Agent	56
Section 4.04	Disposition of Proceeds	56
ARTICLE V Increased Costs; Break Funding Payments; Taxes; Illegality; Defaulting Lenders		57
Section 5.01	Increased Costs	57
Section 5.02	Break Funding Payments	58
Section 5.03	Taxes	58
Section 5.04	Mitigation Obligations	61
Section 5.05	Illegality	62
Section 5.06	Defaulting Lenders	62
ARTICLE VI Conditions Precedent		64
Section 6.01	Conditions to Effectiveness	64
Section 6.02	Each Credit Event	67
ARTICLE VII Representations and Warranties		68

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Section 7.01	Organization; Powers	68
Section 7.02	Authority; Enforceability	68
Section 7.03	Approvals; No Conflicts	68
Section 7.04	Financial Condition; No Material Adverse Change	69
Section 7.05	Litigation	69
Section 7.06	Environmental Matters	70
Section 7.07	Compliance with the Laws and Agreements; No Defaults	71
Section 7.08	Investment Company Act	71
Section 7.09	Taxes	71
Section 7.10	ERISA	71
Section 7.11	Disclosure; No Material Misstatements	72
Section 7.12	Insurance	72
Section 7.13	Restriction on Liens	73
Section 7.14	Subsidiaries	73
Section 7.15	Location of Business and Offices	73
Section 7.16	Properties; Titles, Etc.	73
Section 7.17	Maintenance of Properties	74
Section 7.18	Gas Imbalances, Prepayments	75
Section 7.19	Marketing of Production	75
Section 7.20	Swap Agreements	75
Section 7.21	Use of Loans and Letters of Credit	75
Section 7.22	Solvency	75
Section 7.23	Foreign Corrupt Practices	76
Section 7.24	Money Laundering	76
Section 7.25	OFAC	76
Section 7.26	Purchaser of Production	76
Section 7.27	Eagle Ford Acquisition Representations	76
ARTICLE VIII Affirmative Covenants		77
Section 8.01	Financial Statements; Ratings Change; Other Information	77
Section 8.02	Notices of Material Events	79
Section 8.03	Existence; Conduct of Business	80
Section 8.04	Payment of Obligations	80
Section 8.05	Performance of Obligations under Loan Documents	80
Section 8.06	Operation and Maintenance of Properties	80
Section 8.07	Insurance	81
Section 8.08	Books and Records; Inspection Rights	82
Section 8.09	Compliance with Laws	82
Section 8.10	Environmental Matters	82
Section 8.11	Further Assurances	83
Section 8.12	Reserve Reports	84
Section 8.13	Title Information	85
Section 8.14	Additional Collateral	86
Section 8.15	ERISA Compliance	86
Section 8.16	New Subsidiary Requirements	86

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ARTICLE IX Negative Covenants		88
Section 9.01	Financial Covenants	88
Section 9.02	Debt	88
Section 9.03	Liens	90
Section 9.04	Dividends, Distributions and Redemptions	91
Section 9.05	Investments, Loans and Advances	91
Section 9.06	Nature of Business; International Operations	93
Section 9.07	Limitation on Leases	93
Section 9.08	Proceeds of Notes/Loans	93
Section 9.09	Sale or Discount of Receivables	93
Section 9.10	Mergers, Etc.	93
Section 9.11	Sale of Assets	94
Section 9.12	Environmental Matters	95
Section 9.13	Transactions with Affiliates	95
Section 9.14	Subsidiaries	95
Section 9.15	Negative Pledge Agreements; Dividend Restrictions	95
Section 9.16	Gas Imbalances, Take-or-Pay or Other Prepayments	96
Section 9.17	Swap Agreements	96
Section 9.18	Sale and Leaseback Transactions	97
Section 9.19	ERISA	97
Section 9.20	Change in Business	98
ARTICLE X Events of Default; Remedies		99
Section 10.01	Events of Default	99
Section 10.02	Remedies	101
ARTICLE XI The Administrative Agent		102
Section 11.01	Appointment; Powers	102
Section 11.02	Duties and Obligations of Administrative Agent	102
Section 11.03	Action by Administrative Agent	103
Section 11.04	Reliance by Administrative Agent	103
Section 11.05	Subagents	104
Section 11.06	Resignation or Removal of Administrative Agent	104
Section 11.07	Administrative Agent as Lender	105
Section 11.08	No Reliance	105
Section 11.09	Authority to Release Collateral and Liens	105
Section 11.10	Filing of Proofs of Claim	106
ARTICLE XII Miscellaneous		106
Section 12.01	Notices	106
Section 12.02	Waivers; Amendments	107
Section 12.03	Expenses, Indemnity; Damage Waiver	108
Section 12.04	Successors and Assigns	111
Section 12.05	Survival; Revival; Reinstatement	114
Section 12.06	Counterparts; Integration; Effectiveness	115
Section 12.07	Severability	115

iii

Section 12.08	Right of Setoff	115
Section 12.09	GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS	116
Section 12.10	Headings	117
Section 12.11	Confidentiality	117
Section 12.12	EXCULPATION PROVISIONS	118
Section 12.13	No Third Party Beneficiaries	118
Section 12.14	Collateral Matters; Swap Agreements	118
Section 12.15	US Patriot Act Notice	119
Section 12.16	Interest Rate Limitation	119
Section 12.17	Intercreditor Agreement	120
Section 12.18	Termination and Release	120
Section 12.19	Release	120
Section 12.20	Resignation of Predecessor Administrative Agent and Predecessor Issuing Bank; Appointment of Successor Administrative Agent and Successor Issuing Bank; Assignment	121
Section 12.21	Amendment and Restatement	121
Section 12.22	Termination of Commitment under Original Credit Agreement	122
Section 12.23	No Novation, Etc.	122
Section 12.24	Joint and Several Liability	122
Section 12.25	Keepwell	124

Annex 1	List of Maximum Credit Amounts
Exhibit A	Form of Note
Exhibit B	Form of Borrowing Request
Exhibit C	Form of Interest Election Request
Exhibit D	Form of Compliance Certificate
Exhibit E	Form of Assignment and Assumption
Exhibit F	U.S. Tax Compliance Certificates (F-1 through F-4)
Exhibit G	Form of Guaranty
Exhibit H	Form of Joinder
Schedule 7.01	Corporate Organizational Chart
Schedule 7.05	Litigation
Schedule 7.14	Subsidiaries
Schedule 7.16	Title Exceptions to Properties
Schedule 7.18	Gas Imbalances
Schedule 7.19	Marketing Contracts
Schedule 7.20	Swap Agreements
Schedule 7.26	Purchasers of Production
Schedule 9.02	Existing Debt
Schedule 9.03	Liens
Schedule 9.05	Investments
Schedule 9.17	Existing Shell Swap Agreements

iv

This Amended and Restated Credit Agreement, dated as of May 31, 2013, is among SANCHEZ ENERGY CORPORATION, a Delaware corporation (“Sanchez”), SEP HOLDINGS III, LLC, a Delaware limited liability company (“SEP”) and SN MARQUIS LLC, a Delaware limited liability company (“SN Marquis”, together with Sanchez and SEP, hereinafter collectively called the “ Original Borrowers”, and each individually “Original Co-Borrower”), SN COTULLA ASSETS, LLC, a Texas limited liability company (“SN Cotulla”, together with Sanchez, SEP and SN Marquis, hereinafter collectively called the “Borrowers”, and each individually “Co-Borrower”), ROYAL BANK OF CANADA (in its individual capacity, “RBC”), as administrative agent for the Lenders (hereinafter defined) (in such capacity, together with its successors in such capacity, the “Administrative Agent”), Capital One, National Association (in its individual capacity, “Capital One”), as administrative agent under the Original Credit Agreement (hereinafter defined) (in such capacity, the “Predecessor Administrative Agent”) solely for purposes of evidencing its agreement with Section 12.20 and the matters set forth in Recitals G and I, Capital One, as issuing bank under the Original Credit Agreement (in such capacity, the “Predecessor Issuing Bank”) solely for purposes of evidencing its agreement with Section 12.20 and the matters set forth in Recital J,  Capital One, as syndication agent, and each of the Lenders from time to time party hereto.

RECITALS

A.The Original Borrowers, the Predecessor Administrative Agent and the lenders party thereto, including certain of the Lenders (the “Original Lenders”) were parties to that certain Credit Agreement dated as of November 15, 2012 originally entered into by the Predecessor Administrative Agent, the Original Lenders, and Original Borrowers (the “Original Credit Agreement”).

B.Contemporaneously with the Original Credit Agreement, the Original Borrowers and Macquarie Bank Limited (in its individual capacity, “Macquarie”), as administrative agent (the “Second Lien Administrative Agent”) and lenders party thereto, entered into that certain Second Lien Term Credit Agreement (as from time to time amended, the “Second Lien Credit Agreement”).

C.In order to secure the full and punctual payment and performance of the obligations of the Original Borrowers and other Original Loan Parties (hereinafter defined) under the Original Credit Agreement, the other Loan Documents (as defined in the Original Credit Agreement) and the Original Secured Swap Agreements (hereinafter defined), the Original Borrowers executed and delivered mortgages, deeds of trust, collateral assignments, security agreements, pledge agreements and financing statements in favor of the Predecessor Administrative Agent (collectively, the “Original First Lien Security Documents”) granting first priority mortgage liens and continuing security interests in and to the collateral described in such Original First Lien Security Documents.

D.In order to secure the full and punctual payment and performance of the obligations under the Second Lien Credit Agreement and other Loan Documents (as defined in the Second Lien Credit Agreement), the Original Borrowers executed and delivered mortgages, deeds of trust, collateral assignments, security agreements, pledge agreements and financing statements in favor of the Second Lien Administrative Agent (collectively, the “Original Second Lien Security Documents”) granting second priority mortgage liens and continuing security interests in and to the collateral described in such Original Second Lien Security Documents.

E.The Predecessor Administrative Agent, Second Lien Administrative Agent and the Original Borrowers entered into that certain Intercreditor Agreement dated as of November 15, 2012.

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F.Pursuant to the provisions of Section 12.04 of the Original Credit Agreement, of even date herewith but effective immediately prior to the effectiveness of this Agreement, the following Assignments and Assumptions (the “Original Credit Agreement Assignments and Assumptions”) were entered into and in connection therewith the respective assignor has been paid in full for all amounts owing to it as of the Effective Date, including principal, accrued interest and all fees and expenses incurred through such date:

(i)Assignment and Assumption whereby Capital One assigned a 100% interest in and to all of its rights and obligations under the Original Credit Agreement including, without limitation, such percentage interest in its Commitment (as defined in the Original Credit Agreement), the Loans (as defined in the Original Credit Agreement) owing to it and the Note (as defined in the Original Credit Agreement) held by it, to RBC;

(ii)Assignment and Acceptance Agreement whereby Macquarie assigned a 100% interest in and to all of its rights and obligations under the Original Credit Agreement including, without limitation, such percentage interest in its Commitment (as defined in the Original Credit Agreement), the Loans (as defined in the Original Credit Agreement) owing to it and the Note (as defined in the Original Credit Agreement) held by it to RBC;

G.The Predecessor Administrative Agent accepted and recorded such assignments and, to the extent required under the Original Credit Agreement, the Original Borrowers also consented to such assignments.  The Predecessor Administrative Agent waived, and hereby waives, the $3,500 administrative fee for each assignment provided for in Section 12.04(b)(ii) of the Original Credit Agreement.

H.The Original Borrowers have requested certain amendments to the Original Credit Agreement including, among other things, (i) the replacement of Capital One as administrative agent and issuing bank by RBC, (ii) an increase in the Maximum Credit Amount to $500,000,000, (iii) an increase in the Borrowing Base to $175,000,000, and (iv) certain other amendments, and the Lenders have agreed to amend and restate in its entirety the Original Credit Agreement on the terms and conditions set forth herein, to renew, extend and rearrange the Debt outstanding under the Original Credit Agreement (but not to repay or pay off such Debt), to adjust the Applicable Percentages of the Lenders, to increase the Maximum Credit Amount to $500,000,000 and to increase the Borrowing Base as of the Effective Date (hereinafter defined) to $175,000,000.

I.Pursuant to Section 12.20(a) hereof, Capital One, has resigned as Administrative Agent in accordance with Section 11.06 of the Original Credit Agreement (and by their execution hereof, the Lenders and Original Borrowers waive any requirement of notice of such resignation) and RBC, pursuant to Section 12.20(a) hereof and in accordance with Section 11.06 of the Original Credit Agreement, has become the Successor Administrative Agent (hereinafter defined) thereby succeeding to all the rights, powers, privileges and duties of the Predecessor Administrative Agent other than, with respect to actions taken prior to the Effective Date in its capacity as Predecessor Administrative Agent, the rights and privileges of the Predecessor Administrative Agent in Article 11 and Section 12.03 of the Original Credit Agreement, which rights and privileges shall continue to inure to the benefit of the Predecessor Administrative Agent, and by their execution hereof, the Lenders and Borrowers hereby consent to and approve the appointment of RBC as successor Administrative Agent.

J.Pursuant to Section 12.20(b) hereof, Capital One, has resigned as Issuing Bank in accordance with Section 2.08(i) of the Original Credit Agreement (and by their execution hereof, the Lenders acknowledge notice of such resignation and the appointment of RBC as the Successor Issuing Bank (hereinafter defined)) and RBC, pursuant to Section 12.20(b) hereof and in accordance with Section 2.08(i) of the Original Credit Agreement, has become the Successor Issuing Bank thereby succeeding to all the rights and obligations of the Predecessor Issuing Bank other than, with respect to actions taken

2

prior to the Effective Date in its capacity as Predecessor Issuing Bank, the rights and privileges of the Predecessor Issuing Bank in Article 11 and Section 12.03 of the Original Credit Agreement, which rights and privileges shall continue to inure to the benefit of the Predecessor Issuing Bank, and by their execution hereof, the Borrowers hereby consent to and approve the appointment of RBC as Successor Issuing Bank.  The Original Credit Issuing Bank has confirmed, and by its execution hereof confirms, that there are no Letters of Credit issued and outstanding under the Original Credit Agreement.

K.The Original Borrowers, the Successor Administrative Agent, the Successor Issuing Bank and the Lenders desire to amend and restate the Original Credit Agreement in its entirety as hereinafter set forth through the execution of this Agreement.

L.SN Cotulla desires to become a party to this Agreement as a “Borrower” and a “Co-Borrower” and to receive all of the benefits of and to become subject to all of the obligations thereof as a Borrower and Co-Borrower.

M.In consideration of the premises and the agreements, provisions and covenants herein contained, the Original Borrowers, SN Cotulla, the Successor Administrative Agent, the Successor Issuing Bank and the Lenders do hereby agree that the Original Credit Agreement is amended and restated in its entirety as set forth herein.  It is the intention of the Borrowers, the Lenders, the Issuing Bank, and the Administrative Agent that this Agreement supersede and replace the Original Credit Agreement in its entirety; provided, that, (a) such amendment and restatement shall operate to renew, amend and modify the rights and obligations of the parties under the Original Credit Agreement, as applicable and as provided herein, but shall not effect a novation thereof, (b) unless otherwise provided for herein and evidenced by a separate written agreement, amendment or release, no other Loan Document, as defined in, and executed and/or delivered pursuant to the terms of, the Original Credit Agreement (collectively, the “Existing First Lien Loan Documents”) shall be amended, terminated or released in any respect and all of such other Existing First Lien Loan Documents shall remain in full force and effect except that the Borrowers and the Lenders agree that by executing this Agreement the definition of “Credit Agreement” contained in such Existing First Lien Loan Documents shall be amended to include this Agreement and all future amendments hereto, and (c) the Liens (hereinafter defined) securing the Obligations (hereinafter defined) under and as defined in the Original Credit Agreement and granted pursuant to the Existing First Lien Loan Documents and the liabilities and obligations of the Borrowers shall not be extinguished, but shall be carried forward, and such Liens shall secure such Obligations, in each case, as renewed, amended, restated, extended and modified hereby.

N.Contemporaneous with the amendment and restatement of the Original Credit Agreement by this Agreement (i) SN Cotulla has become a party to the Second Lien Credit Agreement as a “Borrower” and a “Co-Borrower” thereunder, (ii) SN Cotulla has become a party to the Intercreditor Agreement, (iii) SN Cotulla has granted first priority mortgage liens and continuing security interests in all of its assets including the Oil and Gas Properties acquired by SN Cotulla in the Eagle Ford Acquisition to the First Lien Collateral Agent,  (iv) SN Cotulla has granted second priority mortgage liens and continuing security interests in all of its assets including the Oil and Gas Properties acquired by SN Cotulla in the Eagle Ford Acquisition to the Second Lien Administrative Agent, and (v) Sanchez, the owner of 100% of the Equity Interests in SN Cotulla’s, has added the Equity Interest in SN Cotulla to the collateral pledged by Sanchez (A) to the First Lien Collateral Agent under the Original First Lien Security Documents, and (B) to the Second Lien Administrative Agent under the Original Second Lien Security Documents, all subject to the Intercreditor Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree that the Original Credit Agreement is amended and restated in its entirety to read as follows:

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ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS

Section 1.01Terms Defined Above.

As used in this Agreement, each term defined above has the meaning indicated above.

Section 1.02Certain Defined Terms.

As used in this Agreement, the following terms have the meanings specified below:

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“Administrative Agent” has the meaning given in the introductory paragraph.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

 “Affected Loans” has the meaning assigned to such term in Section 5.05.

“Affiliate” means, with respect to a specified 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 Maximum Credit Amount” at any time shall equal the sum of the Maximum Credit Amounts, as the same may be increased, reduced or terminated pursuant to Section 2.06.  The initial Aggregate Maximum Credit Amount of the Lenders is $500,000,000.

“Agreement” means this Credit Agreement, as the same may from time to time be amended, modified, supplemented or restated.

“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month interest period in effect on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%.  Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective day of such change in the Prime Rate, the Federal Funds Effective Rate and the Adjusted LIBO Rate, respectively.

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“Annualized Consolidated EBITDA” means, for the purposes of calculating the financial ratio set forth in Section 9.01(b):

(i)for the Rolling Period ending on June 30, 2013, the product of (x) four times (y) the First Testing Period Pro Forma Consolidated EBITDA;

(ii)for the Rolling Period ending on September 30, 2013, the product of (x) two times (y) the sum of (i) the First Testing Period Pro Forma Consolidated EBITDA plus (ii) actual Consolidated EBITDA for quarter ending September 30, 2013;

 (iii)for the Rolling Period ending on December 31, 2013, the product of (x) the fraction 4/3 and (y) the sum of (i) the First Testing Period Pro Forma Consolidated EBITDA plus (ii) actual Consolidated EBITDA for the two quarters ending December 31, 2013; and

(iv)for the Rolling Period ending on March 31, 2014, the sum of (x) the First Testing Period Pro Forma Consolidated EBITDA plus (y) the actual Consolidated EBITDA for the three quarters ending March 31,2014.

 “Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the Letter of Credit Fee Rate or Commitment Fee Rate, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage then in effect:

Borrowing Base Utilization Grid

Borrowing Base Utilization  Percentage	<25%		>25% and  <50%		>50% and  <75%		>75%
ABR Loans	1.00	%	1.25	%	1.50	%	1.75	%
Eurodollar Loans	2.00	%	2.25	%	2.50	%	2.75	%
Letter of Credit Fee Rate	2.00	%	2.25	%	2.50	%	2.75	%
Commitment Fee Rate	0.375	%	0.375	%	0.50	%	0.50	%

Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change; provided, however, that if at any time the Borrowers fail to deliver a Reserve Report pursuant to Section 8.12(a), then the “Applicable Margin” means the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level; provided further that the Applicable Margin shall be the Applicable Margin determined without regard to the preceding proviso upon the Borrowers’ delivery of such Reserve Report.

“Applicable Percentage” means, with respect to any Lender, the percentage of the Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit Amount as such percentage is set forth on Annex I or in an Assignment and Assumption Agreement, as the case may be.

“Approved Counterparty” means any Person who at the time a Swap Agreement was entered into was (a) a Lender or any Affiliate of a Lender, (b) Shell Energy North America (US),

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L.P. or (c) any other Person whose issuer rating or long term senior unsecured debt rating at the time of entry into the applicable Swap Agreement is A-/A3 by S&P or Moody’s (or their equivalent) or higher (or whose obligations under the applicable Swap Agreement are guaranteed by an Affiliate of such Person meeting such rating standards) and who is acceptable to Administrative Agent in its sole discretion; provided, the obligations and liabilities owed by a Co-Borrower or a Restricted Subsidiary to any Person designed as an “Approved Counterparty” under clause (b) or clause (c) shall be unsecured and any agreement documenting such obligations and liabilities shall not require the posting of any collateral or provide for margin calls.

“Approved Fund” means (a) a CLO or (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Approved Petroleum Engineers” means Ryder Scott Company or any other independent petroleum engineer proposed by the Borrowers and approved by the Administrative Agent.

“Arranger” means RBC Capital Markets

“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 12.04(b)), and accepted by the Administrative Agent, in the form of Exhibit E or any other form approved by the Administrative Agent.

“Availability Period” means the period from and including the Effective Date to but excluding the Termination Date.

“Bank Product” means any of the following products, services or facilities extended to any Co-Borrower or its Subsidiary by a Lender or any of its Affiliates: (a) cash management services including but without limitation any services provided in connection with operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-payable, electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop payment services; (b) commercial credit card and merchant card services; and (c) leases and other banking products or services as may be requested by any Co-Borrower or its Subsidiary, other than Letters of Credit.

“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition.  The terms “Beneficially Owns” and “Beneficially Owned” have correlative meanings.

“Benefiting Loan Party” means a Loan Party for which funds or other support are necessary for such Loan Party to constitute an Eligible Contract Participant.

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“Board” means the Board of Governors of the Federal Reserve System of the U.S. or any successor Governmental Authority.

“Board of Directors” means:

(a)with respect to a corporation, the board of directors of the corporation;

(b)with respect to a partnership, the board of directors or body serving similar function of the general partner of the partnership;

(c)with respect to any other Person, the board or committee of such Person serving a similar function.

“Borrowers” has the meaning given in the introductory paragraph.

“Borrowing” means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

“Borrowing Base” means at any time an amount equal to the amount determined in accordance with Section 2.07, as the same may be adjusted from time to time pursuant to Section 8.13(c) or Section 9.11.  The initial Borrowing Base is $175,000,000, subject to adjustment as provided in Section 2.07(a).

“Borrowing Base Deficiency” has the meaning assigned to such term in Section 3.04(c)(iii).

“Borrowing Base Utilization Percentage” means, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of the Credit Exposures of the Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day.

“Borrowing Request” means a request by the Borrowers for a Borrowing in accordance with Section 2.03.

“Bridge Loan” means an unsecured single draw term loan of up to $150,000,000 having an initial maturity of one year but providing for extension of such maturity subject to certain conditions, arranged by RBC Capital Markets and Credit Suisse Securities (USA) LLC and agented by RBC to be incurred by Sanchez and guaranteed by the other Borrowers and their Subsidiaries; provided that in lieu of the Bridge Loan or in connection with a refinancing of the Bridge Loan, the Bridge Securities and Takeout Loan may be secured on a second lien basis by the Collateral.

“Bridge Loan Documents” means the credit agreement, if any, among Sanchez, Royal Bank of Canada, as administrative agent, and the lenders party thereto, and all other documents, instruments, and agreements now or hereafter executed and/or delivered by Borrowers in connection with the Bridge Loan.

“Bridge Securities and Takeout Loan” means (i) unsecured or secured (but if secured, secured on a second lien basis by all or substantially all of the assets of Sanchez and the other

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Loan Parties), senior or subordinated debt securities of Sanchez and the other Loan Parties privately placed in one or more transactions, the net proceeds of which will be used to provide funds for the refinancing of the Original Credit Agreement, repayment of the Second Lien Loan and for general corporate purposes or if the debt securities are issued after the Bridge Loan has been funded, the net proceeds of which debt securities will be used to refinance the Bridge Loan and for general corporate purposes, and (ii) loans to Sanchez and the other Loan Parties funded by the Bridge Loan lenders in lieu (either wholly or partially) of debt securities issued pursuant to clause (i) of this definition, which loans may be secured on a second lien basis by all or substantially all of the assets of Sanchez and the other Loan Parties.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Houston, Texas or New York, New York, are authorized or required by law to remain closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrowers with respect to any such Borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in dollar deposits are carried out in the London interbank market.

 “Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.

“Capital One” has the meaning given in the introductory paragraph.

 “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 Property of the Borrowers or any of their Subsidiaries having a fair market value in excess of $5,000,000.

“CERCLA” has the meaning set forth in the definition of “Environmental Laws”.

“Change in Control” means the occurrence of any of the following:

(a)the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets (including Equity Interest) of a Co- Borrower and its Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act);

(b)the adoption of a plan relating to the liquidation or dissolution of a Co-Borrower;

(c)the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” or “group” (as that term

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is used in Section 13(d)(3) of the Exchange Act), other than one or more members of the Sanchez Group, becomes the Beneficial Owner, directly or indirectly, of more than fifty percent (50%) (or such lower percentage as may be provided for in the corresponding provision of the definition of “Change of Control” in the Senior Unsecured Notes) of the Equity Interest of a Co-Borrower other than, with respect to a merger or consolidation, a transaction in which the Equity Interest of such Co-Borrower outstanding immediately prior to such transaction is converted into or exchanged for Equity Interest (other than Disqualified Capital Stock) of the surviving or transferee Person (or any parent thereof) constituting a majority of the outstanding shares, units or the like, of such Equity Interest of such surviving or transferee Person (or any parent thereof) immediately after giving effect to such transaction; or

(d)Antonio R. Sanchez, III, ceases, for any reason, to be the chief executive officer of Sanchez and Sanchez fails, within ninety (90) days thereof, to retain and hire a replacement reasonably acceptable to the Required Lenders.

 “Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 5.01(b)), by any lending office of such Lender or by such Lender’s or such Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or any Governmental Authority with respect to the implementation of the Basel III Accord shall, in each case, be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued, including if such date is before a Lender became a party to this Agreement.

“CLO” means any Person (other than a natural Person) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender.

“Co-Borrower” has the meaning given in the introductory paragraph.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute.

“Collateral” means collectively, Property which is pledged to secure Debt pursuant to one or more Security Instruments.

“Commitment” means, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount

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representing the maximum aggregate amount of such Lender’s Credit Exposure hereunder, as such commitment may be (a) modified from time to time pursuant to Section 2.06 and (b) modified from time to time pursuant to assignments by or to such Lender pursuant to Section 12.04(b), and “Commitments” means the aggregate amount of the Commitments of all the Lenders.  The amount representing each Lender’s Commitment shall at any time be the lesser of (i) such Lender’s Maximum Credit Amount and (ii) such Lender’s Applicable Percentage of the then effective Borrowing Base.  The aggregate of the Commitments on the Effective Date is $500,000,000.

“Commitment Fee Rate” has the meaning set forth in the definition of “Applicable Margin”.

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended and any successor statute.

“Consolidated EBITDA” for any period means, without duplication, the Consolidated Net Income for such period, plus the following, without duplication and to the extent deducted (and not added back) in calculating such Consolidated Net Income:

(a)Consolidated Net Interest Expense;

(b)Consolidated Income Tax Expense;

(c)consolidated depletion, depreciation and amortization expense of the Borrowers and their Restricted Subsidiaries;

(d)other non-cash charges to the extent not included in the foregoing clauses (a)-(c);

(e)fees and expenses expensed and paid in cash in connection with the offering of Sanchez’ Equity Interests and the Original Credit Agreement, the Second Lien Loan, the Bridge Loan, the Senior Unsecured Notes and this Agreement;

and minus all non-cash income to the extent included in determining Consolidated Net Income.

“Consolidated Income Tax Expense” means, with respect to any period, the provision for federal, state, local and foreign taxes (including state franchise taxes) based on income of the Borrowers and their Restricted Subsidiaries for such period as determined in accordance with GAAP, or (for any period in which a Co-Borrower is a partnership or limited liability company) the Tax Amount for such period.

“Consolidated Net Income” means, for any period, the aggregate net income (loss) of the Borrowers and their consolidated Subsidiaries determined in accordance with GAAP and before any reduction in respect of preferred stock dividends of such Person, less (for any period a Co-Borrower is a partnership or limited liability company) the Tax Amount for such period; provided, however, that there will not be included (to the extent otherwise included therein) in such Consolidated Net Income:

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(a)any net income (loss) of any Person (other than the Borrowers) if such Person is not a Restricted Subsidiary, except that:

(i)subject to the limitations contained in clauses (c) and (d) below, the Borrowers’ equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Borrowers or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (b) below); and

(ii)the Borrowers’ equity in a net loss of any such Person for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Borrowers or a Restricted Subsidiary during such period;

(b)any net income (but not loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Borrowers, except that:

(i)subject to the limitations contained in clauses (c), (d) and (e) below, the Borrowers’ equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Borrowers or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and

(ii)the Borrowers’ equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income;

(c)any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of any Co-Borrower or its consolidated Subsidiaries which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Equity Interest of any Person;

(d)any extraordinary or nonrecurring gains or losses or nonrecurring other income or expenses, together with any related provision for taxes (and, without duplication, any Restricted Payment for taxes permitted in Section 9.04) on such gains or losses or other income or expenses and all related fees and expenses;

(e)the cumulative effect of a change in accounting principles;

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(f)any asset impairment write-downs, including ceiling test writedowns, on oil and gas properties under GAAP or SEC guidelines;

(g)any unrealized non-cash gains or losses or charges in respect of obligations under Swap Agreements (including those resulting from the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 815);

(h)income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued);

(i)all deferred financing costs written off, and premiums paid, in connection with any early extinguishment of Debt;

(j)any depreciation, depletion and amortization expense in excess of capital expenditures;

(k)any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards; and

(l)interest income.

“Consolidated Net Interest Expense” means, for any period, the total consolidated interest expense of the Borrowers and their Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, plus, to the extent not included in such interest expense and without duplication:

(a)interest expense for such period attributable to Capital Lease Obligations and the interest component of any deferred payment obligations;

(b)amortization of debt discount and debt issuance cost (provided that any amortization of bond premium will be credited to reduce Consolidated Net Interest Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Net Interest Expense);

(c)non-cash interest expense;

(d)commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;

(e)the interest expense on Debt of another Person that is guaranteed by a Co-Borrower or one of its Restricted Subsidiaries or secured by a lien on assets of a Co-Borrower or one of its Restricted Subsidiaries, to the extent such guarantee becomes payable or such lien becomes subject to foreclosure;

(f)costs associated with interest rate obligations under Swap Agreements (including amortization of fees); provided, however, that if such interest rate obligations

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under Swap Agreements result in net benefits rather than costs, such benefits shall be credited to reduce Consolidated Net Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income;

(g)the consolidated interest expense of the Borrowers and their Restricted Subsidiaries that was capitalized during such period; and

(h)all dividends paid or payable in cash, cash equivalents or Debt or dividends accrued during such period on any series of Disqualified Capital Stock of the Borrowers;

and minus, consolidated interest income and, to the extent included above, write-off of deferred financing costs (and interest) attributable to Dollar-Denominated Production Payments.

“Consolidated Subsidiaries” means each Subsidiary of a Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP.

“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 Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Loans and its LC Exposure at such time.

“Debt” means, for any Person, the sum of the following (without duplication):  (a) all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of Property or services excluding accounts payable incurred in the ordinary course of business with respect to which no more than 90 days have elapsed since the date of invoice; (d) all Capital Lease Obligations; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other clauses of this definition) of others secured by a Lien on any Property of such Person, whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others, in each case, intended as a means of credit enhancement for creditors of such others and not as a purchase and sale agreement; (i) obligations to deliver commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of one or more advance payments, other than gas balancing arrangements in the ordinary course of business; (j) any Debt of a partnership for which such Person is liable either by agreement, by operation of law or by a Governmental

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Requirement but only to the extent of such liability; (k) Disqualified Capital Stock; (l) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment; and (m) any deferred put premiums owed under a Swap Agreement.  The Debt of any Person shall include all obligations of such Person of the character described above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP.  For the sake of clarity, except as provided in clause (m) of the first sentence of this definition, obligations under Swap Agreements shall not constitute Debt.

“Debtor Relief Laws” means the Bankruptcy Code of the U.S., and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the U.S. or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulting Lender” means any Lender, as determined by the Administrative Agent, that has (a) failed to fund any portion of its Loans or participations in Letters of Credit within three (3) Business Days of the date required to be funded by it hereunder, (b) notified the Borrowers, the Administrative Agent, or the Issuing Bank in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three (3) Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans and purchase participations in then outstanding Letters of Credit, (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three (3) Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent company that has become or is insolvent or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, in each case at the option of the holder thereof) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is convertible or exchangeable for Debt or redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock) at the option of the holder thereof, in

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whole or in part, on or prior to the date that is one year after the earlier of (a) the Maturity Date and (b) the date on which there are no Loans, LC Exposure or other obligations hereunder outstanding and all of the Commitments are terminated.

“Dollar-Denominated Production Payments” means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.

“dollars” or “$” refers to lawful money of the U.S.

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the U.S. or any state thereof or the District of Columbia.

“Eagle Ford Acquisition” means the acquisition by Sanchez (or SN Cotulla, as Sanchez’s assignee), of Oil and Gas Properties from Hess Corporation pursuant to the Eagle Ford PSA.

“Eagle Ford Acquisition Reserve Report” means a report prepared by an Approved Petroleum Engineer, in form and substance reasonably satisfactory to the Arranger and Lenders, setting forth the oil and gas reserves attributable to the proved Oil and Gas Properties proposed to be sold to Sanchez pursuant to the Eagle Ford PSA.

“Eagle Ford PSA” means that certain Purchase and Sale Agreement dated March 18, 2013, together with all schedules, exhibits and annexes thereto, between Hess Corporation, as seller, and Sanchez, as buyer, providing for the sale to Sanchez of Oil and Gas Properties consisting of approximately 43,000 net acres in the Eagle Ford Shale in South Texas for a purchase price (before adjustments) of not more than $265,000,000.

“Eagle Ford PSA Representations” means such of the representations made by Hess Corporation in the Eagle Ford PSA as are material to the interests of the Lenders, but only to the extent that Sanchez (or SN Cotulla, as Sanchez’s assignee) has a right to terminate its obligations under the Eagle Ford PSA as a result of a breach of such representations in the Eagle Ford PSA.

“Eagle Ford PSA Transactions” has the meaning set forth in Section 7.27(b).

“Effective Date” means the date on which the conditions specified in Section 6.01 and Section 6.02 are satisfied (or waived in accordance with Section 12.02).

“Eligible Contract Participant” means an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder.

“Eligible Midstream Assets” means (a) real property, fixtures and personal property (other than cash and investment property) used or useful for gathering, marketing, treating, processing, storage, distribution, selling and/or transportation of Hydrocarbons from the Hydrocarbon Interests of the Borrowers or any Subsidiary and from the Hydrocarbon Interests of third Persons reasonably proximate thereto (that is, in the same fields in which the Borrowers or any Subsidiary are exploring for or producing Hydrocarbons or in the same counties in which the Borrowers or any Subsidiary are exploring for or producing Hydrocarbons or any county adjacent thereto); and (b) easements, rights-of-way, restrictions, servitudes, permits, conditions,

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covenants, exceptions or reservations in any Property of the Borrowers or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment. For purposes of this definition, the terms “real property,” “fixtures,” “personal property,” “cash” and “investment property” have the meanings given to such terms in the UCC.

“Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).

“Engineered Value” means the value attributed to the Oil and Gas Properties in the applicable Reserve Report based upon the discounted present value of the estimated net cash flow to be realized from the production of Hydrocarbons from such Oil and Gas Properties as set forth in such applicable Reserve Report.

“Environmental Laws” means any and all Governmental Requirements pertaining in any way to health, safety, the environment or the preservation or reclamation of natural resources, in effect in any and all jurisdictions in which the Borrowers or any Subsidiary are conducting or at any time have conducted business, or where any Property of the Borrowers or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements.  The term “oil” shall have the meaning specified in OPA, the terms “hazardous substance” and “release” (or “threatened release”) have the meanings specified in CERCLA, the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA and the term “oil and gas waste” shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code (“Section 91.1011”); provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrowers or any Subsidiary are located establish a meaning for “oil,” “hazardous substance,” “release,” “solid waste,” “disposal” or “oil and gas waste” which is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply with respect to Property located in such state or other jurisdiction.

“Environmental Permit” means any permit, registration, license, notice, approval, consent, exemption, variance, or other authorization required under or issued pursuant to applicable Environmental Laws.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest.

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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means each trade or business (whether or not incorporated) that, together with a Co-Borrower or a Subsidiary is treated as a “single employer” under Section 414(b) or (c) of the Code, or solely for the proposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30 day notice period is waived); (b) the existence with respect to any Plan of a failure to meet the minimum funding standards under Section 412 or 430 of the Code or Section 303 of ERISA; (c) the incurrence by any Co-Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (d) the receipt by any Co-Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (e) the determination that any Plan is considered an “at risk” plan or a plan in endangered or critical status within the meaning of Section 430 of the Code or Section 303 of ERISA; (f) the incurrence by any Co-Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by any Co-Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from any Co-Borrower or any ERISA Affiliate of any notice, concerning the imposition of withdrawal liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning assigned such term in Section 10.01.

“Excepted Liens” means (a) Liens for Taxes, assessments or other governmental charges or levies which 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; (b) Liens on pledges or deposits required in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which 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; (c) statutory landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations 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; (d) contractual Liens that arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas,

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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 claims which 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, 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 Borrowers or any Subsidiary or materially impair the value of such Property subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is intended by Borrowers or any of their Subsidiaries to provide collateral to the depository institution; (f) easements, rights-of-way, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of the Borrowers or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by the Borrowers or any Subsidiary or materially impair the value of such Property subject thereto; (g) Liens on cash or securities pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred in the ordinary course of business; (h) judgment and attachment Liens not giving rise to an Event of Default, provided that any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; and (i) Liens arising from UCC financing statement filings regarding operating leases entered into by any Co-Borrower and its Subsidiaries in the ordinary course of business covering only the Property under lease; provided, further that Liens described in clauses (a) through (e) shall remain Excepted Liens only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Excepted Liens.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Notes” has the meaning assigned to such term in Section 9.02(b)(iii)

“Excluded Swap Obligation” means, with respect to any Loan Party individually determined on a Loan Party by Loan Party basis, any Swap Obligation, if and to the extent that, all or a portion of the joint and several liability or the guaranty of such Loan Party for, or the grant by such Loan Party of a security interest or other Lien to secure, such Swap Obligation (or

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any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an Eligible Contract Participant at the time such guarantee or the grant of such security interest or other Lien becomes effective with respect to, or any other time such Loan Party is by virtue of such guarantee or grant of such security interest or other Lien otherwise deemed to enter into, such Swap Obligation.  If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such guarantee, security interest or other Lien is or becomes illegal.

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the U.S. or such other jurisdiction 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 U.S. or any similar tax imposed by any other jurisdiction in which a Co-Borrower is located, (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under Section 5.04(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 5.03(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 with respect to such withholding tax pursuant to Section 5.03(a) or Section 5.03(c) and (d) any federal withholding Taxes imposed under FATCA.

“Existing First Lien Loan Documents” has the meaning given in Recital M.

“Extended Term Loan” has the meaning assigned to such term in Section 9.02(b)(iii).

“Family” means (a) an individual, (b) such individual’s spouse, (c) any other natural person who is related to such individual or such individual’s spouse within the second degree of kinship and (d) any other natural person who has been adopted by such individual.

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantially comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.

“FCPA” means the Foreign Corrupt Practices Act of 1977.

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, New

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York or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Fee Letter” means that certain letter agreement dated March 18, 2013 executed in connection herewith by the Original Borrowers and the Arranger pertaining to certain fees payable to the Arranger and Administrative Agent.

“Financial Officer” means, for any Person, the chief financial officer, principal accounting officer, treasurer or controller of such Person.  Unless otherwise specified, all references herein to a Financial Officer means a Financial Officer of each Co-Borrower.

“Financial Statements” means the financial statement or statements of Sanchez and its Consolidated Subsidiaries (including the other Co-Borrowers) referred to in Section 7.04(a).

“First Lien Collateral Agent” has the meaning assigned such term in Section 12.17.

“First Testing Period Pro Forma Consolidated EBITDA” means pro forma consolidated EBITDA for the three months ending June 30, 2013 calculated to give effect to the Eagle Ford Acquisition as if it had occurred on April 1, 2013.

 “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Loan Parties are located.  For purposes of this definition, the U.S., each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

“GAAP” means generally accepted accounting principles in the U.S. as in effect from time to time subject to the terms and conditions set forth in Section 1.05.

“Governmental Authority” means the government of the U.S., any other nation or 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 over the Borrowers, any Subsidiary, any of their Properties, the Administrative Agent, the Issuing Bank or any Lender.

“Governmental Requirement” means any applicable law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, whether now or hereinafter in effect, including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

“Guaranty” means the Guaranty to be executed by the Guarantors, substantially in the form of Exhibit G or any other form approved by the Administrative Agent.

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“Guarantor” means all Restricted Subsidiaries of Borrowers.  As of the date hereof, the only Guarantor is SN Operating, LLC, a Texas limited liability company.

“Hazardous Materials” means any substance regulated or as to which liability might arise under any applicable Environmental Law and including, without limitation:  (a) any chemical, compound, material, product, byproduct, substance or waste defined as or included in the definition or meaning of “hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar meaning or import found in any applicable Environmental Law; (b) Hydrocarbons, petroleum products, petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any components, fractions, or derivatives thereof; and (c) radioactive materials, asbestos containing materials, polychlorinated biphenyls, or radon.

“Hedge Exposure” means, at the time of determination, the amount that would be due, if any, by the Borrowers to a Secured Swap Provider upon termination of all transactions under a Swap Agreement with that Secured Swap Provider.

“Highest Lawful Rate” means, with respect to each Lender, the maximum non-usurious interest rate, if any (or, if the context so requires, an amount calculated at such rate), that at any time or from time to time may be contracted for, taken, reserved, charged, or received by such Lender under applicable laws with respect to an obligation, as such laws are presently in effect or, to the extent allowed by applicable law, as such laws may hereafter be in effect and which allow a higher maximum non-usurious interest rate than such laws now allow.  The determination of the Highest Lawful Rate shall, to the extent required by applicable law, take into account as interest paid, taken, received, charged, reserved or contracted for any and all relevant payments or charges under the Loan Documents.

“Hydrocarbon Interests” means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitee” has the meaning assigned such term in Section 12.03(b).

“Initial Reserve Report” means the Reserve Report setting forth, as of December 31, 2012, the oil and gas reserves attributable to the Oil and Gas Properties of the Borrowers.

“Intercreditor Agreement” means that certain intercreditor agreement dated November 15, 2012 by and among the Predecessor Administrative Agent, the Second Lien Administrative Agent and the Original Borrowers, as amended by a First Amendment to Intercreditor

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Agreement of even date herewith among Successor Administrative Agent, the Second Lien Administrative Agent and the Borrowers.

“Interest Election Request” means a request by the Borrowers to convert or continue a Borrowing in accordance with Section 2.04.

“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of each calendar quarter and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period.

“Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three or six months thereafter, as the Borrowers may elect; provided, that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period.  For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Interim Redetermination” has the meaning assigned such term in Section 2.07(b)(iii).

“Interim Redetermination Date” means the date on which a Borrowing Base that has been redetermined pursuant to an Interim Redetermination becomes effective as provided in Section 2.07(d).

“Investment” means, for any Person, any of the following: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any “short sale” or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale) or any capital contribution to any other Person; (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Debt of, purchase or other acquisition of any other Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person); or (c) the entering into of any guarantee of, or other contingent obligation (including the deposit of any Equity Interests to be sold) with respect to, Debt or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

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“Issuance Related Debt” means Debt in connection with the Bridge Loan, the Bridge Securities and Takeout Loan, the Senior Unsecured Notes and the principal amount of any Debt in excess of $50,000,000 under the Second Lien Loan.

“Issuance Related Borrowing Base Adjustment Amount” means an amount equal to 25% of the net proceeds received by the Borrowers in connection with any net increase in Issuance Related Debt upon the Borrowers’ or any of their Subsidiaries’ incurrence of Issuance Related Debt whether comprised of a Second Lien Loan in excess of $50,000,000, a Bridge Loan, a Bridge Securities or Takeout Loan or the issuance of Senior Unsecured Notes after giving effect to any repayment of the Second Lien Loan and/or the Bridge Loan out of the proceeds thereof in accordance with Section 9.02(b)(ii), Section 9.02(b)(iv) or Section 9.02(b)(v) if and as applicable.  By way of example: (a) if the Borrowing Base was $175 million, the outstanding principal amount of the Second Lien Loan was $50 million, the Bridge Loan had not been funded, no Senior Unsecured Notes had been issued and the Borrowers received net proceeds of $20 million from the funding of a Second Lien Loan, the Issuance Related Borrowing Base Adjustment Amount would be $5 million (or 0.25 times the $20 million net proceeds received by the Borrowers in connection with funding of Second Lien Loans in excess of $50 million) and the resulting Borrowing Base would be $170 million (or $175 million minus $5 million); (b) if the Borrowing Base was $175 million, the outstanding principal amount of the Second Lien Loan was $50 million, and the Borrowers received net proceeds of $150 million from the funding of the Bridge Loan, the Issuance Related Borrowing Base Adjustment Amount would be $25 million (or 0.25 times the quantity equal to the excess of the  net proceeds of the $150 million funded over the $50 million of Second Lien Loan repaid) and the resulting Borrowing Base would be $150 million (or $175 million minus $25 million); and (c) if the Borrowing Base was $150 million, the Second Lien Loan had been repaid in full, the outstanding principal amount of the Bridge Loan was $150 million and the Borrowers received net proceeds of $350 million from the issuance of Senior Unsecured Notes, the Issuance Related Borrowing Base Adjustment Amount would be $50,000,000 (or 0.25 times the quantity equal to the excess of the net proceeds of $350 million from the issuance of Senior Secured Notes over the $150 million of Bridge Loan repaid) resulting in a Borrowing Base of $100 million (or $150 million minus $50 million).

“Issuing Bank” means RBC, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.08(i).

“Joinder” means a Joinder to be executed in accordance with Section 8.16 substantially in the form of Exhibit H or any other form approved by Administrative Agent.

“JV Entity” means a Person in which an Unrestricted Subsidiary owns an interest which is insufficient for such Person to constitute a Subsidiary of such Unrestricted Subsidiary.

“LC Commitment” at any time means Twenty Million Dollars ($20,000,000).

“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of Credit.

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“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrowers at such time.  The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.

“Lenders” means the Persons listed on Annex I and any Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

 “Letter of Credit” means any letter of credit issued pursuant to this Agreement.

“Letter of Credit Agreements” means all letter of credit applications and other agreements (including any amendments, modifications or supplements thereto) submitted by the Borrowers or entered into by the Borrowers with the Issuing Bank relating to any Letter of Credit.

“Letter of Credit Fee Rate” has the meaning set forth in the definition of “Applicable Margin”.

“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period the greater of (a) zero percent (0%) per annum and (b) the rate appearing on Reuters BBA Libor Rates LIBOR01 (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period.  In the event that such rate is not available at such time for any reason, then the LIBO Rate with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and, in each case, for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

“Lien” means any 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 on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) 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 or (b) royalties, production payments and the like payable out of Oil and Gas Properties.  The term “Lien” shall include easements, restrictions, servitudes, permits, conditions, covenants, encroachments, exceptions or reservations.  For the purposes of this Agreement, each Co-Borrower and its Subsidiaries shall be deemed to be the owner of any Property which 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 a transaction intended to create a financing.

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“Liquidate,” “Liquidated” and “Liquidation” when used in reference to any Swap Agreement or any portion thereof have the correlative meanings to the term “Swap Liquidation”.

“Loan Documents” means this Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit, the Security Instruments, the Guaranties, the Intercreditor Agreement, the Undertaking to Pay Directly and all other agreements, instruments, documents and certificates, other than Swap Agreements, executed and delivered to the Administrative Agent or any Lender in connection with this Agreement or the transactions contemplated hereby.

“Loan Parties” means the Borrowers and each Subsidiary that is a party to any Loan Document.

“Loans” means the loans made by the Lenders to the Borrowers pursuant to this Agreement, including any True-Up Loans.

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, Property or condition (financial or otherwise) of any Co-Borrower and its Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform any of its obligations under any Loan Document, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies of or benefits available to the Administrative Agent, the Issuing Bank or any Lender under any Loan Document.

“Material Indebtedness” means (a) the Second Lien Loan, (b) the Bridge Loan, and (c) Debt (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more Co-Borrower and their Subsidiaries in an aggregate principal amount exceeding $10,000,000.00.  For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrowers or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that a Co-Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

“Maturity Date” means November 16, 2015 but if the Second Lien Loan has been repaid in full on or before November 16, 2015, then the Maturity Date means May 31, 2018.

“Maximum Credit Amount” means, as to each Lender, the amount set forth opposite such Lender’s name on Annex I under the caption “Maximum Credit Amounts,” as the same may be (a) reduced or terminated from time to time in connection with a reduction or termination of the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b), or (b) modified from time to time pursuant to any assignment permitted by Section 12.04(b).

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency.

“Mortgaged Property” means any Property owned by any Co-Borrower or any Restricted Subsidiary that is subject to the Liens existing and to exist under the terms of the Security Instruments.

“Mortgages” means all mortgages and deeds of trust executed in connection herewith.

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“Multiemployer Plan” means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“New Borrowing Base Notice” has the meaning assigned such term in Section 2.07(d).

“Notes” means the promissory notes of the Borrowers described in Section 2.02(d) and being substantially in the form of Exhibit A, together with all amendments, modifications, replacements, extensions and rearrangements thereof.

 “Obligations” means, without duplication, (a) all Debt evidenced hereunder, (b) the obligation of the Loan Parties for the payment of the fees payable hereunder or under the other Loan Documents, (c) all obligations and liabilities of an Original Loan Party under an Original Secured Swap Agreement between such Original Loan Party and any Person that, at the time such obligation was entered into, was a Lender or Affiliate of a Lender under the Original Credit Agreement, (d) all obligations and liabilities of any Loan Party under any Swap Agreement (i) existing on the date of this Agreement between such Loan Party and any counterparty that is a Lender or an Affiliate of a Lender on the date of this Agreement or (ii) entered into on or after the date of this Agreement between such Loan Party and any Person that, at the time such obligation was entered into, was a Lender or Affiliate of a Lender hereunder, provided that, notwithstanding anything to the contrary, with respect to any Loan Party that is not an Eligible Contract Participant, the Obligations of such Loan Party shall exclude any Excluded Swap Obligations of such Loan Party, (e) the obligations of the Loan Parties relating to Bank Products, and (f) all other obligations and liabilities (monetary or otherwise, whether absolute or contingent, matured or unmatured) of the Loan Parties to the Administrative Agent, the Issuing Bank and the Lenders, including reimbursement obligations with respect to LC Disbursements, in each case now existing or hereafter incurred under, arising out of or in connection with any Loan Document, and to the extent that any of the foregoing includes or refers to the payment of amounts deemed or constituting interest, only so much thereof as shall have accrued, been earned and which remains unpaid at each relevant time of determination.

“OFAC” means the U.S. Treasury Department’s Office of Foreign Assets Control.

“OPA” has the meaning set forth in the definition of “Environmental Laws”.

“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of Hydrocarbon Interests; (d) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to Hydrocarbon Interests; and (g) all Properties, rights, titles, interests and estates

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described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental 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, 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.

“Operator” means Sanchez Oil & Gas Corporation, a Delaware corporation.

“Original Borrowers” has the meaning given in the introductory paragraph.

“Original Co-Borrower” has the meaning given in the introductory paragraph.

“Original Credit Agreement” has the meaning given in Recital A.

“Original First Lien Security Documents” has the meaning given in Recital C.

“Original Lenders” has the meaning given in Recital A.

“Original Loan Parties” means the “Loan Parties” under and as defined in the Original Credit Agreement.

“Original Second Lien Security Documents” has the meaning given in Recital D.

“Original Secured Swap Agreements” means Swap Agreements between any Original Loan Party and any Person that, at the time the relevant obligation under such Swap Agreement was entered into, was an Original Lender, an Affiliate of an Original Lender, or a Lender’s Swap Designee (as defined in the Original Credit Agreement).

“Other Taxes” means any and 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 from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and any other Loan Document; “Other Taxes” shall not include Excluded Taxes.

“Participant” has the meaning set forth in Section 12.04(c)(i).

“Patriot Act” has the meaning set forth in Section 12.15.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

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“Permitted Preferred Stock Distributions” means dividends to holders of the Preferred Stock (i) to the extent described and provided for by that certain Certificate of Designations of 4.875% Convertible Perpetual Preferred Stock, Series A of Sanchez dated September 17, 2012 and (ii) to the extent described and provided for by that certain Certificate of Designations of 6.500% Cumulative Perpetual Convertible Preferred Stock, Series B, dated March 26, 2013.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan), subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which a Co-Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Prepayment Decision Notice Date” has the meaning assigned to such term in Section 3.04(c)(iii).

“Predecessor Administrative Agent” has the meaning given in the introductory paragraph.

“Predecessor Issuing Bank” has the meaning assigned to such term in the introductory paragraph.

“Preferred Stock” means the shares of the series of Sanchez’ preferred stock, par value $0.01, issued pursuant to (i) that certain Certificate of Designations of 4.875% Convertible Perpetual Preferred Stock, Series A of Sanchez dated September 17, 2012, (ii) that certain Certificate of Designations of 6.500% Cumulative Perpetual Convertible Preferred Stock, Series B, dated March 26, 2013 and (iii) any series of preferred stock issued by Sanchez after the date hereof.

“Prime Rate” means for any day, the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its U.S. “prime rate.” Such rate is a rate set by the Administrative Agent based upon various factors including the Administrative Agent’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.

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights.

“Proposed Borrowing Base” has the meaning assigned to such term in Section 2.07(c)(i).

“Proposed Borrowing Base Notice” has the meaning assigned to such term in Section 2.07(c)(ii).

“Proved Reserves” shall have the meaning given that term in the SPE/WPC Definitions.

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“Qualified ECP Credit Party” means, with respect to any Benefiting Loan Party in respect of any Swap Obligation, each Loan Party that, at the time of the guaranty by such Benefiting Loan Party of, or grant by such Benefiting Loan Party of a security interest or other Lien securing, such Swap Obligation is entered into or becomes effective with respect to, or at any other time such Benefiting Loan Party is by virtue of such guaranty or grant of a security interest or other Lien otherwise deemed to enter into, such Swap Obligation, constitutes an Eligible Contract Participant and can cause such Benefiting Loan Party to qualify as an Eligible Contract Participant at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

“RBC” has the meaning given in the introductory paragraph.

“RCRA” has the meaning set forth in the definition of “Environmental Laws”.

“Redemption” means with respect to any Debt, the repurchase, redemption, prepayment, repayment or defeasance (or the segregation of funds with respect to any of the foregoing) of such Debt.  “Redeem” has the correlative meaning thereto.

“Redetermination Date” means, with respect to any Scheduled Redetermination or any Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes effective pursuant to Section 2.07(d).

“Register” has the meaning assigned such term in Section 12.04(b)(iv).

“Regulation D” means Regulation D of the Board, as the same may be amended, supplemented or replaced from time to time.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors (including attorneys, accountants and experts) of such Person and such Person’s Affiliates.

“Release” means any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping, or disposing.

“Remedial Work” has the meaning assigned such term in Section 8.10(a).

“Required Lenders” means, at any time while no Loans or LC Exposure is outstanding, Lenders having more than fifty percent (50%) of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC Exposure is outstanding, Lenders holding more than fifty percent (50%) of the outstanding aggregate principal amount of the Loans or participation interests in Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)); provided, however, for purposes of Section 2.07(c)(iii) and a Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect, “Required Lenders” shall mean at any time while no Loans or LC Exposure is outstanding, Lenders having at least sixty-six and two thirds percent (66 2/3%) of the Aggregate Maximum Credit Amounts and at any time while any Loans or LC Exposure is outstanding, Lenders holding at least sixty-six and two thirds percent (66 2/3%) of the outstanding aggregate principal

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amount of the Loans or participation interests in Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)).

“Reserve Report” means a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each December 31st or June 30th (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the proved Oil and Gas Properties of the Borrowers and the Restricted Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time, and reflecting Swap Agreements in place with respect to such production.

“Responsible Officer” means, as to any Person, the Chief Executive Officer, the Chief Operating Officer, the President, any Financial Officer or any Vice President of such Person.  Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of each Co-Borrower.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity Interests in any Person 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 Equity Interests in any Person or any option, warrant or other right to acquire any such Equity Interests in any Person.

“Restricted Subsidiary” means any Domestic Subsidiary that is not an Unrestricted Subsidiary or a Co-Borrower.

“Rolling Period” means (a) for the fiscal quarters ending prior to June 30, 2014, the period commencing on April 1, 2013 and ending on the last day of such fiscal quarter and (b) for the fiscal quarter ending on June 30, 2014, and for each fiscal quarter thereafter, the period of four consecutive fiscal quarters ending on the last day of such fiscal quarter.

“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., and any successor thereto that is a nationally recognized rating agency.

“Sanchez” has the meaning given in the introductory paragraph.

“Sanchez Family” means (a) Antonio R. Sanchez, III and A.R. Sanchez, Jr., (b) any spouse or descendant of any individual named in (a), (c) any other natural person who is a member of the Family of any such individual referenced in (a)-(b) above and (d) any other natural person who has been adopted by any such individual referenced in (a)-(c) above.

“Sanchez Group” means (a) any member of the Sanchez Family, (b) the Operator, Sanchez Energy Partners I, LP, SEP Management I, LLC, SN Cotulla and (c) any Person Controlled by any one or more of the foregoing.

“Scheduled Quarterly Redetermination” has the meaning assigned such term in Section 2.07(b)(i).

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“Scheduled Redetermination” has the meaning assigned such term in Section 2.07(b)(ii).

“Scheduled Redetermination Date” means the date on which a Borrowing Base that has been redetermined pursuant to a Scheduled Redetermination becomes effective as provided in Section 2.07(d).

“Scheduled Semi-Annual Redetermination” has the meaning assigned such term in Section 2.07(b)(ii).

“Second Lien” has the meaning set forth in Section 9.03(b).

“Second Lien Administrative Agent” has the meaning given in Recital B.

“Second Lien Credit Agreement” has the meaning given in Recital B.

“Second Lien Lender” means Macquarie Bank Limited and any other Person party to the Second Lien Loan Documents as a lender.

“Second Lien Loan” means the second lien term loan made or to be made by the Second Lien Lender to the Borrowers pursuant to the Second Lien Loan Documents.

“Second Lien Loan Documents” means all documents, instruments, and agreements now or hereafter executed and/or delivered by Borrowers in connection with the Second Lien Loan.

“SEC” means the U.S. Securities and Exchange Commission or any successor Governmental Authority.

“Section 91.1011” has the meaning set forth in the definition of “Environmental Laws”.

“Secured Swap Provider” means any Lender or any Affiliate of a Lender who has entered into a Swap Agreement with a Co-Borrower or its Subsidiaries pursuant to the terms of this Agreement.

“Security Agreement” means the Security and Pledge Agreement executed by Borrowers dated November 15, 2012.

“Security Instruments” means the mortgages, deeds of trust, security agreements, pledge agreements, deposit account control agreements, guaranty agreements and other agreements, instruments or certificates, and any and all other agreements, instruments, certificates or certificates now or hereafter executed and delivered by the Borrowers or any other Person (other than Swap Agreements or participation or similar agreements between any Lender and any other lender or creditor with respect to any Obligations pursuant to this Agreement) in connection with, or as security for the payment or performance of the Obligations, the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time to time, including, without limitation, the Security Agreement, Mortgages and Transfer Letters.

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“Senior Debt” means the sum of the principal balance of the Loans outstanding hereunder plus any deferred put premiums under all Swap Agreements.

“Senior Unsecured Notes” means senior unsecured notes in a principal amount not to exceed $400,000,000 to be issued by Sanchez, and guaranteed by the other Borrowers and their Subsidiaries, in a Rule 144A or other private placement offering.

“Senior Unsecured Loan Documents” means the indenture and all documents, instruments, and agreements now or hereafter executed and/or delivered by Sanchez and any of its Affiliates in connection with the Senior Unsecured Notes.

“SEP” has the meaning given in the introductory paragraph.

“SN Cotulla” has the meaning given in the introductory paragraph.

“SN Marquis” has the meaning given in the introductory paragraph.

“Specified Material Adverse Effect” means since March 18, 2013, there shall have occurred any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances since such date has had a material adverse effect on, or made a material adverse change in (i) the business, operations, assets and properties, liabilities (actual or contingent), or condition (financial or otherwise) of the Borrowers and their respective Subsidiaries, taken as a whole, or (ii) the ability of the Borrowers to perform their obligations under the Eagle Ford PSA; provided, however, that no change, circumstance, effect, event or fact shall be deemed (individually or in the aggregate) to constitute, nor shall any of the foregoing be taken into account in determining whether there has been or may be, a Specified Material Adverse Effect, to the extent that such change, circumstance, effect, event or fact results from, arises out of, or relates to (A) a general deterioration in the economy or changes in Hydrocarbon prices or other changes affecting the oil and gas industry generally; (B) war, the outbreak or escalation of hostilities, the declaration by the U.S. or any other country of a national emergency or war or the occurrence of any other calamity or crisis, including acts of terrorism; (C) the disclosure of the Transactions; (D) the Eagle Ford PSA or the transactions contemplated by the Eagle Ford PSA or the public announcement thereof; (E) any change in accounting or tax requirements or principles imposed by GAAP or any change in applicable laws, or the interpretation thereof; (F) changes in conditions in the capital or financial markets generally, including changes in interest or exchange rates; (G) actions taken by, at the request of, or with the approval of, the party asserting such material adverse effect; (H) compliance with the terms of, or the taking of any action required by, the Eagle Ford PSA; or (I) any other matter only to the extent specifically set forth in a disclosure schedule to the Eagle Ford PSA as of the date thereof (to the extent such disclosure schedules have been provided to the Arranger).

“Specified Representations” means the representations and warranties of Borrowers relating to (i) their corporate existence, power and authority, (ii) their due authorization, execution and delivery and the enforceability of the Loan Documents, (iii) compliance with Federal Reserve margin regulations, (iv) compliance with the Investment Company Act, (v) no required governmental approvals with respect to this Agreement and the Eagle Ford Acquisition

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that have not been obtained, (vi) no conflicts with applicable law, (vii) their organizational documents, (vii) their solvency, (viii) compliance with directives issued by the Office of Foreign Assets Control and compliance with the Patriot Act and (ix) the validity, priority and perfection of security interests to the extent required by this Agreement.

“SPE/WPC Definitions” means the definitions promulgated by the Society of Petroleum Evaluation Engineers and the World Petroleum Congress and in effect from time to time.

 “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include those imposed pursuant to such Regulation D.  Eurodollar Loans shall be deemed to constitute Eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation.  The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Subsidiary” of a Person means (a) a corporation, partnership, joint venture, limited liability company or other business entity of which at least a majority of the outstanding Equity Interests having by the terms thereof ordinary voting power to elect a majority of the Board of Directors of such Person (irrespective of whether or not at the time Equity Interests of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries, and (b) any partnership of which such Person or any of its Subsidiaries is a general partner.  Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary of any Co-Borrower.

“Successor Administrative Agent” has the meaning given in Recital A.

“Successor Issuing Bank” means RBC.

“Swap Agreement” means any transaction or agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions, whether or not any such transaction is governed by or subject to any master agreement.  For the avoidance of doubt, (a) a Swap Agreement governed by a master agreement, including any master agreement published by the International Swaps and Derivatives Association, Inc., shall be deemed entered into when such individual Swap Agreement is entered into without regard to the date on which such master agreement is entered into, and (b) any hedge position or hedging arrangement of the type

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described in the immediately preceding sentence shall be considered a Swap Agreement regardless of whether a written agreement or written confirmation is entered into.

“Swap Liquidation” means the sale, assignment, novation, liquidation, unwind or termination of all or any part of any Swap Agreement (other than, in each case, at its scheduled maturity).

“Swap Obligation” means, with respect to any Loan Party, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act, including any such obligation comprised of a guaranty or a security interest or other Lien.

“Synthetic Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, treated as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder and which were properly treated as Obligations for borrowed money for purposes of U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess of, eighty percent (80%) of the residual value of the Property subject to such operating lease upon expiration or early termination of such lease.

“Tax Amount” means, for any period, the combined federal, state and local income taxes, including estimated taxes, that would be payable by a Co-Borrower if it were a Texas corporation filing separate tax returns with respect to its Taxable Income for such period; provided that in determining the Tax Amount, the effect thereon of any net operating loss carry-forwards or other carry-forwards or tax attributes, such as alternative minimum tax carry-forwards, that would have arisen if any Co-Borrower were a Texas corporation shall be taken into account; provided, further, that, if there is an adjustment in the amount of the Taxable Income for any period, an appropriate positive or negative adjustment shall be made in the Tax Amount, and if the Tax Amount is negative, then the Tax Amount for succeeding periods shall be reduced to take into account such negative amount until such negative amount is reduced to zero. Notwithstanding anything to the contrary, Tax Amount shall not include taxes resulting from a Co-Borrower’s reorganization as, or change in the status to, a corporation for tax purposes.

“Taxable Income” means, for any period, the taxable income or loss of the Borrowers for such period for U.S. federal income tax purposes.

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Termination Date” means the earliest of (a) the Maturity Date, (b) the date of termination of the Commitments pursuant to Section 2.06 and (c) the date of termination of the commitments pursuant to Section 10.02(a).

“Transactions” means the execution, delivery and performance by any Co-Borrower or any Guarantor of this Agreement and each other Loan Document to which it is a party, the

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borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, the grant of Liens by the Borrowers on Mortgaged Properties, other Properties and Collateral pursuant to the Security Instruments.

“Transfer Letters” means, collectively, the letters in lieu of transfer orders executed and delivered by the Borrowers or any Person executing and delivering a Mortgage.

“True-Up Loan” has the meaning given in Section 2.02(a).

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.

“UCC” means the Uniform Commercial Code in effect from time to time in the State of New York, or, where applicable as to specific Property, any other relevant state.

“Undertaking to Pay Directly” means the Undertaking to Pay Directly executed by Operator in favor of the Administrative Agent of even date herewith.

“Unrestricted Cash” means Investments of the Borrowers and their Unrestricted Subsidiaries described in Section 9.05(c), Section 9.05(d), Section 9.05(e) and Section 9.05(f) which are subject to no Liens other than Liens in favor of the Lenders, the Second Lien Lender and Secured Swap Providers.

 “Unrestricted Subsidiary” means (a) SN Midstream, LLC, a Delaware limited liability company and (b) each other Subsidiary of a Co-Borrower that is designated by the Board of Directors of such Co-Borrower as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors of Sanchez, but only to the extent that such Subsidiary:

(1)has no Debt other than Debt which is non-recourse to such Co-Borrower;

(2)is not party to any agreement, contract, arrangement or understanding with any Co-Borrower or any Restricted Subsidiary of such Co-Borrower unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to such Co-Borrower or such Restricted Subsidiary than those that might be obtained at the time (or might have been obtained at the time such agreement, contract, arrangement or understanding was entered into) from Persons who are not Affiliates of such Co-Borrower;

(3)is a Person with respect to which neither such Co-Borrower nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and

(4)has not guaranteed or otherwise directly or indirectly provided credit support for any Debt of such Co-Borrower or any of its Restricted Subsidiaries.

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Any designation of a Subsidiary of a Co-Borrower as an Unrestricted Subsidiary shall be made in an officer’s certificate delivered to the Administrative Agent and containing a certification that such designation is in compliance with the terms of this definition.  If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Agreement and the other Loan Documents any Debt of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of such Co-Borrower as of such date and any Lien on the assets of such Subsidiary will be deemed to be incurred as of such date and, if such Debt is not permitted to be incurred pursuant to Section 9.02 hereof, or such Lien is not permitted to be incurred as of such date pursuant to Section 9.03 hereof, then in either case, the Borrowers will be in default of the relevant covenant.

“Unrestricted Subsidiary Maximum Cash Investment Amount” at any time means the amount equal to (A) $10,000,000, plus (B) the aggregate amount of dividends and other distributions received by the Borrowers and the Restricted Subsidiaries in cash from Unrestricted Subsidiaries after the Effective Date and to and including such time, minus (C) the aggregate amount drawn under Letters of Credit issued pursuant to Section 9.05(l) which have been drawn and for which the Borrowers have not then been reimbursed by the Persons whose Debt or obligations were supported by such Letters of Credit.

“U.S.” means the United States of America.

“U.S. Tax Compliance Certificate” has the meaning assigned such term in Section 5.03(e)(ii)(1)(C).

“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding Equity Interests (other than any directors’ qualifying shares mandated by applicable law), on a fully-diluted basis, are owned by a Co-Borrower or one or more of the Wholly-Owned Subsidiaries or by a Co-Borrower and one or more of the Wholly-Owned Subsidiaries.

Section 1.03Types of Loans and Borrowings.  For purposes of this Agreement, Loans and Borrowings, respectively, may be classified and referred to by Type (e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”.

Section 1.04Terms Generally; Rules of Construction.  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 (a) any definition of or reference to any agreement, instrument or other document herein 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), (b) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to the restrictions contained herein), (d) the

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words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) with respect to the determination of any time period, the word “from” means “from and including” and the word “to” means “to and including” and (f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement.  No provision of this Agreement or any other Loan Document shall be interpreted or construed against any Person solely because such Person or its legal representative drafted such provision.

Section 1.05Accounting Terms and Determinations; GAAP.  Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the Financial Statements except for changes in which the Borrowers’ independent certified public accountants concur and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the Borrowers and the Required Lenders shall otherwise agree in writing, no such change shall modify or affect the manner in which compliance with the covenants contained herein is computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods.

ARTICLE II

THE CREDITS

Section 2.01Commitments.  Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to the Borrowers during the Availability Period in an aggregate principal amount that will not result in (a) such Lender’s Credit Exposure exceeding such Lender’s Commitment or (b) the total Credit Exposures exceeding the total Commitments.  Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, repay and reborrow the Loans.

Section 2.02Loans and Borrowings.

(a)Borrowings; Several Obligations.  Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments except that, contemporaneously with the amendment and restatement of the Original Credit Agreement pursuant to this Agreement, each Lender whose previously funded Loans are less than its Applicable Percentage of Loans shall remit to the Administrative Agent for the benefit of the other Lenders entitled thereto an amount equal to such deficiency (which remittance shall be referred to as a “True-Up Loan” and shall constitute a Loan for purposes of this Agreement; provided that for purposes of determining whether the condition specified in Section 2.01(b) has been satisfied, the amount of such True-Up Loan shall be deemed to be zero) which shall, notwithstanding anything to the contrary in Section 4.01 or otherwise in this Agreement, be allocated to the other Lenders entitled thereto by the Administrative Agent and constitute a repayment of the Loans of such other Lenders.  The failure of any Lender to make

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any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

(b)Types of Loans.  Subject to Section 3.03, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrowers may request in accordance herewith.  Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement.

(c)Minimum Amounts; Limitation on Number of Borrowings.  At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount of $1,000,000 or a whole multiple of $100,000 in excess thereof.  At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount of $1,000,000 or a whole multiple of $100,000 in excess thereof; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.08(e).  Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of six (6) Eurodollar Borrowings outstanding.  Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

(d)Notes.  Any Lender may request that Loans made by it be evidenced by a single promissory note.  In such event, the Borrowers shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender in substantially the form of Exhibit A, dated, in the case of (i) any Lender party hereto as of the date of this Agreement, as of the date of this Agreement, or (ii) any Lender that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of the Assignment and Assumption, payable to the order of such Lender in a principal amount equal to its Maximum Credit Amount as in effect on such date, and otherwise duly completed.  If any Lender’s Maximum Credit Amount increases or decreases for any reason (whether pursuant to Section 2.06, Section 12.04(b) or otherwise), the Borrowers shall deliver or cause to be delivered on the effective date of such increase or decrease, a new Note payable to the order of any Lender who requested a Note hereunder in a principal amount equal to its Maximum Credit Amount after giving effect to such increase or decrease, and otherwise duly completed, and such Lender agrees to promptly thereafter return the previously issued Note held by such Lender marked canceled or otherwise similarly defaced.  The date, amount, Type, interest rate and, if applicable, Interest Period of each Loan made by each Lender that receives a Note, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer, may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender.  Failure to make any such notation or to attach a schedule shall not affect any Lender’s or the Borrowers’ rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Note.

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Section 2.03Requests for Borrowings.  To request a Borrowing, any of the Borrowers shall notify the Administrative Agent of such request by telephone, email or facsimile request or by delivery of a written Borrowing Request in substantially the form of Exhibit B (each such signed request in the form of Exhibit B, a “written Borrowing Request”):  (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, Houston, Texas time, three (3) Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, Houston, Texas time, one Business Day before the date of the proposed Borrowing.  Each telephonic, email or facsimile request not evidenced by a written Borrowing Request shall be confirmed promptly by delivery to the Administrative Agent of a Borrowing Request signed by an authorized officer of each Co-Borrower whose name and specimen signature are set forth on the certificate delivered pursuant to Section 6.01(b) (or any subsequent certificate delivered to Administrative Agent) which may be delivered by hand, by courier service, by scanned pdf, or by facsimile.    Each such telephonic, email, facsimile and written Borrowing Request shall be irrevocable and shall specify the following information in compliance with Section 2.02:

(i)the aggregate amount of the requested Borrowing;

(ii)the date of such Borrowing, which shall be a Business Day;

(iii)whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;

(iv)in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”;

(v)the amount equal to the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base, the current total Credit Exposures (without regard to the requested Borrowing) and the pro forma total Credit Exposures (giving effect to the requested Borrowing); and

(vi)the location and number of the Borrowers’ account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05.

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrowers shall be deemed to have selected an Interest Period of one month’s duration.  Each Borrowing Request shall constitute a representation that the amount of the requested Borrowing shall not cause the total Credit Exposures to exceed the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base.  Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

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Section 2.04Interest Elections.

(a)Conversion and Continuance.  Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request.  Thereafter, the Borrowers may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.04.  The Borrowers may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b)Interest Election Requests.  To make an election pursuant to this Section 2.04, the Borrowers shall notify the Administrative Agent of such election by telephone or by a written Interest Election Request in substantially the form of Exhibit C signed by an authorized officer of each Co-Borrower whose name and specimen signature are set forth on the certificate delivered pursuant to Section 6.01(b) (or any subsequent certificate delivered to Administrative Agent) (a “written Interest Election Request”) by the time that a Borrowing Request would be required under Section 2.03 if the Borrowers were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election.  Each telephonic and written Interest Election Request shall be irrevocable and each telephonic Interest Election Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent.

(c)Information in Interest Election Requests.  Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i)the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall be specified for each resulting Borrowing);

(ii)the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii)whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

(iv)if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrowers shall be deemed to have selected an Interest Period of one month’s duration.

(d)Notice to Lenders by the Administrative Agent.  Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

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(e)Effect of Failure to Deliver Timely Interest Election Request and Events of Default on Interest Election.  If the Borrowers fail to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing.  Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing:  (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing (and any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be deemed to have requested an ABR Borrowing) and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

Section 2.05Funding of Borrowings.

(a)Funding by Lenders.  Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., Houston, Texas time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders.  The Administrative Agent will make such Loans available to the Borrowers in the amount so received, in like funds, to an account of a Co- Borrower maintained either with a Lender or a non-Lender in Houston, Texas and designated by the relevant Co-Borrower in the applicable Borrowing Request; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted by the Administrative Agent to the Issuing Bank that made such LC Disbursement; provided further that if such account is maintained with a non-Lender, such non-Lender shall have entered into an account control agreement in form and substance reasonably satisfactory to the Administrative Agent.

(b)Presumption of Funding by the Lenders.  Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and each Co-Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrowers, the interest rate applicable to ABR Loans.  If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

Section 2.06Changes in the Aggregate Maximum Credit Amounts.

(a)Scheduled Termination of Commitments.  Unless previously terminated, the Commitments shall terminate on the Maturity Date.  If at any time the Aggregate Maximum

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Credit Amounts or the Borrowing Base is terminated or reduced to zero, then, at the option of the Administrative Agent, the Commitments shall terminate on the effective date of such termination or reduction.  Notwithstanding the foregoing, the parties hereto hereby agree that this Agreement shall not be terminated until all Obligations are paid and performed in full.

(b)Optional Termination and Reduction of Aggregate Credit Amounts.

(i)The Borrowers may at any time terminate, or from time to time reduce, the Aggregate Maximum Credit Amounts; provided that (1) each reduction of the Aggregate Maximum Credit Amounts shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 (or, if less than $1,000,000 or $5,000,000, the entire Aggregate Maximum Credit Amount) and (2) the Borrowers shall not terminate or reduce the Aggregate Maximum Credit Amounts if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 3.04(c), the total Credit Exposures would exceed the total Commitments.

(ii)The Borrowers shall notify the Administrative Agent of any election to terminate or reduce the Aggregate Maximum Credit Amounts under Section 2.06(b)(i) at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof.  Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof.  Each notice delivered by the Borrowers pursuant to this Section 2.06(b)(ii) shall be irrevocable.  Any termination or reduction of the Aggregate Maximum Credit Amounts shall be permanent and may not be reinstated.  Each reduction of the Aggregate Maximum Credit Amounts shall be made ratably among the Lenders in accordance with each Lender’s Applicable Percentage.

Section 2.07Borrowing Base.

(a)Initial Borrowing Base.  For the period from and including the Effective Date to but excluding the first Redetermination Date, the amount of the Borrowing Base shall be One Hundred Seventy-Five Million and No/100 Dollars ($175,000,000); provided if the total value of Oil and Gas Properties intended to be acquired in the Eagle Ford Acquisition and not acquired (whether due to title defects, environmental issues, preferential purchase rights, casualty loss or otherwise) is greater than $10,000,000 (as evaluated in the Eagle Ford Acquisition Reserve Report), the Administrative Agent may, by written notice to the Borrowers and the Lenders, reduce the initial Borrowing Base to reflect the exclusion of such Oil and Gas Properties.  Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 2.07(b)(v), Section 8.13(c), Section 9.02(b)(ii), Section 9.02(b)(iv), Section 9.02(b)(v) or Section 9.11.

(b)Scheduled and Interim Redeterminations.

(i)The Borrowing Base shall be redetermined quarterly in accordance with this Section 2.07(b)(i) (a “Scheduled Quarterly Redetermination”), and, subject to Section 2.07(d), such redetermined Borrowing Base shall become effective and applicable to the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders

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on or before October 1, 2013, January 1, 2014 and April 1, 2014  beginning October 1, 2013 or, in each case, such date promptly thereafter as reasonably practicable based on the engineering and other information available to the Lenders.

(ii)The Borrowing Base shall be redetermined semi-annually in accordance with this Section 2.07(b)(ii) (a “Scheduled Semi-Annual Redetermination”; the Scheduled Semi-Annual Redeterminations and Scheduled Quarterly Redetermination each a “Scheduled Redetermination” and collectively, the “Scheduled Redeterminations”), and, subject to Section 2.07(d), such redetermined Borrowing Base shall become effective and applicable to the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders on or before April 1st and October 1st of each year beginning October 1, 2014 or, in each case, such date promptly thereafter as reasonably practicable based on the engineering and other information available to the Lenders.

(iii)In addition, the Borrowers may by notifying the Administrative Agent thereof, and the Administrative Agent may, at the direction of the Required Lenders, by notifying the Borrowers thereof, each elect to cause the Borrowing Base to be redetermined once between each Scheduled Quarterly Redetermination and twice between the last Scheduled Quarterly Redetermination and the first Scheduled Semi-Annual Redetermination and between successive Scheduled Redeterminations thereafter (each such redetermination between Scheduled Redeterminations, together with any redetermination described Section 2.07(b)(iv), an “Interim Redetermination”) in accordance with this Section 2.07.

(iv)In addition to any Interim Redetermination described in Section 2.07(b)(iii), if at any time the aggregate value of Oil and Gas Properties sold or disposed of pursuant to Section 9.11(e)(4), together with Borrowing Base value (as determined by the Administrative Agent in its reasonable judgment) of Swap Agreements in respect of commodities Liquidated, in any period between redeterminations of the Borrowing Base, exceeds five percent (5%) of the proved developed Oil and Gas Properties included in the most recently delivered Reserve Report, then the Borrowing Base shall be automatically reduced, effective immediately upon such sale, disposition or Swap Liquidation by an amount equal to the Borrowing Base value (as determined by the Administrative Agent in its reasonable judgment) of such Oil and Gas Properties sold or disposed of and Swap Agreements in respect of commodities Liquidated and such new Borrowing Base shall be effective and applicable to the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders until the next redetermination or modification of the Borrowing Base pursuant to this Agreement; provided that for purposes of this Section 2.07(b)(iv), a Swap Agreement shall not be deemed to have been Liquidated if, (x) such Swap Agreement is novated from the existing counterparty to an Approved Counterparty, with a Borrower or the applicable Loan Party being the “remaining party” for purposes of such novation, or (y) upon its termination, it is replaced, in a substantially contemporaneous transaction, with one or more Swap Agreements with approximately the same mark-to-market value and without cash payments to any Loan Party in connection therewith.  Such decrease in the Borrowing Base shall occur without any vote of Lenders or action by Administrative Agent.  Upon any such redetermination, the

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Administrative Agent shall promptly deliver a New Borrowing Base Notice to the Borrowers and the Lenders.

(v)In addition to the Scheduled Redeterminations and Interim Redeterminations, the Borrowing Base shall be automatically reduced by the related Issuance Related Borrowing Base Adjustment Amount upon each of (w) any increase in the principal amount of the Second Lien Loan over $50,000,000, (x) the funding of the Bridge Loan, (y) the issuance of Debt in connection with the Bridge Securities and Takeout Loan and (z) the issuance of Senior Unsecured Notes.

(c)Scheduled and Interim Redetermination Procedure.

(i)Each Scheduled Redetermination and each Interim Redetermination shall be effectuated as follows:  upon receipt by the Administrative Agent of (1) the Reserve Report and the certificate required to be delivered by the Borrowers, in the case of a Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an Interim Redetermination, pursuant to Section 8.12(b) and (c), and (2) such other reports, data and supplemental information, including, without limitation, the information provided pursuant to Section 8.12(c), as may, from time to time, be reasonably requested by the Required Lenders (the Reserve Report, such certificate and such other reports, data and supplemental information being the “Engineering Reports”), the Administrative Agent shall evaluate the information contained in the Engineering Reports and shall, in good faith, propose a new Borrowing Base (the “Proposed Borrowing Base”) based upon such information and such other information (including, without limitation, the status of title information with respect to the Oil and Gas Properties as described in the Engineering Reports and the existence of any other Debt) as the Administrative Agent deems appropriate in its sole discretion and consistent with its normal oil and gas lending criteria as it exists at the particular time.  In no event shall the Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.

(ii)The Administrative Agent shall notify the Borrowers and the Lenders of the Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):

(1)in the case of a Scheduled Redetermination (A) if the Administrative Agent shall have received the Engineering Reports and other information required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on or before the March 15th and September 15th of such year following the date of delivery (and on or before December 1, 2013 in the case of the Reserve Report required to be delivered by November 15, 2013) or (B) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a)and (c) in a timely and complete manner, then promptly after the Administrative Agent has received complete Engineering Reports and other information from the Borrowers and have had a reasonable opportunity to determine the Proposed Borrowing Base in accordance with Section 2.07(c)(i), and in any event within fifteen (15) days after the Administrative Agent has received the required Engineering Reports; and

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(2)in the case of an Interim Redetermination, promptly, and in any event, within fifteen (15) days after the Administrative Agent has received the required Engineering Reports.

(iii)Any Proposed Borrowing Base that would increase the Borrowing Base then in effect must be approved or deemed to have been approved by all of the Lenders as provided in this Section 2.07(c)(iii) and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect must be approved or be deemed to have been approved by the Administrative Agent and the Required Lenders as provided in this Section 2.07(c)(iii).  Upon receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing Base.  If at the end of such fifteen (15) days, any Lender has not communicated its approval or disapproval in writing to the Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing Base.  If, at the end of such 15-day period, all of the Lenders, in the case of a Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Administrative Agent and Required Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).  If, however, at the end of such 15-day period, all of the Lenders or the Required Lenders, as applicable, have not approved or been deemed to have approved, as aforesaid, then the Administrative Agent shall (1) notify the Borrowers of the Proposed Borrowing Base and which Lenders have not approved or been deemed to have approved of the Proposed Borrowing Base and (2) poll the Lenders to ascertain the highest Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Required Lenders for purposes of this Section 2.07 and, so long as such amount does not increase the Borrowing Base then in effect, such amount shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).

(d)Effectiveness of a Redetermined Borrowing Base.  After a redetermined Borrowing Base is approved or is deemed to have been approved by all of the Lenders or the Required Lenders, as applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall notify the Borrowers and the Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing Base Notice”), and such amount shall become the new Borrowing Base, effective and applicable to the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders:

(i)in the case of a Scheduled Redetermination, (1) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the April 1st or October 1st, as applicable, following such notice (and on January 1, 2014, in the case of the Reserve Report required to be delivered by November 15, 2013), or (2) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the Business Day next succeeding delivery of such notice; and

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(ii)in the case of an Interim Redetermination, on the Business Day next succeeding delivery of such notice.

Such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under Section 8.13(c) or Section 9.11, whichever occurs first.  Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New Borrowing Base Notice related thereto is received by the Borrowers.

Section 2.08Letters of Credit.

(a)General.  Subject to the terms and conditions set forth herein, the Borrowers may request the Issuing Bank to issue Letters of Credit in dollars for its own account or for the account of any of its Restricted Subsidiaries, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period.  In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Letter of Credit Agreement, the terms and conditions of this Agreement shall control.

(b)Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.  To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrowers shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (not less than three (3) Business Days in advance of the requested date of issuance, amendment, renewal or extension) a notice: (i) requesting the issuance of a Letter of Credit or identifying the outstanding Letter of Credit to be amended, renewed or extended; (ii) specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day); (iii) specifying the date on which such Letter of Credit is to expire (which shall comply with Section 2.08(c)); (iv) specifying the amount of such Letter of Credit; (v) specifying the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit; and (vi) specifying the amount of the then effective Borrowing Base, the current total Credit Exposures (without regard to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit) and the pro forma total Credit Exposures (giving effect to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit).  If requested by the Issuing Bank, the Borrowers shall submit a letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit.  A Letter of Credit shall be issued, amended, renewed or extended only if (and with respect to each notice provided by the Borrowers above and any issuance, amendment, renewal or extension of each Letter of Credit, the Borrowers shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (1) the LC Exposure shall not exceed the LC Commitment and (2) the total Credit Exposures shall not exceed the total Commitments (i.e. the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base).

(c)Expiration Date.  Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of

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Credit (or, in the case of any renewal, which renewal may be provided for in the initial Letter of Credit, or extension thereof, one year after such renewal or extension) and (ii) the date that is twenty (20) Business Days prior to the Maturity Date.

(d)Participations.  By the issuance of a Letter of Credit (or an amendment to an existing Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank that issues such Letter of Credit or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit.  In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrowers on the date due as provided in Section 2.08(e) (but giving effect to the proviso in the first sentence thereof), or of any reimbursement payment required to be refunded to the Borrowers for any reason.  Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 2.08(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(e)Reimbursement.  If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrowers shall reimburse such LC Disbursement by paying the Issuing Bank, through the Administrative Agent, an amount equal to such LC Disbursement (i) not later than 2:00 p.m., Houston, Texas time, on the date such LC Disbursement is made, if the Borrowers shall have received notice of such LC Disbursement prior to 12:00 noon, Houston Texas time, on such date (provided it shall not be an Event of Default if the Borrowers fail to reimburse such LC Disbursement pursuant to this clause (i) if such LC Disbursement is reimbursed on the first Business Day immediately following the day that the Borrowers received notice of such LC Disbursement), or (ii) not later than 12:00 noon, Houston, Texas time, on the first Business Day immediately following the day that the Borrowers received such notice, if such notice in not received prior to 12:00 noon on the date such LC Disbursement was made.  If the Borrowers fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrowers in respect thereof and such Lender’s Applicable Percentage thereof.  Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrowers, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders.  Promptly following receipt by the Administrative Agent of any payment from the Borrowers pursuant to this Section 2.08(e), the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this Section 2.08(e) to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear.  Any payment made by a Lender pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC Disbursement

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shall not constitute a Loan and shall not relieve the Borrowers of their obligation to reimburse such LC Disbursement.

(f)Obligations Absolute.  The Borrowers’ obligation to reimburse LC Disbursements as provided in Section 2.08(e) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit or any Letter of Credit Agreement, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.08(f), constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrowers’ obligations hereunder.  Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised all requisite care in each such determination.  In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole reasonable discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(g)Disbursement Procedures.  The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit.  The Issuing Bank shall promptly notify the Administrative Agent and the Borrowers by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement.

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(h)Interim Interest.  If the Issuing Bank shall make any LC Disbursement, then, until the Borrowers shall have reimbursed the Issuing Bank for such LC Disbursement (either with its own funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrowers reimburse such LC Disbursement, at the rate per annum then applicable to ABR Loans.  Interest accrued pursuant to this Section 2.08(h) shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to Section 2.08(d) to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

(i)Replacement of an Issuing Bank.  The Issuing Bank may be replaced or resign at any time by written agreement among the Borrowers, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank.  The Administrative Agent shall notify the Lenders of any such resignation or replacement of the Issuing Bank.  At the time any such resignation or replacement shall become effective, the Borrowers shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 3.05(b).  From and after the effective date of such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require.  After the resignation or replacement of the Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

(j)Cash Collateralization.  If (i) any Event of Default shall occur and be continuing and the Borrowers receive notice from the Administrative Agent or the Required Lenders demanding the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrowers are required to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then the Borrowers shall deposit, in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of a payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as of such date plus any accrued and unpaid interest thereon to the extent not otherwise included in such payment; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrowers or any Restricted Subsidiary described in Section 10.01(g) or Section 10.01(h).  The Borrowers hereby grant to the Administrative Agent, for the benefit of the Issuing Bank and the Lenders, an exclusive first priority and continuing perfected security interest in and Lien on such account and all cash, checks, drafts, certificates and instruments, if any, from time to time deposited or held in such account, all deposits or wire transfers made thereto, any and all investments purchased with funds deposited in such account, all interest, dividends, cash, instruments, financial assets and other Property from time to time received, receivable or otherwise payable in respect of, or in exchange for, any or all of the foregoing, and all proceeds, products, accessions, rents, profits, income and benefits therefrom, and any

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substitutions and replacements therefor.  The Borrowers’ obligation to deposit amounts pursuant to this Section 2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrowers or any of their Subsidiaries may now or hereafter have against any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever.  Such deposit shall be held as collateral securing the payment and performance of the Borrowers’ obligations under this Agreement and the other Loan Documents in a “securities account” (within the meaning of Article 8 of the UCC) over which the Administrative Agent shall have “control” (within the meaning of the UCC).  Notwithstanding the foregoing, the Borrowers may direct the Administrative Agent and the “securities intermediary” (within the meaning of the UCC) to invest amounts credited to the securities account, at the Borrowers’ risk and expense, in Investments described in Section 9.05(d) through (g).  Interest or profits, if any, on such investments shall accumulate in such account.  Moneys in such account shall be applied by the Administrative Agent to reimburse, on a pro rata basis, the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrowers under this Agreement or the other Loan Documents.  If the Borrowers are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, and the Borrowers are not otherwise required to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then such amount (to the extent not applied as aforesaid) shall be returned to the Borrowers within three (3) Business Days after all Events of Default have been cured or waived.

ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

Section 3.01Repayment of Loans.

Each Co-Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Termination Date.

Section 3.02Interest.

(a)ABR Loans.  The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.

(b)Eurodollar Loans.  The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.

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(c)Post-Default Rate.  Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers hereunder or under any other Loan Document is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans as provided in Section 3.02(a), but in no event to exceed the Highest Lawful Rate.

(d)Interest Payment Dates.  Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and on the Termination Date; provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable on demand, (i) in the event of any repayment or prepayment of any Loan (other than an optional prepayment of an ABR Loan prior to the Termination Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, and (ii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e)Interest Rate Computations.  All interest hereunder shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error, and be binding upon the parties hereto.

Section 3.03Alternate Rate of Interest.  If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(a)the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period; or

(b)the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrowers and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.

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Section 3.04Prepayments.

(a)Optional Prepayments.  The Borrowers shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with Section 3.04(b).  Partial optional prepayments pursuant to this Section 3.04 shall be in an aggregate principal amount of $250,000 or any whole multiple of $50,000 in excess thereof.

(b)Notice and Terms of Optional Prepayment.  The Borrowers shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, Houston, Texas time, three (3) Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., Houston, Texas time, on the Business Day of prepayment.  Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid.  Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof.  Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02.  Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued interest to the extent required by Section 3.02.

(c)Mandatory Prepayments.

(i)Upon any adjustments to the Borrowing Base pursuant to Section 2.07(b)(iv), Section 9.02(b)(i), Section 9.02(b)(ii), Section 9.02(b)(iv), Section 9.02(b)(v) or Section 9.11, if the total Credit Exposures exceeds the Borrowing Base as adjusted, then the Borrowers shall (A) prepay the Borrowings in an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j).  The Borrowers shall be obligated to make such prepayment and/or deposit of cash collateral on the date it receives cash proceeds as a result of such disposition or such incurrence of Debt; provided that all payments required to be made pursuant to this Section 3.04(c)(i) must be made on or prior to the Termination Date.

(ii)If, after giving effect to any termination or reduction of the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b), the total Credit Exposures exceeds the total Commitments, then the Borrowers shall (A) prepay the Borrowings on the date of such termination or reduction in an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j).

(iii)Upon any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.07 (other than Section 2.07(b)(iv)) or Section 8.13(c), if the total Credit Exposures exceeds the redetermined or adjusted Borrowing Base, then the Borrowers shall, within ten (10) days after written notice is

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received from the Agent that the total Credit Exposure exceeds the redetermined or adjusted Borrowing Base (the amount of such excess, a “Borrowing Base Deficiency”), notify Administrative Agent of its decision (the date of such notice, the “Prepayment Decision Notice Date”) to do any (or any combination) of the following which will result in the Borrowing Base Deficiency being eliminated in the applicable time frame(s): (A) prepay Borrowings (i) in a lump sum on or before the date which is twenty (20) days after the Prepayment Decision Notice Date, or (ii) in five (5) equal monthly payments beginning on the one month anniversary of the Prepayment Decision Notice Date and continuing on the corresponding day of the four following months, and in any case, if any Borrowing Base Deficiency remains after prepaying all of the Borrowings as a result of an LC Exposure, deposit with the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j), and/or (B) within ninety (90) days of the Prepayment Decision Notice Date, pledge additional Collateral acceptable to the Lenders to the Administrative Agent for the benefit of the Lenders, which Collateral shall be sufficient in Administrative Agent’s opinion to increase the Borrowing Base and eliminate the Borrowing Base Deficiency.

(iv)Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied to outstanding Borrowings first, ratably to any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings then outstanding, and if more than one Eurodollar Borrowing is then outstanding, to each such Eurodollar Borrowing in order of priority beginning with the Eurodollar Borrowing with the least number of days remaining in the Interest Period applicable thereto and ending with the Eurodollar Borrowing with the most number of days remaining in the Interest Period applicable thereto.

(v)Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to the Loans included in the prepaid Borrowings.  Prepayments pursuant to this Section 3.04(c) shall be accompanied by accrued interest to the extent required by Section 3.02.

(d)No Premium or Penalty.  Prepayments permitted or required under this Section 3.04 shall be without premium or penalty, except as required under Section 5.02.

Section 3.05Fees.

(a)Commitment Fees.  The Borrowers agree to pay to the Administrative Agent for the account of each Lender, ratably in accordance with its Applicable Percentage, a commitment fee, which shall accrue at the applicable Commitment Fee Rate on the average daily amount of the unused amount of the Borrowing Base during the period from and including the date of this Agreement to but excluding the Termination Date.  Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Termination Date, commencing on the first such date to occur after the date hereof.  All commitment fees shall be computed on the basis of a year of 360 days, unless such computation would cause interest to accrue at a rate in excess of the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and

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shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b)Letter of Credit Fees.  The Borrowers agree to pay (i) to the Administrative Agent, for the account of each Lender, ratably in accordance with its Applicable Percentage, an annual Letter of Credit fee on the aggregate LC Exposure, which shall accrue at the Letter of Credit Fee Rate and be payable in arrears on the Termination Date and the last day of each calendar quarter, (ii) to the Issuing Bank, for its own account, a fronting fee equal to the greater of (a) $500 or 0.175% of the face amount of each outstanding Letter of Credit and (iii) to the Issuing Bank, for its own account, its standard and customary fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit issued by such Issuing Bank or processing of drawings thereunder, which shall be payable upon issuance and upon any renewal of such Letter of Credit.  Any other fees payable to an Issuing Bank pursuant to this Section 3.05(b) shall be payable within 10 days after demand.  All Letter of Credit fees and fronting fees (as set forth herein or in the Fee Letter) shall be computed on the basis of a year of 360 days, unless such computation would cause interest to accrue at a rate in excess of the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(c)Administrative Agent Fees.  The Borrowers agree to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times specified in the Fee Letter, or otherwise separately agreed upon between the Borrowers and the Administrative Agent.

(d)SN Cotulla and the Fee Letter.  SN Cotulla agrees to be bound by the Fee Letter as if an addressee thereof signatory thereto as an accepting party.

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

Section 4.01Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

(a)Payments by the Borrowers.  The Borrowers shall make each payment required to be made by the Borrowers hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 12:00 noon, Houston, Texas time, on the date when due, in dollars that constitute immediately available funds, without defense, deduction, recoupment, set-off or counterclaim.  Fees, once paid, shall not be refundable under any circumstances absent manifest error (e.g., as a result of a clerical mistake).  Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Administrative Agent at its offices specified in Section 12.01, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled thereto.  The Administrative Agent shall distribute any such payments

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received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.  All payments hereunder shall be made in dollars.

(b)Application of Insufficient Payments.  If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.

(c)Sharing of Payments by Lenders.  If the Administrative Agent or any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary 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 participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this Section 4.01(c) shall not be construed to apply to any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrowers or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.01(c) shall apply).  The Borrowers consent to the foregoing and agree, to the extent they may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrowers rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrowers in the amount of such participation.

(d)If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(a), 2.08(d) or (e), 4.02 or 12.03(c), then the Administrative Agent may, in its discretion and notwithstanding any contrary provision hereof, (i)apply any amounts thereafter received by the Administrative Agent for the account of such Lender and for the benefit of the Administrative Agent or the Issuing Bank to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid, and/or (ii)hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of

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such Lender under such Sections; in the case of each of (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.

Section 4.02Presumption of Payment by the Borrowers.  Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or such Issuing Bank, as the case may be, the amount due.  In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or such Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank 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 Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

Section 4.03Certain Deductions by the Administrative Agent.  If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(a), 2.08(d) or (e), 4.02 or 12.03(c), then the Administrative Agent may, in its discretion and notwithstanding any contrary provision hereof, (a) apply any amounts thereafter received by the Administrative Agent for the account of such Lender and for the benefit of the Administrative Agent or the Issuing Bank to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid, and/or (b) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Lender under such Sections; in the case of each of (a) and (b) above, in any order as determined by the Administrative Agent in its discretion.

Section 4.04Disposition of Proceeds.  The Security Instruments contain an assignment by the Borrowers unto and in favor of the Administrative Agent for the benefit of (i) the Lenders and (ii) the Secured Swap Providers, of all of the Borrowers’ interest in and to production and all proceeds attributable thereto that may be produced from or allocated to the Mortgaged Property.  The Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Obligations and other obligations described therein and secured thereby.  Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an Event of Default, (a) the Administrative Agent and the Lenders agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Administrative Agent or the Lenders (including, without limitation, the sending of a Transfer Letter to the purchaser or purchasers of such production), but the Lenders will instead permit such proceeds to be paid to the Borrowers and their Restricted Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrowers and/or such Restricted Subsidiaries.  Upon the expiration or termination of the Commitments and the payment in full of the Obligations, the Administrative Agent shall, at the expense of the Borrowers, execute and deliver such documentation as any Co-Borrower shall reasonably request to re-convey to the relevant Co-Borrower or Guarantor any property purportedly conveyed to the Administrative Agent under the Security Instruments.

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ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY; DEFAULTING LENDERS

Section 5.01         Increased Costs.

(a)           Eurodollar Changes in Law.  If any Change in Law shall:

(i)            impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or

(ii)           impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar 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 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 otherwise), then the Borrowers 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 or the Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.

(c)           Certificates.  A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in Section 5.01(a) or (b) and reasonably detailed calculations therefor shall be delivered to the Borrowers and shall be conclusive absent manifest error.  The Borrowers shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

(d)           Effect of Failure or Delay in Requesting Compensation.  Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 5.01

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shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that the Borrowers shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section 5.01 for any increased costs or reductions incurred more than ninety (90) days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof.

Section 5.02         Break Funding Payments.  In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan into an ABR Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto, or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrowers pursuant to Section 5.04(b), then, in any such event, the Borrowers shall compensate each Lender for the loss, cost and expense attributable to such event.  In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the Eurodollar market.  A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 5.02 and reasonably detailed calculations therefor shall be delivered to the Borrowers and shall be conclusive absent manifest error.  The Borrowers shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

Section 5.03         Taxes.

(a)           Payments Free of Taxes.  Any and all payments by or on account of any obligation of the Borrowers under any Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrowers shall be required to deduct any Indemnified Taxes or 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 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

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(b)           Payment of Other Taxes by the Borrowers.  The Borrowers shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)           Indemnification by the Borrowers.  The Borrowers shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrowers hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 5.03) 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 of the Administrative Agent, a Lender or the Issuing Bank as to the amount of such payment or liability under this Section 5.03 shall be delivered to the Borrowers and 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 Borrowers to a Governmental Authority, the Borrowers 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)           Foreign Lenders.

(i)            Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Co-Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or any other Loan Document shall deliver to the Borrowers (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrowers as will permit such payments to be made without withholding or at a reduced rate.

(ii)           Without limiting the generality of the foregoing:

(1)           any Foreign Lender shall deliver to the Borrowers 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 reasonable request of the Borrowers or the Administrative Agent), whichever of the following is applicable:

(A)          in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the U.S. is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the “interest” article of such tax treaty and (y)

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with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the “business profits” or “other income” article of such tax treaty;

(B)           executed originals of IRS Form W-8ECI;

(C)           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 substantially in the form of Exhibit F-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of any Co-Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or

(D)          to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W 8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-2 or Exhibit F-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-4 on behalf of each such direct and indirect partner.

(2)           any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrowers 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 reasonable request of the Borrowers or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrowers or the Administrative Agent to determine the withholding or deduction required to be made.

(f)            FATCA.  If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrowers and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrowers or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrowers or the Administrative

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Agent as may be necessary for the Borrowers and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for purposes of this clause (f), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

(g)           U.S. Lenders.  Any Lender that is a U.S. Person shall deliver to the Borrowers and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrowers or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax.

(h)           Certifications.  Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrowers and the Administrative Agent in writing of its legal inability to do so.

(i)            Tax Refunds.  If the Administrative Agent or a Lender determines, in its reasonable discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section 5.03, it shall pay over such refund to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section 5.03 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 and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrowers, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrowers (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 Section 5.03 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 which it deems confidential) to the Borrowers or any other Person.

Section 5.04         Mitigation Obligations.

(a)           Designation of Different Lending Office.  If any Lender requests compensation under Section 5.01, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, 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 5.01 or Section 5.03, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

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(b)           Replacement of Lenders.  If (i) any Lender requests compensation under Section 5.01, (ii) the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, (iii) any Lender becomes a Defaulting Lender, or (iv) any Lender has not approved (or is not deemed to have approved) an increase in the Borrowing Base proposed by the Administrative Agent pursuant to Section 2.07(c)(iii), then the Borrowers may, at their 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 Section 12.04(b)), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that, (1) the Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (2) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts) and (3) in the case of any such assignment resulting from a claim for compensation under Section 5.01 or payments required to be made pursuant to Section 5.03, such assignment will result in a reduction in such compensation or payments.  A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such  assignment and delegation cease to apply.

Section 5.05         Illegality.  Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its applicable lending office to honor its obligation to make or maintain Eurodollar Loans either generally or having a particular Interest Period hereunder, then (a) such Lender shall promptly notify the Borrowers and the Administrative Agent thereof and such Lender’s obligation to make such Eurodollar Loans shall be suspended (the “Affected Loans”) until such time as such Lender may again make and maintain such Eurodollar Loans and (b) all Affected Loans which would otherwise be made by such Lender shall be made instead as ABR Loans (and, if such Lender so requests by notice to the Borrowers and the Administrative Agent, all Affected Loans of such Lender then outstanding shall be automatically converted into ABR Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) ABR Loans, all payments of principal which would otherwise be applied to such Lender’s Affected Loans shall be applied instead to its ABR Loans.

Section 5.06         Defaulting Lenders.  Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, the following provisions shall apply for so long as such Lender is a Defaulting Lender:

(a)           fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 3.05;

(b)           the Maximum Credit Amount and Credit Exposure of such Defaulting Lender shall not be included in determining whether all Lenders or the Required Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 12.02), provided that any waiver, amendment or modification requiring the consent of all

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Lenders or each affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender;

(c)           if any LC Exposure exists at the time a Lender becomes a Defaulting Lender then:

(i)            all or any part of such LC Exposure shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent (x) the sum of all non-Defaulting Lenders’ Credit Exposures does not exceed the total of all non-Defaulting Lenders’ Maximum Credit Amounts and (y) the conditions set forth in Section 6.02 are satisfied at such time; and

(ii)           if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrowers shall within one Business Day following notice by the Administrative Agent cash collateralize such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.08(j) for so long as such LC Exposure is outstanding;

(iii)          if the Borrowers cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrowers shall not be required to pay any Letter of Credit fees for the account of such Defaulting Lender pursuant to Section 3.05(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;

(iv)          if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Section 3.05 shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; or

(v)           if any Defaulting Lender’s LC Exposure is neither cash collateralized nor reallocated pursuant to this Section 5.06(c), then, without prejudice to any rights or remedies of the Issuing Bank or any Lender hereunder, all commitment fees that otherwise would have been payable to such Defaulting Lender (solely with respect to the portion of such Defaulting Lender’s Commitment that was utilized by such LC Exposure) and letter of credit fees payable under Section 3.05(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing Bank until such LC Exposure is cash collateralized and/or reallocated;

(d)           so long as any Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrowers in accordance with Section 5.06(c), and participating interests in any such newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 5.06(c)(i) (and Defaulting Lenders shall not participate therein); and

(e)           In the event that the Administrative Agent, the Borrowers and the Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such

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Lender to be a Defaulting Lender, then the LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.

ARTICLE VI

CONDITIONS PRECEDENT

Section 6.01         Conditions to Effectiveness.  The amendment and restatement of the Original Credit Agreement and the obligation of each Lender to make Loans (including, without limitation, the True-Up Loans, if any) shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.02):

(a)           Satisfactory evidence that (i) the Eagle Ford Acquisition has been (or contemporaneously with the initial funding under this Agreement, will be) consummated for a purchase price not to exceed $265,000,000 (subject to adjustment as provided in the Eagle Ford PSA) consistent with the material terms of the Eagle Ford PSA, with no material amendments or waivers not consented to by the Arranger and (ii) any Liens (other than Liens permitted under Section 9.03) on the Oil and Gas Properties acquired in the Eagle Ford Acquisition shall have been or will be released contemporaneously with the initial Loan hereunder. For purposes of satisfying the foregoing requirement, Liens on Oil and Gas Properties acquired pursuant to the Eagle Ford Acquisition shall be deemed released at such time as the relevant Person shall have executed and delivered a release with respect thereto and counsel or agents to the Administrative Agent shall be in the possession of such release for recording;

(b)           The Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Loan Party setting forth (i) resolutions of its Board of Directors with respect to the authorization of such Loan Party to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of such Loan Party (y) who are authorized to sign the Loan Documents to which such Loan Party is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the Transactions, (iii) specimen signatures of such authorized officers, and (iv) the articles or certificate of incorporation and bylaws or other comparable organizational documents of such Loan Party, certified as being true and complete.  The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Borrowers to the contrary;

(c)           The Administrative Agent shall have received certificates of the appropriate State agencies with respect to the existence, qualification and good standing of each Loan Party;

(d)           The Administrative Agent shall have received a compliance certificate which shall be substantially in the form of Exhibit D, duly and properly executed by a Responsible Officer and dated as of the date of Effective Date;

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(e)           The Administrative Agent shall have received from each party hereto counterparts (in such number as may be requested by the Administrative Agent) of this Agreement signed on behalf of such party;

(f)            The Administrative Agent shall have received duly executed Notes payable to the order of each Lender that has requested a Note in a principal amount equal to its Maximum Credit Amount dated as of the date hereof;

(g)           The Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of the Security Instruments granting the Administrative Agent a first priority Lien (subject to Excepted Liens) on (i) the Collateral securing the Existing Credit Agreement, (ii) 100% of the Equity Interest in all Domestic Subsidiaries (including Unrestricted Subsidiaries) and the Borrowers (other than the Equity Interests of Sanchez), (iii) Oil and Gas Properties representing at least eighty percent (80%) by value of the Engineered Value (based on the Eagle Ford Acquisition Reserve Report) of the Oil and Gas Properties acquired pursuant to the Eagle Ford Acquisition, and (iv) substantially all other material personal property of the Loan Parties, including operating equipment, accounts receivable, inventory, contract rights, general intangibles and all products, proceeds and other interests relating to the ownership, operation and/or production of oil and gas properties.  For purposes of satisfying the foregoing requirement, properties acquired pursuant to the Eagle Ford Acquisition shall be deemed mortgaged at such time as the relevant Loan Party shall have executed and delivered a mortgage with respect thereto and counsel or agents to the Administrative Agent shall be in the possession of such mortgage for recording. Notwithstanding anything to the contrary, Liens granted in the Collateral by any Loan Party shall not secure any obligation in respect of any Excluded Swap Obligation;

(h)           The Administrative Agent shall have received, in form and substance reasonably satisfactory to Administrative Agent, an opinion of Akin Gump Strauss Hauer & Feld LLP, counsel to the Loan Parties;

(i)            The Administrative Agent shall have received a certificate of insurance coverage of the Borrowers evidencing that the Borrowers are carrying insurance in accordance with Section 7.12;

(j)            The Administrative Agent shall have received a certificate of a Responsible Officer of each Co-Borrower certifying that the Borrowers have received all consents and approvals required by Section 7.03 or otherwise necessary for the continued operations of the Loan Parties;

(k)           The Administrative Agent shall have received a copy of Sanchez’s first quarter 2013 report on Form 10-Q filed with the SEC;

(l)            The Administrative Agent shall (i) be reasonably satisfied with the title due diligence previously conducted by the Predecessor Administrative Agent and Original Lenders as to the status of title to at least eighty percent (80%) of the Oil and Gas Properties constituting Collateral prior to the Effective Date and (ii) have received title information acceptable to Administrative Agent setting forth the status of title to at least eighty percent (80%) of the total

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value of the proved Oil and Gas Properties evaluated in the Eagle Ford Acquisition Reserve Report;

(m)          The Administrative Agent shall be reasonably satisfied with the environmental condition of the Oil and Gas Properties of the Borrowers and their Subsidiaries, including Oil and Gas Properties to be acquired in the Eagle Ford Acquisition;

(n)           The Administrative Agent shall have received (i) the Initial Reserve Report accompanied by a certificate covering the matters described in Section 8.12(c) and (ii) the Eagle Ford Acquisition Reserve Report;

(o)           The Administrative Agent shall have received appropriate judgment, tax, bankruptcy and UCC search certificates reflecting no prior judgment or taxes are outstanding or unpaid by the Borrowers or Liens encumbering the Properties of the Borrowers for each of the following jurisdictions: Louisiana, Texas, and any other jurisdiction requested by the Administrative Agent; other than those being assigned or released on or prior to the Effective Date or Liens permitted by Section 9.03;

(p)           The Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of amendments to the Intercreditor Agreement to permit the Transactions;

(q)           The Administrative Agent shall have received all documentation and other information that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act;

(r)            The Administrative Agent shall have received copies of the fully executed Second Lien Loan Documents;

(s)           The Administrative Agent shall have received a copy of the fully executed Undertaking to Pay Directly;

(t)            The Administrative Agent shall have received executed counterparts of the Original Credit Agreement Assignments and Assumptions from the Original Lenders;

(u)           The Administrative Agent shall have received such other documents as the Administrative Agent or its special counsel may reasonably request;

(v)           Administrative Agent, Arranger and the Lenders shall have received all fees and other amounts due and payable, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder;

(w)          No default shall have occurred and be continuing under the Original Credit Agreement or the Second Lien Loan Documents; and

(x)            The Effective Date shall have occurred on or before July 31, 2013.

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Section 6.02         Each Credit Event.  The obligation of each Lender to make a Loan on the occasion of any Borrowing (including the initial funding), and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:

(a)           The Administrative Agent and the Lenders shall have received all fees and other amounts due and payable, including to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder;

(b)           At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Borrowing Base Deficiency shall have occurred and be continuing;

(c)           At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no event, development or condition that has or could reasonably be expected to have a Material Adverse Effect shall have occurred. Notwithstanding the foregoing, only the absence of a Specified Material Adverse Effect shall be a condition to the availability of Loans under this Agreement on the Effective Date;

(d)           The representations and warranties of the Loan Parties set forth in this Agreement and in the other Loan Documents, including regarding litigation as set forth in Section 7.05, shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except, in each case, to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, such representations and warranties shall continue to be true and correct as of such specified earlier date.  Notwithstanding the foregoing, the only representations the accuracy of which shall be a condition to the availability of Loans under this Agreement on the Effective Date shall be the Eagle Ford PSA Representations and the Specified Representations.  The failure of any representation or warranty with respect to the Borrowers or any of their respective Subsidiaries (other than the Eagle Ford PSA Representations or the Specified Representations) to be accurate on the Effective Date will not constitute the failure of a condition precedent to the funding of the initial Loan under this Agreement but will instead constitute a Default which may be cured within a period of 10 days after the Effective Date and which will not in and of itself constitute a failure of a condition precedent to funding;

(e)           The making of such Loan or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, would not conflict with, or cause any Lender or the Issuing Bank to violate or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and no litigation shall be pending or threatened, which does or, with respect to any threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the issuance, amendment, renewal, extension or repayment of any Letter of Credit or any participations therein or the consummation of the transactions contemplated by this Agreement or any other Loan Document;

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(f)            The receipt by the Administrative Agent of a Borrowing Request in accordance with Section 2.03 or a request for a Letter of Credit in accordance with Section 2.08(b), as applicable; and

(g)           In connection with the execution and delivery of the Security Instruments, the Administrative Agent shall be reasonably satisfied that the Security Instruments create first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition) on at least eighty percent (80%) of the total value of the proved Oil and Gas Properties evaluated in the initial Reserve Report and the Eagle Ford Acquisition Reserve Report.

Each request for a Borrowing and each issuance, amendment, renewal or extension of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in Section 6.02(a) through (f).

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

Each Co-Borrower represents and warrants to the Lenders that:

Section 7.01         Organization; Powers.  Each of the Borrowers and the Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority, and has all material governmental licenses, authorizations, consents and approvals necessary, to own its assets and to carry on its business as now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where failure to have such power, authority, licenses, authorizations, consents, approvals and qualifications could not reasonably be expected to have a Material Adverse Effect.  Schedule 7.01 is an accurate corporate organizational chart of Borrowers and their Subsidiaries and shows the ownership of all Equity Interests in such Persons.

Section 7.02         Authority; Enforceability.  The Transactions to be entered into by each Loan Party are within such Loan Party’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder or member action (including, without limitation, any action required to be taken by any class of directors of such Loan Party or any other Person, whether interested or disinterested, in order to ensure the due authorization of the Transactions).  Each Loan Document to which any Loan Party is a party has been duly executed and delivered by such Loan Party and constitutes a legal, valid and binding obligation of such Loan Party enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

Section 7.03         Approvals; No Conflicts.  The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including members, shareholders or any class of directors,

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whether interested or disinterested, of any Loan Party or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of any Loan Document or the consummation of the transactions contemplated thereby, except such as have been obtained or made and are in full force and effect other than (i) the recording and filing of any Security Instruments as required by the Loan Documents and (ii) those third party approvals or consents which, if not made or obtained, would not cause a Default hereunder, could not reasonably be expected to have a Material Adverse Effect or do not have an adverse effect on the enforceability of the Loan Documents, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of any Co-Borrower or any Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Co-Borrower or any Subsidiary or its Properties, or give rise to a right thereunder to require any payment to be made by any Co-Borrower or such Subsidiary and (d) will not result in the creation or imposition of any Lien on any Property of any Co-Borrower or any Subsidiary (other than the Liens created by the Loan Documents).

Section 7.04         Financial Condition; No Material Adverse Change.

(a)           Sanchez has heretofore furnished to the Lenders its (i) audited consolidated balance sheet and statement of income, stockholders equity and cash flows as of and for the fiscal year ended December 31, 2012, all reported on by BDO USA, LLP and (ii) unaudited consolidated balance sheet and statements of income, stockholders equity and cash flows as of and for the fiscal quarter and the portion of the fiscal year ended March 31, 2013, certified by a Financial Officer.  Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Sanchez and its Consolidated Subsidiaries (including the other Co-Borrowers) as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the unaudited quarterly financial statements.

(b)           Since March 31, 2013, (i) there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect and (ii) the business of the Borrowers and their Subsidiaries has been conducted only in the ordinary course consistent with past business practices.

(c)           Neither the Borrowers nor any of their respective Subsidiaries has incurred, created, assumed or suffered to exist any Debt except as permitted by Section 9.02.

Section 7.05         Litigation.

(a)           Except as set forth on Schedule 7.05, there are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrowers, threatened in writing against or affecting any Co-Borrower or any Subsidiary (i) as to which there is a reasonable possibility of an adverse determination that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan Document or the Transactions.

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(b)           Since the date of this Agreement, there has been no change in the status of the matters disclosed in Schedule 7.05 that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

Section 7.06         Environmental Matters.  Except as could not reasonably be expected to have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect), to the knowledge of Borrowers:

(a)           neither any Property of any Co-Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws.

(b)           no Property of any Co-Borrower or any Subsidiary nor the operations currently conducted thereon or by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws.

(c)           all Environmental Permits, if any, required to be obtained or filed in connection with the operation or use of any and all Property of each Co-Borrower and each Subsidiary, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance, oil and gas waste or solid waste into the environment, have been duly obtained or filed, and each Co-Borrower and each Subsidiary are in compliance with the terms and conditions of all such Environmental Permits.

(d)           all hazardous substances, solid waste and oil and gas waste, if any, generated at any and all Property of the Borrowers or any Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws.

(e)           each Co-Borrower has taken all steps reasonably necessary to determine and has determined that no oil, hazardous substances, solid waste or oil and gas waste, have been disposed of or otherwise released and there has been no threatened Release of any oil, hazardous substances, solid waste or oil and gas waste on or to any Property of such Co-Borrower or any Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment.

(f)            to the extent applicable, all Property of the Borrowers and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA, and the Borrowers do not have any reason to believe that such Property, to the extent subject to the

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OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement.

(g)           neither the Borrowers nor any Subsidiary has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil, hazardous substance, solid waste or oil and gas waste into the environment.

Section 7.07         Compliance with the Laws and Agreements; No Defaults.  Except as could not be reasonably be expected to have a Material Adverse Effect:

(a)           Each of the Co-Borrowers and each Subsidiary is in compliance with all Governmental Requirements applicable to it or its Property and all agreements and other instruments binding upon it or its Property, and possesses all licenses, permits, franchises, exemptions, approvals and other governmental authorizations (other than Environmental Permits) necessary for the ownership of its Property and the conduct of its business, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect;

(b)           Neither the Borrowers nor any Subsidiary are in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default or would require the Borrowers or a Subsidiary to Redeem or make any offer to Redeem under any indenture, note, credit agreement or instrument pursuant to which any Material Indebtedness is outstanding or by which the Borrowers or any Subsidiary or any of their Properties is bound; and

(c)           No Default has occurred and is continuing.

Section 7.08         Investment Company Act.  Neither the Borrowers nor any Subsidiary is an “investment company” or a company “controlled” by an “investment company,” within the meaning of, or subject to regulation under, the Investment Company Act.

Section 7.09         Taxes.  Each of the Borrowers and its respective Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrowers or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.  The charges, accruals and reserves on the books of the Borrowers and their Subsidiaries in respect of Taxes and other governmental charges are, in the reasonable opinion of the Borrowers, adequate.  No Tax Lien relating to Taxes described in the first sentence of this Section 7.09 has been filed and, to the knowledge of the Borrowers, no claim is being asserted with respect to any such Tax or other such governmental charge.

Section 7.10         ERISA.  No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.  The present value of all accumulated benefit obligations under each Plan (based on the assumptions

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used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $1,000,000.00 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $1,000,000.00 the fair market value of the assets of all such underfunded Plans.

Section 7.11         Disclosure; No Material Misstatements.  The Borrowers have disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which they or any of their Subsidiaries is subject, and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  To the knowledge of Borrowers, taken as a whole, none of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrowers or any Subsidiary to the Administrative Agent or any Lender or any of their Affiliates in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contains 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, prospect information, geological and geophysical data and engineering projections, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.  To the knowledge of Borrowers there is no fact peculiar to the Borrowers or any Subsidiary which could reasonably be expected to have a Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and statements furnished to the Administrative Agent or the Lenders by or on behalf of the Borrowers or any Subsidiary prior to, or on, the date hereof in connection with the transactions contemplated hereby.  There are no statements or conclusions known to the Borrowers in the Eagle Ford Acquisition Reserve Report or any Reserve 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 the Eagle Ford Acquisition Reserve Report and each Reserve Report are necessarily based upon professional opinions, estimates and projections and that the Borrowers and the Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove to have been accurate.

Section 7.12         Insurance.  The Borrowers have, and have caused all their respective Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with all material Governmental Requirements and all material agreements and (b) insurance coverage in at least amounts and against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and operations of the Borrowers and their respective Subsidiaries.  The Administrative Agent and the Lenders have been named as additional insureds in respect of such

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liability insurance policies and the Administrative Agent has been named as loss payee with respect to Property loss insurance.

Section 7.13         Restriction on Liens.  Neither the Borrowers nor any of the Restricted Subsidiaries is a party to any material agreement or arrangement, or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Administrative Agent and the Lenders on or in respect of their Properties to secure the Obligations and the Loan Documents.

Section 7.14         Subsidiaries.  Schedule 7.14 sets forth the name of, and the ownership interest of each Co-Borrower in, each Subsidiary of such Co-Borrower.  As of the Effective Date there are no Unrestricted Subsidiaries other than SN Midstream, LLC, a Delaware limited liability company.

Section 7.15         Location of Business and Offices. The jurisdiction of organization of each Co-Borrower other than SN Cotulla is Delaware; the jurisdiction of organization of SN Cotulla is Texas; the names of the Borrowers as listed in the public records of Delaware or Texas, as applicable, are Sanchez Energy Corporation, SEP Holdings III, LLC, SN Marquis LLC and SN Cotulla Assets, LLC; and the organizational identification number of the Borrowers (other than SN Cotulla) in Delaware are 5027889, 5027789 and 5061848, respectively (or, in each case, as set forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(j) in accordance with Section 12.01).  Each Subsidiary’s jurisdiction of organization, name as listed in the public records of its jurisdiction of organization and organizational identification number in its jurisdiction of organization is stated on Schedule 7.14 (or as set forth in a notice delivered pursuant to Section 8.01(j)).

Section 7.16         Properties; Titles, Etc.

(a)           Except as disclosed in Schedule 7.16, each of the Borrowers and the Restricted Subsidiaries has good and defensible title to the proved Oil and Gas Properties evaluated in the Eagle Ford Acquisition Reserve Report and most recently delivered Reserve Report (excluding, to the extent this representation and warranty is deemed to be made after the Effective Date, any such Oil and Gas Properties sold or transferred in compliance with Section 9.11) and good title to all its personal Properties, in each case, free and clear of all Liens except Liens permitted by Section 9.03.  After giving full effect to the Excepted Liens, each Co-Borrower or the Restricted Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the Eagle Ford Acquisition Reserve Report and most recently delivered Reserve Report, and the ownership of such Properties shall not in any material respect obligate such Co-Borrower or such Restricted Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the Eagle Ford Acquisition Reserve Report and most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower’s or such Restricted Subsidiary’s net revenue interest in such Property.

(b)           All material leases and agreements necessary for the conduct of the business of the Borrowers and the Subsidiaries are valid and subsisting, in full force and effect, and there

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exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or agreement, which could reasonably be expected to result in a Material Adverse Effect.

(c)           The rights and Properties presently owned, leased or licensed by the Borrowers and the Subsidiaries including, without limitation, all easements and rights of way, include all rights and Properties necessary to permit the Borrowers and their Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the date hereof.

(d)           All of the material Properties of the Borrowers and their Subsidiaries which are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards.

(e)           Each Co-Borrower and each Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual Property material to its business, and the use thereof by such Co-Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.  Each Co-Borrower and its Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as could not reasonably be expected to have a Material Adverse Effect.

Section 7.17         Maintenance of Properties.  Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and Properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all Government Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties.  Specifically in connection with the foregoing, except for those as could not be reasonably expected to have a Material Adverse Effect, (a) no Oil and Gas Property is subject to having allowable production 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) and (b) to the knowledge of Borrowers,  none of the wells comprising a part of the Oil and Gas Properties (or Properties unitized therewith) is deviated from the vertical more than the maximum permitted by Government Requirements, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on Properties unitized therewith, such unitized Properties).  All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by a Co-Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing that are operated by such Co-Borrower or any of its Subsidiaries, in a manner consistent with such Co-

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Borrower’s or its Subsidiaries’ past practices (other than those the failure of which to maintain in accordance with this Section 7.17 could not reasonably be expect to have a Material Adverse Effect).

Section 7.18         Gas Imbalances, Prepayments.  As of the date hereof, except as set forth on Schedule 7.18 or on the most recent certificate delivered pursuant to Section 8.12(c), on a net basis there are no gas imbalances, take or pay or other prepayments which would require any Co-Borrower or any of the Restricted Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor.

Section 7.19         Marketing of Production.  Except for contracts listed and in effect on the date hereof on Schedule 7.19, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report (with respect to all of which contracts each Co-Borrower represents that it or its Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property’s delivery capacity), no material agreements exist which are not cancelable on 60 days’ notice or less without penalty or detriment for the sale of production from such Co-Borrower’s or the Restricted Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer than six (6) months from the date hereof.

Section 7.20         Swap Agreements.  Schedule 7.20, as of the date hereof, and after the date hereof, each report required to be delivered by the Borrowers pursuant to Section 8.01(d), sets forth, a true and complete list of all Swap Agreements of the Borrowers and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement.

Section 7.21         Use of Loans and Letters of Credit.  The proceeds of the Loans and the Letters of Credit shall be used to (i) refinance Debt existing under the Original Credit Agreement, (ii) pay fees, commissions and expenses in connection with the refinancing of the Debt existing under the Original Credit Agreement, (iii) finance working capital requirements and other general corporate purposes (including financing the Eagle Ford Acquisition, other acquisitions and the development of the Borrowers’ and the other Loan Parties’ oil and gas assets and making Investments permitted under Section 9.05) but repayment of the Second Lien Loan with proceeds of the Loans or Letters of Credit is prohibited.  The Borrowers and their respective Subsidiaries are not engaged principally, or as one of their important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board).  No part of the proceeds of any Loan or Letter of Credit will be used for any purpose which violates the provisions of Regulations T, U or X of the Board.

Section 7.22         Solvency.  Before and after giving effect to the Transactions, (a) the aggregate assets, at a fair valuation, of the Borrowers and their Subsidiaries, taken as a whole, will exceed the aggregate debt of the Borrowers on a consolidated basis, (b) none of the

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Borrowers nor any Subsidiary has incurred, or has intended to incur, debt beyond its ability to pay such debt as such debt matures and (c) none of the Borrowers nor any Subsidiary will have (nor will have any reason to believe that it will have thereafter) unreasonably small capital for the conduct of its business as such business is now conducted and is now proposed to be conducted following the date hereof.  For purposes of this section, “debt” shall have the meaning given such term under the U.S. Bankruptcy Code.

Section 7.23         Foreign Corrupt Practices.  Neither, the Borrowers nor any of their Subsidiaries, nor any director, officer, agent, employee or Affiliate of the Borrowers or any of their Subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a material violation by such Persons of the FCPA, including without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA; and, the Borrowers, their Subsidiaries and their respective Affiliates have conducted their business in material compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.

Section 7.24         Money Laundering.  The operations of the Borrowers and their Subsidiaries are and have been conducted at all times in material compliance with applicable financial recordkeeping and reporting requirements of the money laundering laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Borrowers or any of their Subsidiaries with respect to the money laundering laws is pending or, to the best knowledge of the Borrowers, threatened.

Section 7.25         OFAC.  Neither the Borrowers nor any of their Subsidiaries, nor any director, officer, agent, employee or Affiliate of the Borrowers or any of their Subsidiaries is currently subject to any material U.S. sanctions administered by OFAC, and the Borrowers will not directly or indirectly use the proceeds from the Loans or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person, for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.

Section 7.26         Purchaser of Production.  Schedule 7.26 sets forth a complete and correct list of all of the Persons that are purchasers of not less than eighty-five percent (85%) of the production from the Mortgaged Properties (or otherwise receiving Borrowers’ share of proceeds of such production), as of the date hereof, together with their addresses and other relevant information.

Section 7.27         Eagle Ford Acquisition Representations. The Borrower represents and warrants to the Administrative Agent and the Lenders as of the later of the Effective Date and the date of the first Borrowing on or after the Effective Date that:

(a)           The copy of the Eagle Ford PSA previously delivered by Sanchez to the Administrative Agent is true, accurate and complete and has not been amended, modified or

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waived in any manner which would be material and adverse to the Lenders not consented to by the Arranger.

(b)           The transactions contemplated by the Eagle Ford PSA (the “Eagle Ford PSA Transactions”) to be entered into by Sanchez and/or SN Cotulla are within such Loan Party’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder or member action (including, without limitation, any action required to be taken by any class of directors of such Loan Party or any other Person, whether interested or disinterested, in order to ensure the due authorization of the Eagle Ford PSA Transactions).

(c)           No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is necessary to be obtained or made by Sanchez or any of its Subsidiaries in connection with Sanchez’s and/or SN Cotulla’s execution, delivery and performance of the Eagle Ford PSA or the consummation by Sanchez and/or SN Cotulla of the Eagle Ford PSA Transactions, except for (i) consents, approvals and governmental filings that have been made or obtained and (ii) such governmental consents, qualifications or filings as are customarily obtained or made following the transfer of interests in oil and gas properties, except in each case where the failure to obtain or take such actions, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.

ARTICLE VIII

AFFIRMATIVE COVENANTS

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrowers covenant and agree with the Lenders that:

Section 8.01         Financial Statements; Ratings Change; Other Information.  The Borrowers will furnish to the Administrative Agent and each Lender:

(a)           Annual Financial Statements.  As soon as available, but in any event in accordance with then applicable law and not later than one hundred and twenty (120) days after the end of each fiscal year of Sanchez, its audited consolidated (and, if there are any Unrestricted Subsidiaries, consolidating) balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by BDO USA, LLP or another firm of independent public accountants proposed by Sanchez and approved by the Administrative Agent (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of Sanchez and its Consolidated Subsidiaries (including the other Borrowers) on a consolidated basis in accordance with GAAP consistently applied.

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(b)           Quarterly Financial Statements.  As soon as available, but in any event in accordance with then applicable law and not later than forty-five (45) days after the end of each fiscal quarters of each fiscal year of Sanchez, its consolidated (and, if there are any Unrestricted Subsidiaries, consolidating) balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of Sanchez and its Consolidated Subsidiaries (including the other Borrowers) on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes.

(c)           Certificate of Financial Officer — Compliance.  Concurrently with any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer of each Co-Borrower in substantially the form of Exhibit D hereto (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 8.13(b) and Section 9.01 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 7.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate.

(d)           Certificate of Financial Officer — Swap Agreements.  Concurrently with the delivery of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer of each Co-Borrower, in form and substance reasonably satisfactory to the Administrative Agent, setting forth as of a recent date, a true and complete list of all Swap Agreements of such Co-Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.20, any margin required or supplied under any credit support document, and the counterparty to each such agreement.

(e)           Certificate of Insurer — Insurance Coverage.  Concurrently with any delivery of financial statements under Section 8.01(a), a certificate of insurance coverage from each insurer with respect to the insurance required by Section 8.07, in form and substance satisfactory to the Administrative Agent, and, if requested by the Administrative Agent or any Lender, all copies of the applicable policies.

(f)            Other Accounting Reports.  Promptly upon receipt thereof, a copy of each other report or letter (except standard and customary correspondence) submitted to any Co-Borrower or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit made by them of the books of such Co-Borrower or any such Subsidiary, and a copy of any response by any Co-Borrower or any such Subsidiary, or the Board of Directors of such Co-Borrower or any such Subsidiary, to such letter or report.

(g)           SEC and Other Filings; Reports to Shareholders.  Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials

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filed by any Co-Borrower or any Subsidiary with the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be.

(h)           Lists of Purchasers.  Concurrently with the delivery of any Reserve Report to the Administrative Agent pursuant to Section 8.12, a list of Persons purchasing Hydrocarbons from any Co-Borrower or any Subsidiary accounting for at least eighty percent (80%) of the revenues resulting from the sale of all Hydrocarbons in the one year period prior to the “as of” date of such Reserve Report.

(i)            Notice of Casualty Events.  Prompt written notice, and in any event within five (5) Business Days, of the occurrence of any Casualty Event or the commencement of any action or proceeding that could reasonably be expected to result in a Casualty Event.

(j)            Information Regarding the Loan Parties.  Prompt written notice (and in any event within ten (10) Business Days prior thereto) of any change (i) in any Loan Party’s corporate name or in any trade name used to identify any Co-Borrower in the conduct of its business or in the ownership of its Properties, (ii) in any Loan Party’s identity or corporate structure or in the jurisdiction in which such Loan Party is incorporated or formed, (iii) in any Loan Party’s jurisdiction of organization or any Loan Party’s organizational identification number in such jurisdiction of organization, and (iv) in any Loan Party’s federal taxpayer identification number.

(k)           Production Report and Lease Operating Statements.  Within forty-five (45) days after the end of each fiscal quarter, a report setting forth, for each calendar month during the then current fiscal year to date, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such calendar month from the Oil and Gas Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such calendar month, all certified by a Responsible Officer of each Co-Borrower as presenting fairly in all respects the information contained therein, and to the extent applicable, all based on the actual lease operating statements for such Oil and Gas Properties.

(l)            Notices of Certain Changes.  Promptly, but in any event within five (5) Business Days after the execution thereof, copies of any amendment, modification or supplement to (i) the certificate or articles of incorporation, by-laws, any preferred stock designation or any other organizational document of any Co-Borrower or any Subsidiary, (ii) the Intercreditor Agreement or (iii) any Second Lien Loan Documents.

(m)          Other Requested Information.  Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrowers or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA), or compliance with the terms of this Agreement or any other Loan Document, as the Administrative Agent or any Lender may reasonably request.

Section 8.02         Notices of Material Events.  Promptly, and in any event within five (5) Business Days after any Responsible Officer of a Co-Borrower obtains knowledge thereof, such Co-Borrower will furnish to the Administrative Agent written notice of the following:

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(a)           the occurrence of any Default or any “Default” under and as defined in the Second Lien Loan Documents;

(b)           the filing or commencement of, or the threat in writing of, any action, suit, proceeding, investigation or arbitration by or before any arbitrator or Governmental Authority against any Co-Borrower or any Affiliate thereof not previously disclosed in writing to the Lenders or any material adverse development in any action, suit, proceeding, investigation or arbitration previously disclosed to the Lenders that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(c)           the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; and

(d)           any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer of such Co-Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 8.03         Existence; Conduct of Business.  The Borrowers will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business and maintain, if necessary, its qualification to do business in each other jurisdiction in which its Oil and Gas Properties are located or the ownership of its Properties requires such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.10.

Section 8.04         Payment of Obligations.  The Borrowers will, and will cause each Subsidiary to, pay its obligations, including Tax liabilities of the Borrowers and all of its Subsidiaries before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings and each Co-Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (b) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect or result in the seizure or levy of any material Property of any Co-Borrower or any Subsidiary.

Section 8.05         Performance of Obligations under Loan Documents.  The Borrowers will pay the Loans and the Notes according to the reading, tenor and effect thereof, and the Borrowers will, and will cause each Subsidiary to, do and perform every act and discharge all of the obligations to be performed and discharged by them under the Loan Documents, including, without limitation, this Agreement, at the time or times and in the manner specified.

Section 8.06         Operation and Maintenance of Properties.  Each Co-Borrower, at its own expense, will, and will cause each Subsidiary to:

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(a)           operate its Oil and Gas Properties and other material Properties or cause such Oil and Gas Properties and other material Properties to be operated in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including, without limitation, applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom.

(b)           keep and maintain all Property material to the conduct of its business in good working order and condition (ordinary wear and tear and economic obsolescence excepted), preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear and economic obsolescence excepted) all of its material Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery and facilities.

(c)           promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and obligations accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder.

(d)           promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil and Gas Properties which are necessary for the operation of their business and ownership of its Oil and Gas Properties and other material Properties.

(e)           operate its Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other material Properties to be operated in accordance with the practices of the industry and in material compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements.

(f)            notwithstanding anything to the contrary in this Section 8.06, to the extent any Co-Borrower or one of its Subsidiaries is not the operator of any Property, such Co-Borrower shall not be obligated itself to perform or cause any of its Subsidiaries to perform the covenants in this Section 8.06, but shall use reasonable efforts to cause the operator to comply with this Section 8.06.

(g)           notwithstanding anything to the contrary in this Section 8.06, the Borrowers and their Subsidiaries shall not be required to maintain any lease or interest which is no longer capable of producing Hydrocarbons in paying quantities.

Section 8.07         Insurance.  The Borrowers will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.  The loss payable clauses or

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provisions in said insurance policy or policies insuring any of the Collateral for the Loans shall be endorsed in favor of and made payable to the Administrative Agent as its interests may appear and such policies shall name the Administrative Agent and the Lenders as “additional insureds” and provide that the insurer will endeavor to give at least 30 days prior notice of any cancellation to the Administrative Agent.

Section 8.08         Books and Records; Inspection Rights.  The Borrowers will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities.  The Borrowers will, and will cause each Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested on an individual and aggregate basis.

Section 8.09         Compliance with Laws.  The Borrowers will, and will cause each Subsidiary to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to them or their Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 8.10         Environmental Matters.

(a)           The Borrowers shall at their sole expense: (i) comply, and shall cause their Properties and operations and each Subsidiary and each Subsidiary’s Properties and operations to comply, with all applicable Environmental Laws, the breach of which could be reasonably expected to have a Material Adverse Effect; (ii) not dispose of or otherwise Release, and shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any of the Borrowers’ or their Subsidiaries’ Properties or any other Property to the extent caused by any Co-Borrower’s or any of its Subsidiaries’ operations except in compliance with applicable Environmental Laws, the disposal or Release of which could reasonably be expected to have a Material Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all Environmental Permits, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of any Co-Borrower’s or its Subsidiaries’ Properties, which failure to obtain or file could reasonably be expected to have a Material Adverse Effect; (iv) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the “Remedial Work”) in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in connection with the actual or suspected past, present or future Release or threatened Release of any Hazardous Material on, under, about or from any of the Borrowers’ or their Subsidiaries’ Properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; (v) conduct, and cause each Subsidiary to conduct their respective operations and business in a manner that will not expose any Property or Person to Hazardous Materials in circumstances that could reasonably be

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expected to form the basis for a claim for damages or compensation; and (vi) establish and implement, and shall cause each Subsidiary to establish and implement, such reasonable procedures as may be necessary to assure that the Borrowers’ and their Subsidiaries’ obligations under this Section 8.10(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect.  To the extent that the Borrowers or one of their Subsidiaries is not the operator of any Property, the Borrowers shall use reasonable efforts to cause the operator to comply with this Section 8.10(a).

(b)           The Borrowers will promptly, but in no event later than five (5) Business Days of the occurrence of a triggering event, notify the Administrative Agent in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner or other third party against the Borrowers or their Subsidiaries or their Properties of which the Borrowers have knowledge in connection with any applicable Environmental Laws (excluding routine testing and corrective action) if the Borrowers reasonably anticipate that such action could reasonably result in a Material Adverse Effect.

(c)           The Borrowers will, and will cause each Subsidiary to, provide environmental assessments, audits and tests in accordance with the most current version of the American Society of Testing Materials standards upon request by the Administrative Agent and the Lenders and no more than once per year in the absence of any Event of Default (or as otherwise required to be obtained by the Administrative Agent or the Lenders by any Governmental Authority), in connection with any material acquisitions of producing Oil and Gas Properties after the date hereof.

Section 8.11         Further Assurances.

(a)           Each Co-Borrower at its sole expense will, and will cause each Subsidiary to, promptly execute and deliver to the Administrative Agent all such other documents, agreements and instruments reasonably requested by the Administrative Agent to comply with, cure any defects or accomplish the conditions precedent, covenants and agreements of such Co-Borrower or any Subsidiary, as the case may be, in the Loan Documents, including the Notes, or to further evidence and more fully describe the Collateral intended as security for the Obligations, or to correct any omissions in this Agreement or the Security Instruments, or to state more fully the obligations secured therein, or to perfect, protect or preserve any Liens created pursuant to this Agreement or any of the Security Instruments or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate, in the sole discretion of the Administrative Agent, in connection therewith.

(b)           The Borrowers hereby authorize the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property.  A carbon, photographic or other reproduction of the Security Instruments or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

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Section 8.12         Reserve Reports.

(a)

(i)            Before September 1, 2013, November 15, 2013, and March 1, 2014, the Borrowers shall furnish to the Administrative Agent and the Lenders a Reserve Report evaluating the Oil and Gas Properties of the Borrowers and their Subsidiaries as of the preceding June 30, 2013 (or July 1, 2013), in the case of the Reserve Report required to be delivered by September 1, 2013, as of the preceding September 30, 2013 (or October 1, 2013), in the case of the Reserve Report required to be delivered by November 15, 2013, and as of the preceding December 31, 2013 (or January 1, 2014), in the case of the Reserve Report required to be delivered by March 1, 2014.  The Reserve Reports required to be delivered on or before September 1, 2013 and March 1, 2014 shall be prepared by one or more Approved Petroleum Engineers, and the Reserve Report required to be delivered on or before November 15, 2013 shall be prepared by or under the supervision of the chief engineer of the Borrowers.

(ii)           Commencing with the Reserve Report required to be delivered by September 1, 2014 and thereafter semi-annually on each March 1st and September 1st of each year, the Borrowers shall furnish to the Administrative Agent and the Lenders a Reserve Report evaluating the Oil and Gas Properties of the Borrowers and their Subsidiaries as of the immediately preceding December 31st (or January 1st) and June 30th (or July 1st), as applicable.  The Reserve Report required to be delivered on or before March 1st of each year shall be prepared by one or more Approved Petroleum Engineers, and the Reserve Report required to be delivered on or before September 1st of each year shall be prepared by or under the supervision of the chief engineer of the Borrowers.

(iii)          For each Reserve Report prepared pursuant to clauses (i) and (ii) above, the chief engineer of each Co-Borrower shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding  Reserve Report.

(b)           In the event of an Interim Redetermination, the Borrowers shall furnish to the Administrative Agent and the Lenders a Reserve Report prepared by or under the supervision of the chief engineer of the Borrowers who shall certify such Reserve Report to be to be true and accurate and to have been prepared in accordance with the procedures used in the most recently delivered Reserve Report prepared by an Approved Petroleum Engineer.  For any Interim Redetermination requested by the Administrative Agent or the Borrowers pursuant to Section 2.07(b), the Borrowers shall provide such Reserve Report with an “as of” date as required by the Administrative Agent as soon as possible, but in any event no later than forty-five (45) days following the receipt of such request.

(c)           With the delivery of each Reserve Report, the Borrowers shall provide to the Administrative Agent and the Lenders a certificate from a Responsible Officer from each Co-Borrower certifying that in all material respects: (i) the information contained in the Reserve Report and any other information delivered in connection therewith is true and correct, (ii) the Borrowers or their Subsidiaries owns good and defensible title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.18 with respect to its Oil and Gas Properties evaluated in such Reserve Report

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which would require the Borrowers or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) none of the Borrowers’ and their Subsidiaries’ Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, which certificate shall list all of its proved Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent, (v) attached to the certificate is a list of all marketing agreements entered into subsequent to the later of the date hereof or the most recently delivered Reserve Report which the Borrowers could reasonably be expected to have been obligated to list on Schedule 7.19 had such agreement been in effect on the date hereof and (vi) attached thereto is a schedule of the Oil and Gas Properties evaluated by such Reserve Report that are Collateral and that the Engineered Value of such Oil and Gas Properties represents at least eighty percent (80%) (by value) of the proved Oil and Gas Properties of the Loan Parties evaluated in the Reserve Report delivered to the Administrative Agent most recently prior to the Reserve Report attached to such certificate.

Section 8.13         Title Information.

(a)           On or before the delivery to the Administrative Agent and the Lenders of each Reserve Report required by Section 8.12(a), the Borrowers will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together with title information previously delivered, satisfactory title information on at least eighty percent  (80%) of the Engineered Value of the proved Oil and Gas Properties evaluated by such Reserve Report.

(b)           If the Borrowers have provided title information for additional Properties under Section 8.13(a), the Borrowers shall, within sixty (60) days of notice from the Administrative Agent that title defects or exceptions exist with respect to such additional Properties, either (i) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 9.03 raised by such information, (ii) substitute acceptable Collateral which constitutes Oil and Gas Properties and with no title defects or exceptions except for the Second Lien and Excepted Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such definition) having an equivalent value or (iii) deliver title information in form and substance acceptable to the Administrative Agent so that they shall have received, together with title information previously delivered, satisfactory title information on at least eighty percent (80%) of the value of the proved Oil and Gas Properties evaluated by such Reserve Report.

(c)           If the Borrowers are unable to cure any title defect requested by the Administrative Agent or Lenders to be cured within the 60-day period or the Borrowers do not comply with the requirements to provide acceptable title information covering eighty percent (80%) of the value of the proved Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but instead the Administrative Agent and/or the Required Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative Agent or the Lenders.  To the extent that the Administrative Agent or the Required Lenders are not satisfied with title to any Mortgaged

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Property after the 60-day period has elapsed, such unacceptable Mortgaged Property shall not count towards the eighty percent (80%) requirement, and the Administrative Agent may send a notice to the Borrowers and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by the Required Lenders to cause the Borrowers to be in compliance with the requirement to provide acceptable title information on eighty percent (80%) of the value of the proved Oil and Gas Properties.  This new Borrowing Base shall become effective immediately after receipt of such notice.

Section 8.14         Additional Collateral.  In connection with each redetermination of the Borrowing Base, the Borrowers shall review the Reserve Report and the list of current Mortgaged Properties (as described in Section 8.12(c)) to ascertain whether the Mortgaged Properties represent at least eighty percent (80%) of the Engineered Value of the proved Oil and Gas Properties owned by Borrowers and the Restricted Subsidiaries and evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production.  In the event that the Mortgaged Properties do not represent at least eighty percent (80%) of such Engineered Value, then the Borrowers shall, and shall cause its Restricted Subsidiaries to, grant, within thirty (30) days of delivery of the certificate required under Section 8.12(c) to the Administrative Agent as security for the Obligations a first-priority Lien interest (subject only to Excepted Liens of the type described in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition) on additional Oil and Gas Properties not already subject to a Lien of the Security Instruments such that after giving effect thereto, the Mortgaged Properties will represent at least eighty percent (80%) of such Engineered Value.  All such Liens will be created and perfected by and in accordance with the provisions of mortgages, deeds of trust, security agreements and financing statements or other Security Instruments, all in form and substance satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes.

Section 8.15         ERISA Compliance.  In addition to and without limiting the generality of Section 8.09, the Borrowers shall and shall cause each of their respective Subsidiaries to (a) comply in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all employee benefit plans (as defined in ERISA), (b) not take any action or fail to take action the result of which could be (i) a liability to the PBGC (other than liability for PBGC premiums) or (ii) a past due liability to any Multiemployer Plan, (c) not participate in any prohibited transaction that could result in any material civil penalty under ERISA or any tax under the Code, (d) operate each employee benefit plan in such a manner that will not incur any material tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code except to the extent such failure to comply could not reasonably be expected to have Material Adverse Effect and (e) furnish to the Administrative Agent upon the Administrative Agent’s request such additional information about any employee benefit plan as may be reasonably requested by the Administrative Agent.

Section 8.16         New Subsidiary Requirements.

(a) If either a Domestic Subsidiary that is not a Loan Party on the Effective Date shall be formed or acquired and not be designated an Unrestricted Subsidiary at the time such Domestic

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Subsidiary is formed or acquired, or an Unrestricted Subsidiary that is a Domestic Subsidiary shall fail to satisfy the requirements of an Unrestricted Subsidiary, then within 30 days after such event giving rise to a new Restricted Subsidiary the relevant Co-Borrower shall cause to be delivered to the Administrative Agent for the benefit of the Lenders, (i) a Guaranty and a Joinder with respect to the Security Agreement executed by such Restricted Subsidiary, (ii) all documents and instruments, including UCC Financing Statements (Form UCC-1), required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the Liens intended to be created under such Security Agreement and to include the Equity Interests of such Domestic Subsidiary as additional Collateral pledged by the owner thereof pursuant to the Security Agreement, (iii) UCC searches, all dated within 15 days of the date of the Joinder and in form and substance satisfactory to the Administrative Agent, and evidence reasonably satisfactory to the Administrative Agent that any Liens indicated in such UCC searches are Excepted Liens, the Second Lien or have been released, (iv) the corporate resolutions or similar approval documents of such Restricted Subsidiary approving the execution and delivery of the Joinder by such Restricted Subsidiary, (v) the corporate resolutions or similar approval documents of such Co-Borrower or other Loan Party approving the addition of the Equity Interests in such Restricted Subsidiary to the collateral pledged under the Security Agreement by such Co-Borrower or other Loan Party, and (vi) if requested, a legal opinion acceptable to the Administrative Agent, opining favorably on the execution, delivery and enforceability of the Joinder and otherwise being in form and substance reasonably satisfactory to the Administrative Agent; provided, that until the requirements of clauses (i) through (vi) shall be met to the reasonable satisfaction of the Administrative Agent, no Loan Party shall advance or contribute any amounts or Property to such Domestic Subsidiary (other than minimum organizational costs such as filing fees).

(b)           Within 30 days after the acquisition or formation of any Domestic Subsidiary which is to be an Unrestricted Subsidiary by any Loan Party and prior to such Loan Party’s advancing or contributing any amounts to or into such Unrestricted Subsidiary (other than minimum organizational costs such as filing fees), such Loan Party shall cause to be delivered to the Administrative Agent for the benefit of the Lenders (i) the corporate resolutions or similar approval documents of such Loan Party approving the addition of the Equity Interests in such Unrestricted Subsidiary to the collateral pledged under the Security Agreement by such Loan Party, (ii) a certificate certifying that such Subsidiary meets the requirements set forth in the definition of “Unrestricted Subsidiary”, and (iii) all documents and instruments, including UCC Financing Statements (Form UCC-1), required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the Liens in the Equity Interests of such Domestic Subsidiary as additional Collateral pledged by the owner thereof pursuant to the Security Agreement; provided, that until the requirements of clauses (i) through (iii) shall be met to the reasonable satisfaction of the Administrative Agent, no Loan Party shall advance or contribute any amounts or Property to such Domestic Subsidiary (other than minimum organizational costs such as filing fees).

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ARTICLE IX

NEGATIVE COVENANTS

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrowers covenant and agree with the Lenders that:

Section 9.01         Financial Covenants.

(a)           Current Ratio.  The Borrowers will not permit, at any time, its ratio of (i) consolidated current assets of the Borrowers and the Restricted Subsidiaries (including the unused amount of the total Commitments, but excluding non-cash assets under FAS 133) to (ii) consolidated current liabilities of the Borrowers and the Restricted Subsidiaries (excluding outstanding Obligations hereunder and non-cash obligations under FAS 133) to be less than 1.0 to 1.0.

(b)           Total Leverage Ratio.  The Borrowers will not permit, as of the last day of any fiscal quarter, the ratio of (i) total Debt of the Borrowers and the Restricted Subsidiaries as of such date minus Unrestricted Cash to (ii) Consolidated EBITDA of the Borrowers and the Restricted Subsidiaries for the Rolling Period ending on such day (or, in the case of any such Rolling Period ending before June 30, 2014, Annualized Consolidated EBITDA for such Rolling Period) to exceed 4.0 to 1.0.

Section 9.02         Debt.  The Borrowers will not, and will not permit any Restricted Subsidiary to, incur, create, assume or suffer to exist any Debt, except:

(a)           the Notes or other Obligations arising under the Loan Documents or any guaranty of or suretyship arrangement for the Notes or other Obligations arising under the Loan Documents;

(b)

(i)            Debt of Borrowers and their respective Subsidiaries with respect to the Second Lien Loan; provided that (A) the principal amount outstanding under Tranche A (as defined in the Second Lien Loan Documents) of the Second Lien Loan, shall not, at any time, exceed $50,000,000 and (B) Borrowers shall not borrow any funds under Tranche B (as defined in the Second Lien Loan Documents) of the Second Lien Loan without the prior written consent of the Administrative Agent and the Required Lenders (which consent shall not be unreasonably withheld or delayed); provided the Borrowing Base shall be adjusted as of the date the outstanding principal balance of the Second Lien Loan exceeds $50,000,000 by the Issuance Related Borrowing Base Adjustment Amount and if the total Credit Exposures exceeds the Borrowing Base as adjusted, the Borrowers shall comply with Section 3.04(c)(i);

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(ii)           Debt of Sanchez and its Subsidiaries with respect to the Bridge Loan; provided that (A) the principal amount outstanding under the Bridge Loan, shall not, at any time, exceed $150,000,000, (B) the Bridge Loan is unsecured, (C) the proceeds of the Bridge Loan are used to prepay first, the Second Lien Loan in full, and second, to finance general corporate purposes including financing the Acquisition and related transaction costs, (D) the Bridge Loan will not be funded if at least $150,000,000 of Senior Unsecured Notes have been issued and (E) the Borrowing Base shall be adjusted as of the date of the funding of the Bridge Loan by the Issuance Related Borrowing Base Adjustment Amount, if any, and if the total Credit Exposures exceeds the Borrowing Base as adjusted, the Borrowers shall comply with Section 3.04(c)(i);

(iii)          Debt of Sanchez and its Subsidiaries in connection with the extension of the maturity of the Bridge Loan by the issuance of loans (any such extended maturity Bridge Loan, an “Extended Term Loan”) or Debt of Sanchez and its Subsidiaries in connection with the refinancing of any Extended Term Loan by the issuance of notes (the “Exchange Notes”) in exchange for such Extended Term Loan, in each case in an equal principal amount as the Bridge Loan so extended or the Extended Term Loan so exchanged, subject to the proviso that the Extended Term Loan and the Exchange Notes shall also be senior unsecured Debt of Sanchez and the other Loan Parties.

(iv)          Debt of Sanchez and its Subsidiaries with respect to the Bridge Securities and Takeout Loan; provided that (A) the principal amount outstanding under the Bridge Securities and Takeout Loan, shall not, at any time, exceed the lesser of (a) if the Bridge Securities and Takeout Loan is issued in lieu of the Bridge Loan, $150,000,000 and (b) the outstanding principal amount of the Bridge Loan, if the Bridge Loan has been funded, (B) if secured, the Bridge Securities and Takeout Loan is secured on a second lien basis to the Lien securing the Notes and other Obligations, (C) the proceeds of the Bridge Securities and Takeout Loan are used to prepay first, the Second Lien Loan in full, if then outstanding, and second, to refinance the Bridge Loan and for general corporate purposes and related transaction costs, (D) the Bridge Securities and Takeout Loan will not be funded if at least $150,000,000 of Senior Unsecured Notes have been issued and (E) if the Borrowing Base had not previously been adjusted in connection with the Bridge Loan by the Issuance Related Borrowing Base Adjustment Amount, the Borrowing Base shall be adjusted as of the date of the funding of the Bridge Securities and Takeout Loan by the Issuance Related Borrowing Base Adjustment Amount, if any, and if the total Credit Exposures exceeds the Borrowing Base as adjusted, the Borrowers shall comply with Section 3.04(c)(i);

(v)           Debt of Borrowers and their respective Subsidiaries with respect to the Senior Unsecured Notes; provided that (A) the principal amount outstanding under the Senior Unsecured Notes, shall not, at any time, exceed $400,000,000, (B) the Senior Unsecured Notes are unsecured, (C) proceeds of the Senior Notes are used to prepay the Second Lien Loan (if then outstanding) in full or if no Second Lien Loan is then outstanding, to prepay the Bridge Loan in full and to repay other Debt of the Borrowers and to finance general corporate purposes including financing transaction costs, and (D) the Borrowing Base shall be adjusted as of the date of the issuance of the Senior Unsecured Notes by the Issuance Related Borrowing Base Adjustment Amount, if any,

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and if the total Credit Exposures exceeds the Borrowing Base as adjusted, the Borrowers shall comply with Section 3.04(c)(i);

(c)           Debt of the Borrowers and their respective Subsidiaries existing on the date hereof that is reflected in the Financial Statements and described on Schedule 9.02;

(d)           Debt associated with worker’s compensation claims, performance, bid, surety or similar bonds or surety obligations required by Governmental Requirements or third parties, including, guarantees and obligations of the Borrowers and their respective Subsidiaries with respect to letters of credit supporting such obligations (in each case other than an obligation for money borrowed), in connection with the operation of the Oil and Gas Properties in the ordinary course of business;

(e)           intercompany Debt between any Co-Borrower and any Restricted Subsidiary or between Restricted Subsidiaries to the extent permitted by Section 9.05; provided that such Debt is not held, assigned, transferred, negotiated or pledged to any Person other than such Co-Borrower or one of its Restricted Subsidiaries;

(f)            endorsements of negotiable instruments for collection in the ordinary course of business;

(g)           Debt incurred in the ordinary course of Co-Borrower’s business in connection with Swap Agreements provided they are permitted under Section 9.17 of this Agreement;

(h)           Debt in the form of guarantees and other Debt of the type described in clause (g) of the definition of debt with respect to debt permitted under this Section 9.02;

(i)            unsecured Debt not otherwise permitted by the foregoing clauses of this Section 9.02; provided that the principal amount of such Debt shall not exceed five percent (5%) of the Borrowing Base then in effect; and

(j)            refinancings, extension, renewals and refundings of Debt permitted by this Section 9.02; provided the principal amount of such Debt does not exceed the principal amount of the Debt being refinanced, extended, renewed or refunded (plus all accrued interest on such Debt and the amount of all expenses and premiums incurred in connection therewith).

Section 9.03         Liens.  The Borrowers will not, and will not permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except:

(a)           Liens securing the payment of any Obligations;

(b)           Liens securing the Second Lien Loan that are permitted by the Intercreditor Agreement (the “Second Lien”);

(c)           Excepted Liens; and

(d)           Liens described on Schedule 9.03.

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Section 9.04         Dividends, Distributions and Redemptions.  The Borrowers will not, and will not permit any Restricted Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, return any capital to its Equity Interest holders or make any distribution of its Property to its Equity Interest holders, except (a) Restricted Subsidiaries may declare and pay dividends or distributions with respect to their Equity Interests payable solely in additional Equity Interests (other than Disqualified Capital Stock), (b) each Co-Borrower or Subsidiary of a Co-Borrower may make Restricted Payments to any other Co-Borrower and to any Subsidiary of such Co-Borrower that are Guarantors, (c) payments (including the netting of Equity Interests) in connection with the satisfaction of employees’ (at any of the Borrowers, Restricted Subsidiaries or Operator) tax withholding obligations pursuant to employee benefit plans or outstanding awards (and payment of any requisite amounts to appropriate Governmental Authorities) arising out of the sale of employees’ vested stock in Sanchez, which payments are made, directly or indirectly, from the proceeds of the sale of such vested stock (or, in the case of such payments made on or before July 31, 2013, may be made with cash available from any source and need not be made, directly or indirectly, from the proceeds of the sale of such vested stock) and (d) Permitted Preferred Stock Distributions; provided, Restricted Payments made under this Section 9.04, other than (x) pursuant to clause (c) above and (y) Permitted Preferred Stock Distributions comprised solely of common stock of Sanchez, may be made only so long as no Default or Event of Default exists or will exist after giving effect to such Restricted Payment.

Section 9.05         Investments, Loans and Advances.  The Borrowers will not, and will not permit any Restricted Subsidiary to, make or permit to remain outstanding any Investments in or to any Person, except that the foregoing restriction shall not apply to:

(a)           Any Investment in (i) a Co-Borrower, (ii) any Restricted Subsidiary, or (iii) any Unrestricted Subsidiary if, after giving effect to such Investment, such Unrestricted Subsidiary becomes a Restricted Subsidiary and complies with the requirements of Section 8.16;

(b)           Investments reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.05;

(c)           accounts receivable arising in the ordinary course of business;

(d)           direct obligations of the U.S. or any agency thereof, or obligations guaranteed by the U.S. or any agency thereof, in each case maturing within one year from the date of creation thereof;

(e)           commercial paper maturing within one year from the date of creation thereof rated no lower than A1 or P1 by S&P or Moody’s;

(f)            deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the U.S. of any other bank or trust company which is organized under the laws of the U.S. or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as of the date of such bank or trust company’s most recent financial reports) and has a short term deposit rating of

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no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s, respectively;

(g)           deposits in money market funds investing primarily in Investments described in Section 9.05(d), Section 9.05(e) or Section 9.05(f);

(h)           any Investments received (i) in compromise or resolution of obligations of trade creditors or customers that were incurred in the ordinary course of business of the Borrowers or the Restricted Subsidiaries, including (A) obligations of financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and (B) pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, (ii) in compromise or resolution of litigation, arbitration or other disputes, or (iii) on account of any claim against, or an interest in, any other Person (A) acquired in good faith in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of such other Person or (B) as a result of a bona fide foreclosure by the Borrowers or any of the Restricted Subsidiaries with respect to any claim against any other Person;

(i)            any Investment consisting of extensions of credit including, without limitation, accounts receivables or notes receivables arising from the grant of trade credit or prepayments or similar transactions, if created or acquired 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;

(j)            subject to the limits in Section 9.06, Investments in direct ownership interests in additional Oil and Gas Properties, gas gathering, processing and transportation systems and all other assets contemplated by the permitted business of a Co-Borrower located within the geographic boundaries of the U.S.;

(k)           entry into operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, production sharing agreements or other similar or customary agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the oil and gas business, excluding, however, Investments in other Persons;

(l)            Letters of Credit issued hereunder to support Debt or other obligations of any Unrestricted Subsidiary or any JV Entity in an aggregate face amount at any time outstanding not exceeding the remainder of (i) the Unrestricted Subsidiary Maximum Cash Investment Amount minus (ii) the aggregate amount of Investments of cash in Unrestricted Subsidiaries pursuant to Section 9.05(m); and

(m)          Investments in Unrestricted Subsidiaries (excluding letters of credit to support Debt or other obligations of Unrestricted Subsidiaries and JV Entities, which shall be permitted only to the extent permitted under Section 9.05(l)) comprised of (i) Eligible Midstream Assets and (ii) cash in an aggregate amount at any time outstanding not exceeding the remainder of (A)

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the Unrestricted Subsidiary Maximum Cash Investment Amount minus (B) the aggregate face amount outstanding of Letters of Credit issued pursuant to Section 9.05(l);

provided, however, that none of the foregoing shall involve the incurrence of any Debt not permitted by Section 9.02.

Section 9.06         Nature of Business; International Operations.  The Borrowers will not, and will not permit any Restricted Subsidiary to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company.  From and after the date hereof, a Co-Borrower and its Restricted Subsidiaries will not acquire or make any other expenditure (whether such expenditure is capital, operating or otherwise) in or related to, any Oil and Gas Properties not located within the geographical boundaries or territorial waters of the U.S. and will not acquire or form any Foreign Subsidiaries.

Section 9.07         Limitation on Leases.  The Borrowers will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal but excluding Capital Leases and leases of Hydrocarbon Interests), under leases or lease agreements which would cause the aggregate amount of all payments made by any Co-Borrower and the Restricted Subsidiaries pursuant to all such leases or lease agreements, including, without limitation, any residual payments at the end of any lease, to exceed $1,000,000 in any period of twelve (12) consecutive calendar months during the life of such leases.

Section 9.08         Proceeds of Notes/Loans.  The Borrowers will not permit the Loans or the proceeds of the Loan to be used for any purpose other than those permitted by Section 7.21.  Neither the Borrowers nor any Person acting on behalf of the Borrowers has taken or will take any action which might cause any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.  If requested by the Administrative Agent, the Borrowers will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulations U, T or X of the Board, as the case may be.

Section 9.09         Sale or Discount of Receivables.  Except for receivables obtained by the Borrowers or any Restricted Subsidiary out of the ordinary course of business or the settlement of joint interest billing accounts in the ordinary course of business or discounts granted to settle collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, neither the Borrowers nor any Restricted Subsidiary will discount or sell (with or without recourse) to any other Person that is not a Co-Borrower any of its notes receivable or accounts receivable.

Section 9.10         Mergers, Etc.  Neither the Borrowers nor any Restricted Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person (any such transaction, a “consolidation”); provided that (a) any Subsidiary may

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participate in a consolidation with a Co-Borrower (provided that a Co-Borrower shall be the continuing or surviving corporation) or any Restricted Subsidiary (provided that such Restricted Subsidiary shall be the continuing or surviving Person) and (b) in the case of an Unrestricted Subsidiary merging into a Co-Borrower, no Default or Event of Default shall result.

Section 9.11         Sale of Assets.  The Borrowers will not, and will not permit any Restricted Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any asset, including, without limitation, Property containing Proved Reserves constituting a portion of the Borrowing Base or to issue or sell any Equity Interests in a Co-Borrower or any of its Restricted Subsidiaries except (i) an issuance or sale of Equity Interests in or Preferred Stock of Sanchez, in each case whether as a Permitted Preferred Stock Distribution or otherwise and without regard to whether or not there is any Default or Event of Default or (ii) the following sales, assignments, farm-outs, conveyances and/or transfers; provided, no Default or Event of Default exists or will exist after giving effect to such sale, assignment, conveyance, farm-out or transfer:

(a)           a transfer of assets between or among Borrowers or a Co-Borrower and its Restricted Subsidiaries;

(b)           an issuance or sale of Equity Interests in a Restricted Subsidiary to a Co-Borrower or to another Restricted Subsidiary;

(c)           the sale, lease or other disposition of produced Hydrocarbons, equipment, inventory, accounts receivable or other properties or assets in the ordinary course of business, including, without limitation, any abandonment, farm-in, farm-out, lease or sublease of any oil and gas properties or the forfeiture or other disposition of such properties pursuant to standard form operating agreements, in each case in the ordinary course of business in a manner customary in the oil and gas business;

(d)           the sale or other disposition of cash or cash equivalents;

(e)           subject to the mandatory prepayment requirements in Section 3.04(c), the sale or other disposition (including Casualty Events) of any Oil and Gas Property or any interest therein or any Restricted Subsidiary owning Oil and Gas Properties; provided that

(1)           Borrowers shall provide the Administrative Agent at least ten (10) days prior written notice of any sale, assignment, conveyance or transfer hereunder,

(2)           100% of the consideration received in respect of such sale or other disposition shall be cash,

(3)           the consideration received in respect of such sale or other disposition shall be equal to or greater than the fair market value of the Oil and Gas Property, interest therein or the Restricted Subsidiary subject of such sale or other disposition (as reasonably determined by the Board of Directors of the Borrowers and, if requested by the Administrative Agent, the Borrowers shall

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deliver a certificate of a Responsible Officer of each Co-Borrower certifying to that effect),

(4)           if such sale or other disposition of Oil and Gas Property when combined with any other sales under this Section 9.11(e) occurring between Scheduled Redetermination Dates results in a sale of more than five percent (5%), in the aggregate, of the proved developed Oil and Gas Properties included in the most recently delivered Reserve Report, such sale or disposition shall be subject to the written consent of the Administrative Agent, not to be unreasonably withheld, and the Borrowing Base may be immediately redetermined pursuant to Section 2.07 and the Borrowers shall pay  any Borrowing Base Deficiency in accordance with Section 3.04(c), and

(5)           if any such sale or other disposition is of a Restricted Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the Equity Interests of such Restricted Subsidiary; and

(f)            the sale, conveyance, transfer, lease or other disposition of (i) Eligible Midstream Assets and (ii) cash to an Unrestricted Subsidiary pursuant to Section 9.05(m).

Section 9.12         Environmental Matters.  The Borrowers will not, and will not permit any Restricted Subsidiary to, cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any Remedial Work under any applicable Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations could reasonably be expected to have a Material Adverse Effect.

Section 9.13         Transactions with Affiliates.  The Borrowers will not, and will not permit any Restricted Subsidiary to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate unless such transactions are otherwise permitted under this Agreement and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm’s length transaction with a Person not an Affiliate.

Section 9.14         Subsidiaries.  The Borrowers shall not, and shall not permit any Restricted Subsidiary to, create or acquire any additional Subsidiary without the prior written consent of the Administrative Agent and the Required Lenders, other than the creation or acquisition by a Co-Borrower of Subsidiaries in compliance with the definition of “Unrestricted Subsidiary” or Section 8.16.  The Borrowers shall not, and shall not permit any Restricted Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary except in compliance with Section 9.11.  Neither the Borrowers nor any Restricted Subsidiary shall have any Foreign Subsidiaries.

Section 9.15         Negative Pledge Agreements; Dividend Restrictions.  The Borrowers will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any contract, agreement or understanding which in any way prohibits or restricts the granting,

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conveying, creation or imposition of any Lien on any of its Property in favor of the Administrative Agent and the Lenders, restricts any Loan Party from paying dividends or making distributions to any other Loan Party, restricts any Loan Party from making loans or advances to any other Loan Party, or restricts any Loan Party from transferring any of its properties or assets to any other Loan Party or which requires the consent of or notice to other Persons in connection therewith; provided, however, that the preceding restrictions will not apply to encumbrances or restrictions arising under or by reason of (a) this Agreement or the Security Instruments, (b) the Second Lien Loan Documents, the Bridge Loan Documents or the Senior Unsecured Loan Documents, (c) applicable law, rule, regulation or order, (d) any instrument governing Debt or Equity Interests of a Person acquired by any Co-Borrower or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Debt or Equity Interests were incurred or issued in connection with such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those instruments; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend, distribution and other payment restrictions than those contained in those instruments; provided, that, in the case of Debt, such Debt was permitted by the terms hereof to be incurred; (e) customary non-assignment provisions in contracts and leases entered into in the ordinary course of business and consistent with past practices; (f) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the transfer of any of its properties to any Loan Party, (g) any agreement for the sale or other disposition of a Restricted Subsidiary of a Co-Borrower that restricts distributions by that Restricted Subsidiary pending its sale or other disposition, (h) agreements governing other Debt of the Borrowers and one or more Restricted Subsidiaries permitted herein; provided that the restrictions in the agreements governing such Debt are not materially more restrictive, taken as a whole, than those provided herein, (i) Liens permitted to be incurred under Section 9.03 hereof that limit the right of the debtor to dispose of the assets subject to such Liens, (j) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, and stock sale agreements entered into in the ordinary course of business, and (k) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business.

Section 9.16         Gas Imbalances, Take-or-Pay or Other Prepayments.  The Borrowers will not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrowers or any Restricted Subsidiary that would require the Borrowers or such Restricted Subsidiary to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor.

Section 9.17         Swap Agreements.  The Borrowers will not, and will not permit any Restricted Subsidiary to, enter into any Swap Agreements with any Person other than (a) Swap Agreements in respect of commodities (other than floor or put options) (i) with an Approved Counterparty, (ii) (A) during the first 2 years of this Agreement limited to no more than the greater of (a) ninety percent (90%) of the value of proved developed producing reserves included on the most recently delivered Reserve Report and (b) fifty percent (50%) of Borrowers’ total

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Proved Reserves (such amounts computed on a semi-annual basis and calculated on a product-by-product basis), (B) during years 3 and 4 of this Agreement to no more than the greater of (a) eighty-five percent (85%) of the value of proved developed producing reserves included on the most recently delivered Reserve Report and (b) fifty percent (50%) of Borrowers’ total Proved Reserves (such amounts computed on a semi-annual basis and calculated on a product-by-product basis), and (C) after the 4th year no commodity hedging permitted; provided that the aggregate amount of all such commodity hedging transactions (other than floor or put options) shall not exceed the most recent month’s actual production, calculated separately on a product-by-product basis, in any given month, (b) Swap Agreements in respect of interest rates with an Approved Counterparty, as follows: (i) Swap Agreements effectively converting interest rates from fixed to floating, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrowers and their Restricted Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed 75% of the then outstanding principal amount of the Borrowers’ Debt for borrowed money which bears interest at a fixed rate and (ii) Swap Agreements effectively converting interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrowers and their respective Restricted Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 75% of the then outstanding principal amount of the Borrowers’ Debt for borrowed money which bears interest at a floating rate and (c) those certain Swap Agreements existing on the date hereof and described on Schedule 9.17 between SEP and Shell Energy North America (US), L.P. and between SEP and Macquarie Bank Limited.  The Borrowers will not, and will not permit any other Loan Party to, Liquidate any Swap Agreement in respect of commodities unless (x) if such Swap Liquidation would result in an automatic redetermination of the Borrowing Base pursuant to Section 2.07(b)(iv), the Borrowers deliver reasonable prior written notice thereof to the Administrative Agent, and (y) if a Borrowing Base Deficiency would result from such Swap Liquidation as a result of an automatic redetermination of the Borrowing Base pursuant to Section 2.07(b)(iv), the Borrowers prepay Borrowings, prior to or contemporaneously with the consummation of such Swap Liquidation to the extent that such prepayment would have been required under Section 3.04(c)(i) after giving effect to such automatic redetermination of the Borrowing Base.

Section 9.18         Sale and Leaseback Transactions.  The Borrowers will not, and will not permit any Restricted Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.

Section 9.19         ERISA.  Except where non-compliance, in each case or in combination with all other instances of non-compliance with the provisions of this Section 9.19, could not reasonably be expected to result in a Material Adverse Effect, the Borrowers will not, and will not permit any of the Guarantors to, at any time:

(a)           engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which a Co-Borrower, any of its Subsidiaries or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to subsections (c), (i), (l) or (m) of Section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code.

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(b)           fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, a Co-Borrower, any of its Subsidiaries or any ERISA Affiliate is required to pay as contributions thereto.

(c)           contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to (i) any employee welfare benefit plan, as defined in Section 3(1) of ERISA, which may not be terminated by such entities in their sole discretion at any time without any material liability, including, without limitation, any such plan that is maintained to provide benefits to former employees of such entities (other than benefits mandated by Title I, Part 6 of ERISA and Section 4980B of the Code), or (ii) any employee pension benefit plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.

Section 9.20         Change in Business.

(a)           Each of the Co-Borrowers and the Guarantors shall not, and shall not permit any Subsidiary of such Co-Borrower to, engage in any business or activity other than (i) the business of the exploration for, and development, acquisition, and the production of Hydrocarbons produced from its Oil and Gas Properties, (ii) the business of marketing, processing, treating, gathering, and upstream transportation of such Hydrocarbons produced by such Co-Borrower and its Subsidiaries; (iii) developing raw land acquired or leased by such Co-Borrower or its Subsidiaries in conjunction with the activities described in clause (i) or (ii) above, and remediating such land for resale; and (iv) the business of providing services to support any of the Borrower’s or its Subsidiaries’ activities described in clause (i), (ii) or (iii) above.  Each Co-Borrower shall not, and shall not permit any of its Subsidiaries to engage in any activity or business, or acquire or make any other expenditure (whether such expenditure is capital, operating or otherwise) in or related to, any Oil and Gas Properties or businesses, in any event, which are not located within the geographical boundaries of the U.S. or the offshore area in the Gulf of Mexico over which the U.S. asserts jurisdiction.

(b)           Each of the Co-Borrowers and the Guarantors shall not, and shall not permit any Subsidiary of such Co-Borrower to, alter, amend or modify in any manner materially adverse to the Lenders any of its Organizational Documents.  In any event, a Co-Borrower shall not permit any of its Subsidiaries to (i) if such Subsidiary is a limited liability company, amend its limited liability company agreement to “opt in” to “security” status in accordance with Section 8.103 of the UCC or (ii) evidence its Equity Interests with a certificate without, in each case, the prior consent of the Administrative Agent.

(c)           Except as set forth in Section 1.05, the Borrowers and the Guarantors shall not, and shall not permit any of their respective Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrowers or of any of its Subsidiaries.

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ARTICLE X

EVENTS OF DEFAULT; REMEDIES

Section 10.01Events of Default.  The occurrence and continuation of one or more of the following events shall constitute an “Event of Default”:

(a)the Borrowers shall fail to pay any interest on or principal of any Loan or any reimbursement obligation in respect of any LC Disbursement or any fee or other amount when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof, by acceleration or otherwise;

(b)any representation or warranty made or deemed made by or on behalf of the Borrowers or any Subsidiary in or in connection with any Loan Document or any amendment or modification of any Loan Document or waiver under such Loan Document, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been false, incorrect or misleading in any material respect when made or deemed made;

(c)any Co-Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 3.04(c), Section 8.01, Section 8.02, Section 8.03, Section 8.12, Section 8.15, or ARTICLE IX;

(d)any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in Section 10.01(a)  or Section 10.01(c)) or any other Loan Document, and such failure shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof from the Administrative Agent to the Borrowers (which notice will be given at the request of any Lender) or (ii) a Responsible Officer of the Borrowers or such Subsidiary otherwise becoming aware of such default;

(e)any Co-Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable, after the expiration of any applicable period of grace and/or notice and cure;

(f)any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled maturity or require any Co-Borrower or any Subsidiary to make an offer in respect thereof;

(g)an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Co-Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign

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bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Co-Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

(h)any Co-Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 10.01(g), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Co-Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(i)any Co-Borrower or any Subsidiary shall become unable, admit in writing its inability, or fail generally to pay its debts as they become due;

(j)one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000.00 (to the extent not covered by independent third party insurance provided by insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding) shall be rendered against any Co-Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrowers or any Subsidiary to enforce any such judgment;

(k)any Loan Document after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with its terms against any Co-Borrower or a Guarantor party thereto or shall be repudiated by any of them, or cease to create a valid and perfected Lien of the priority required thereby on any of the Collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or any Co-Borrower, any Guarantor or any Subsidiary or any of their Affiliates shall so state in writing;

(l)an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;

(m)a Change in Control shall occur;

(n)the occurrence of an event of default (as defined therein) under the Second Lien Loan or the Undertaking to Pay Directly; and

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(o)the Intercreditor Agreement shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with its terms against any party thereto or any holder of Debt covered thereby or shall be repudiated by any of them.

Section 10.02Remedies.

(a)In the case of an Event of Default other than one described in Section 10.01(g), Section 10.01(h) or Section 10.01(i), at any time thereafter during the continuance of such Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrowers, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Notes and the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrowers and each Guarantor; and in case of an Event of Default described in Section 10.01(g), Section 10.01(h) or Section 10.01(i), the Commitments shall automatically terminate and the Notes and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and the other obligations of the Borrowers and the Guarantors accrued hereunder and under the Notes and the other Loan Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers and each Guarantor.

(b)In the case of the occurrence of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity.

(c)All proceeds realized from the liquidation or other disposition of Collateral or otherwise received after maturity of the Loans or the Notes, whether by acceleration or otherwise, shall be applied:  first, to payment or reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments; second, to accrued interest on the Loans; third, to fees referred to in clause (b) of the definition of Obligations; fourth, pro rata to principal outstanding on the Loans and other Obligations referred to in clauses (c) and (d) of the definition of Obligations; fifth, to any other Obligations; sixth, to serve as cash collateral to be held by the Administrative Agent to secure the LC Exposure; and any excess shall be paid to the Borrowers or as otherwise required by any Governmental Requirement.  Notwithstanding the foregoing, amounts received from the Borrowers or any Loan Party that is not an Eligible Contract Participant shall not be applied to any Excluded Swap Obligations owing to a Secured Swap Provider (it being understood, that in the event that any amount is applied to Obligations other than Excluded Swap Obligations as a result of this clause, the Administrative Agent shall make such adjustments as it determines are appropriate to distributions pursuant to clause fourth

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above from amounts received from Eligible Contract Participants to ensure, as nearly as possible, that the proportional aggregate recoveries with respect to Obligations described in clause fourth above by Secured Swap Providers that are the holders of any Excluded Swap Obligations are the same as the proportional aggregate recoveries with respect to other Obligations pursuant to clause fourth above).

ARTICLE XI

THE ADMINISTRATIVE AGENT

Section 11.01Appointment; Powers.

Each of the Lenders and the Issuing Bank hereby irrevocably (subject to Section 11.06) appoints the Administrative Agent as its agent 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 and the other Loan Documents, together with such actions and powers as are reasonably incidental thereto.

Section 11.02Duties and Obligations of Administrative Agent.  The Administrative Agent shall not have any duties or obligations except those expressly set forth in the 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 (the use of the term “agent” herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law; rather, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties), (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except as provided in Section 11.03, and (c) except as expressly set forth herein, shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrowers or any of their Subsidiaries that is communicated to or obtained by the bank serving as the Administrative Agent or any of its Affiliates in any capacity.  The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to it by the Borrowers or a Lender, and 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 under any other Loan Document 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 in any other Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (v) the satisfaction of any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to it or as to those conditions precedent specifically required to be to its satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrowers and its Subsidiaries or any other obligor or guarantor, or (vii) any failure by the Borrowers or any other Person (other than itself) to perform any of its obligations hereunder or under any other Loan Document or the performance or observance of any

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covenants, agreements or other terms or conditions set forth herein or therein.  For purposes of determining compliance with the conditions specified in ARTICLE VI, each Lender 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 written notice from such Lender prior to the proposed closing date specifying its objection thereto.

Section 11.03Action by Administrative Agent.  The Administrative Agent 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 it is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) and in all cases it shall be fully justified in failing or refusing to act hereunder or under any other Loan Documents unless it shall (a) receive written instructions from the Required Lenders or the Lenders, as applicable (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) specifying the action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action.  The instructions as aforesaid and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders.  If a Default has occurred and is continuing, then the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with indemnities) described in this Section 11.03, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders.  In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Loan Documents or applicable law.  The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or the Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02), and otherwise the Administrative Agent shall not be liable for any action taken or not taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.

Section 11.04Reliance 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 believed by it to be genuine and to have been signed or sent 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 be made by the proper Person, and shall not incur any liability for relying thereon and each of the Borrowers, the Lenders and the Issuing Bank hereby waives the right to dispute the Administrative Agent’s record of such statement, except in the case of gross negligence or willful misconduct by the Administrative Agent.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall

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not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.  The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent.

Section 11.05Subagents.  The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent, including without limitation a collateral agent.  The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties.  The exculpatory provisions of the preceding Sections of this ARTICLE XI 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.

Section 11.06Resignation or Removal of Administrative Agent.  Subject to the appointment and acceptance of a successor Administrative Agent as provided in this Section 11.06, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrowers, and the Administrative Agent may be removed at any time with or without cause by the Required Lenders.  Upon any such resignation or removal, and so long as there are Lenders hereunder, the Required Lenders shall have the right, in consultation with and upon the approval of the Borrowers (so long as no Event of Default has occurred and is continuing), which approval shall not be unreasonably withheld, to appoint a successor.  If no 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 or removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent which shall be a bank with an office in Houston, Texas, or an Affiliate of any such bank.  If upon such resignation by the Administrative Agent there are no Required Lenders (i) because all of the Loans have been repaid, (ii) the LC Exposure extinguished, and (iii) the Commitments terminated, but Obligations remain under the Swap Agreements that are secured by the Security Instruments, such appointment of a successor shall be made by the then current Administrative Agent if it is a counterparty under a Swap Agreement and if it is not, such appointment shall be made by the Secured Swap Providers holding more than 50% of the Hedge Exposure on the date of such Administrative Agent’s resignation notice.  Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, the retiring Administrative Agent shall execute such instruments as may be reasonably necessary to give effect to such succession, and the retiring Administrative Agent shall be discharged from any further duties and obligations hereunder.  The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor.  After the Administrative Agent’s resignation hereunder, the provisions of this ARTICLE XI and Section 12.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties

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in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

Section 11.07Administrative Agent as Lender.  The bank 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 such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrowers or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.

Section 11.08No Reliance.  (a) Each Lender acknowledges that 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 this Agreement and each other Loan Document to which it is a party.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender 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, any related agreement or any document furnished hereunder or thereunder.  The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrowers or any of their Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the Borrowers or their Subsidiaries.  Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrowers (or any of its Affiliates) which may come into the possession of the Administrative Agent or any of its Affiliates.  In this regard, each Lender acknowledges that Thompson & Knight LLP is acting in this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document.  Each other party hereto will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein.

(b)The Lenders acknowledge that the Administrative Agent is acting solely in an administrative capacity with respect to structuring and syndication of this facility and has no duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than its administrative duties, responsibilities and liabilities specifically as set forth in the Loan Documents and in its capacity as a Lender.  In structuring, arranging or syndicating this Agreement, each Lender acknowledges that the Administrative Agent may be an agent or lender under these Notes, other loans or other securities and waives any existing or future conflicts of interest associated with its role in such other debt instruments.

Section 11.09Authority to Release Collateral and Liens.  Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to release any Collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents.  Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to execute and deliver to the Borrowers, at the Borrowers’ sole cost and expense, any and all releases of Liens, termination statements,

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assignments or other documents reasonably requested by the Borrowers in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.11 or is otherwise authorized by the terms of the Loan Documents.

Section 11.10Filing of Proofs of Claim.  In case of any Default or Event of Default under Section 10.01(f), Section 10.01(g) or Section 10.01(h), the Administrative Agent (regardless of whether the principal of any Loan or LC Exposure shall then be due and payable and regardless of whether the Administrative Agent has made any demand on the Borrowers) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a)to (i) file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LC Exposure and all other Obligations that is owing and unpaid and (ii) 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, the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 3.03 and Section 12.03) 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.

Each Lender hereby authorizes any custodian, receiver, assignee, trustee, conservator, sequestrator or other similar official in any such judicial proceeding: (i) to make such payments to the Administrative Agent; and (ii) if 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 Section 3.03 and Section 12.03.  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 or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.  Each Lender retains its right to file and prove a claim separately.

ARTICLE XII

MISCELLANEOUS

Section 12.01Notices.

(a)Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to Section 12.01(b)), 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 telecopy, as follows:

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(i)if to the Borrowers, to it at Sanchez Energy Corporation, 1111 Bagby Street, Suite 1800, Houston, Texas 77002, Attention: Alfredo Gutierrez (Telecopy No. (713) 756-2784), with a copy to Akin Gump Strauss Hauer & Feld LLP, 1111 Louisiana Street, 44th Floor, Houston, Texas 77002, Attention: David Elder (Telecopy No. (713) 236-0822);

(ii)if to the Administrative Agent, to it at Royal Bank of Canada Agency Services Group, 4th Floor, 20 King Street West, Toronto, Ontario, Canada M5H 1C4, Attention Manager Agency (Fax No. (416) 842-4023), with a copy to 2800 Post Oak Boulevard, Suite 3900, Houston, Texas 77056, Attention Mark Lumpkin (Fax No. (713) 403-5624), and for all correspondence related to Letter of Credit requests One Liberty Plaza, 3rd Floor, New York, New York 10006-1404, Attention Manager Trade Products (Telephone No. (212) 428-6235) (Fax No. (212) 428-6332);

(iii)if to any other Lender, in its capacity as such, or any other Lender in its capacity as an Issuing Bank, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.

(b)Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLEV unless otherwise agreed by the Administrative Agent and the applicable Lender.  The Administrative Agent or the Borrowers may, in their 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.

(c)Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.  All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 12.02Waivers; Amendments.

(a)No failure on the part of the Administrative Agent, the Issuing Bank or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrowers therefrom shall in any event be effective unless the same shall be permitted by Section 12.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  Without limiting the generality of the foregoing, the making of a Loan or issuance

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of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time.

(b)Neither this Agreement nor any provision hereof nor any Security Instrument nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or by the Borrowers and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment or the Maximum Credit Amount of any Lender without the written consent of such Lender, (ii) increase the Borrowing Base without the written consent of each Lender, decrease or maintain the Borrowing Base without the consent of the Administrative Agent and the Required Lenders, or modify Section 2.07 in any manner adverse to the Lenders without the consent of each Lender (other than a Defaulting Lender), (iii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, or reduce any other Obligations hereunder or under any other Loan Document, without the written consent of each Lender affected thereby, (iv) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or any other Obligations hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, or postpone or extend the Termination Date without the written consent of each Lender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required thereby in a manner adverse to any Lender, without the written consent of each Lender or change the pro rata share of any Lender (other than as a result of the occurrence of any reallocation as a result of a Lender becoming or ceasing to be a Defaulting Lender without the written consent of each Lender, (vi) waive or amend Section 8.14, without the written consent of each Lender, (vii) release any Guarantor, release any of the Collateral (other than as provided in Section 11.09), or reduce the percentage set forth in Section 8.14 to less than eighty percent (80%), without the written consent of each Lender, or (viii) change any of the provisions of this Section 12.02(b) or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or under any other Loan Documents or make any determination or grant any consent hereunder or any other Loan Documents, without the written consent of each Lender (other than a Defaulting Lender); provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Administrative Agent or the Issuing Bank, as the case may be.  Notwithstanding the foregoing, any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders.

Section 12.03Expenses, Indemnity; Damage Waiver.

(a)The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Arranger, Administrative Agent and its Affiliates, including, without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Administrative Agent, the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses,

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and the cost of environmental audits and surveys and appraisals, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, documentation, execution, delivery, syndication and administration (both before and after the execution hereof and including advice of counsel to the Administrative Agent as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and other charges incurred by the Administrative Agent or any Lender in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any Security Instrument or any other document referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit issued by such Issuing Bank or any demand for payment thereunder, (iv) all out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section 12.03, or in connection with the Loans made or Letters of Credit issued hereunder, including, without limitation, all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

(b)THE BORROWERS SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ISSUING BANK 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, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT OR ANY ENFORCEMENT OR COLLECTION ACTIONS IN CONNECTION THEREWITH, (ii) THE FAILURE OF ANY CO-BORROWER OR ANY OF THE GUARANTORS TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF ANY CO-BORROWER OR ANY OF THE GUARANTORS SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (1) ANY REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH

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DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (2) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE BORROWERS AND THE GUARANTORS BY THE BORROWERS AND THE GUARANTORS, (vii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWERS OR ANY OF THE GUARANTORS OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWERS OR ANY OF THE GUARANTORS WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWERS OR ANY OF THE GUARANTORS, (x) THE PAST OWNERSHIP BY THE BORROWERS OR ANY OF THE GUARANTORS OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWERS OR ANY OF THE GUARANTORS OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWERS OR ANY OF THE GUARANTORS, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWERS OR ANY OF THE GUARANTORS, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY

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FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

(c)To the extent that the Borrowers fail to pay any amount required to be paid by them to the Administrative Agent or the Issuing Bank under Section 12.03(a) or Section 12.03(b), each Lender severally agrees to pay to the Administrative Agent or the Issuing Bank, 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 the Issuing Bank in its capacity as such.

(d)To the extent permitted by applicable law, the Borrowers and the Indemnitees shall not assert, and hereby waive, any claim against each other, on any theory of liability, for special, indirect, consequential, exemplary 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 or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.

(e)All amounts due under this Section 12.03 shall be payable not later than ten (10) days after written demand therefor.

Section 12.04Successors and Assigns.

(a)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 (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) the Borrowers may not assign or otherwise transfer any of their rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Co-Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 12.04.  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 (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in Section 12.04(c)) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)(i)Subject to the conditions set forth in Section 12.04(b)(ii), any Lender may 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) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:  (1) the Borrowers, provided that no consent of any Co-Borrower shall be required for an assignment to (A) a Lender that is not a Defaulting Lender, (B) an Affiliate of a Lender that is not a Defaulting Lender, (C) an Approved Fund (other than an Approved Fund that is administered by or managed by a Defaulting Lender or an Affiliate of a Defaulting Lender) or (D) if an Event of Default has occurred and is continuing, any other commercial bank with primary capital of not

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less than $250,000,000; provided, further, that Borrowers’ failure to respond to a Lender’s request for consent to an assignment within five (5) Business Days of such request shall be deemed to constitute Borrowers’ written consent to such request; and (2) the Administrative Agent (such consent not to be unreasonably withheld or delayed), provided that no such consent of the Administrative Agent shall be required for an assignment to an assignee that is a Lender that is not a Defaulting Lender immediately prior to giving effect to such assignment.

(ii)Assignments shall be subject to the following additional conditions:  (1) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment, the amount of the Commitment 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) shall not be less than $2,500,000 (which minimum amount may be comprised of concurrent assignments from more than one Lender), and the Commitments of any assigning Lender remaining a party hereto after giving effect to the assignment shall be at least $2,500,000, unless, in each case, each of the Borrowers, the Administrative Agent otherwise consents, provided that no such consent of the Borrowers shall be required if an Event of Default has occurred and is continuing;  (2) 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; (3) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; (4) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire and shall deliver notice of the Assignment and Assumption to the Borrowers; and (5) in the case of an assignment to a CLO, the assigning Lender shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, provided that the Assignment and Assumption between such Lender and such CLO may provide that such Lender will not, without the consent of such CLO, agree to any amendment, modification or waiver described in the first proviso to Section 12.02 that affects such CLO.

(iii)Subject to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto 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 Section 5.01, Section 5.02, Section 5.03 and Section 12.03).  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.04 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 Section 12.04(c).

(iv)The Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and

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Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Maximum Credit Amount of, and principal amount of the Loans and LC Disbursements 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 Borrowers, the Administrative Agent, the Issuing Bank 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 Borrowers, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.  In connection with any changes to the Register, if necessary, the Administrative Agent will reflect the revisions on Annex I and forward a copy of such revised Annex I to the Borrowers, the Issuing Bank and each Lender.

(v)Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 12.04(b)and any written consent to such assignment required by Section 12.04(b), the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register.  No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this Section 12.04(b).

(c)(i)Any Lender may, without the consent of the Borrowers, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the loans owing to it); provided that (1) such Lender’s obligations under this Agreement shall remain unchanged, (2) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (3) the Borrowers, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  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, modification or waiver described in the proviso to Section 12.02 that affects such Participant.  In addition such agreement must provide that the Participant be bound by the provisions of Section 12.03.  Subject to Section 12.04(c)(ii), the Borrowers agree that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and Section 5.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b).  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) as though it were a Lender.

(ii)A Participant shall not be entitled to receive any greater payment under Section 5.01 or Section 5.03 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the

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participation to such Participant is made with the Borrowers’ 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 5.03 unless the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 5.03(e) as though it were a Lender.

(d)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or other central bank, and this Section 12.04 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(e)Notwithstanding any other provisions of this Section 12.04, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrowers to file a registration statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.

Section 12.05Survival; Revival; Reinstatement.

(a)All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated.  The provisions of Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and ARTICLE XI shall survive and remain in full force and effect regardless of the consummation of the Transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof.

(b)To the extent that any payments on the Obligations or proceeds of any Collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent’s, and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and each Loan Document shall continue in full force and effect.  In such event, each Loan Document shall be automatically reinstated and the Borrowers shall take such action as

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may be reasonably requested by the Administrative Agent or the Lenders to effect such reinstatement.

Section 12.06Counterparts; Integration; Effectiveness.

(a)This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.

(b)This Agreement, the other Loan Documents and the Fee Letter constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

(c)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 which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy, facsimile, photocopy or by sending a scanned copy by electronic mail shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 12.07Severability.  Any provision of this Agreement or any other Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 12.08Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations (of whatsoever kind, including, without limitations obligations under Swap Agreements) at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrowers or any Subsidiary against any of and all the obligations of the Borrowers or any Subsidiary owed to such Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured.  The rights of each Lender under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which such Lender or its Affiliates may have.

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Section 12.09GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

(a)THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CHOICE-OF-LAW PROVISIONS THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION; PROVIDED, TO THE EXTENT ANY OF THE SECURITY INSTRUMENTS RECITE THAT THEY ARE GOVERNED BY THE LAW OF ANOTHER JURISDICTION, OR ANY ACTION OR EVENT TAKEN THEREUNDER (SUCH AS FORECLOSURE OF THE MORTGAGED PROPERTY) REQUIRES APPLICATION OF OR COMPLIANCE WITH THE LAW OF ANOTHER JURISDICTION, SUCH PROVISIONS AND CONCEPTS SHALL APPLY.

(b)ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

(c)EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

(d)EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT

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MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

Section 12.10Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 12.11Confidentiality.  Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (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 or self-regulatory body, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; provided, unless prohibited by applicable laws or regulations, Borrowers have been given reasonable advance notice thereof and been afforded an opportunity to limit or protest the disclosure, (d) to any other party to this Agreement or any other Loan Document, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, 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 12.11, 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 Agreement relating to the Borrowers and their obligations, (g) with the consent of the Borrowers or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 12.11 or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrowers.  For the purposes of this Section 12.11, “Information” means all information received from the Borrowers or any Subsidiary relating to the Borrowers or any Subsidiary and their businesses, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrowers or a Subsidiary.  Any Person required to maintain the confidentiality of Information as provided in this Section 12.11 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 its own confidential information.  Notwithstanding anything herein to the contrary, any party hereto (and each employee, representative or other agent of such party) may disclose without

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limitation of any kind, any information with respect to the “tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to that party relating to such tax treatment or tax structure; provided that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transactions, as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the transactions contemplated hereby.

Section 12.12EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS AND CONDITIONS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY RESULT, SUBJECT TO THE TERMS HEREOF AND THEREOF AND APPLICABLE LAW, IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

Section 12.13No Third Party Beneficiaries.  This Agreement, the other Loan Documents, and the agreement of the Lenders to make Loans and the Issuing Bank to issue, amend, renew or extend Letters of Credit hereunder are solely for the benefit of the Borrowers, and no other Person (including, without limitation, any Subsidiary of a Co-Borrower, any obligor, contractor, subcontractor, supplier or materialmen) shall have any rights, claims, remedies or privileges hereunder or under any other Loan Document against the Administrative Agent, the Issuing Bank or any Lender for any reason whatsoever.  There are no third party beneficiaries.

Section 12.14Collateral Matters; Swap Agreements.  The benefit of the Security Instruments and of the provisions of this Agreement relating to any collateral securing the Obligations shall also extend to and be available to (in addition to Lenders and their Affiliates) and any Person which was a Lender or Affiliate of a Lender when it entered into any Swap Agreement with the Borrowers or any of its Subsidiaries.  No Approved Counterparty shall have any voting rights under any Loan Document as a result of the existence of obligations owed to it under any such Swap Agreements.

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Section 12.15US Patriot Act Notice.  Each Lender hereby notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of the Borrowers and other information that will allow such Lender to identify the Borrowers in accordance with the Patriot Act.

Section 12.16Interest Rate Limitation.  It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it.  Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the U.S. and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows:  (a) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum non-usurious amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Debt (or, to the extent that the principal amount of the Debt shall have been or would thereby be paid in full, refunded by such Lender to the Borrowers); and (b) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Debt (or, to the extent that the principal amount of the Debt shall have been or would thereby be paid in full, refunded by such Lender to the Borrowers).  All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law.  If at any time and from time to time (a) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.16 and (b) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.16.

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Section 12.17Intercreditor Agreement.  Notwithstanding anything herein to the contrary (i) the Liens granted to the Predecessor Administrative Agent pursuant to the Original Credit Agreement and under the Security Instruments and (ii) the Liens granted to the Administrative Agent pursuant to this Agreement and under the Security Instruments (in such capacity, the “First Lien Collateral Agent”) and the exercise of any right or remedy by the First Lien Collateral Agent hereunder or thereunder are subject to the provisions of the Intercreditor Agreement.  In an event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

Section 12.18Termination and Release.  To the extent that a Loan Document provides for the termination of such Loan Document or the release of any Lien thereunder upon the payment in full of the Obligations, or words of similar effect, notwithstanding anything to the contrary in such Loan Document, such Loan Document shall terminate and the Administrative Agent shall release such Liens upon payment in full of the Obligations other than contingent Obligations which are intended to survive the termination of such Loan Document and with respect to which the contingency giving rise to such Obligation has not occurred.

Section 12.19Release.

As additional consideration for the execution, delivery and performance of this Agreement by the parties hereto and to induce the Administrative Agent and the Lenders to enter into this Agreement, the Borrowers warrant and represent to the Administrative Agent and the Lenders that no facts, events, statuses or conditions exist or have existed which, either now or with the passage of time or giving of notice, or both, constitute or will constitute a basis for any claim or cause of action against the Predecessor Administrative Agent or any Original Lender or any defense to (i) the payment of Obligations under the Notes and/or the Loan Documents, or (ii) the performance of any of their respective obligations with respect to the Notes and/or the Loan Documents.  In the event any such facts, events, statuses or conditions exist or have existed, Borrowers unconditionally and irrevocably hereby RELEASE, RELINQUISH and forever DISCHARGE Predecessor Administrative Agent and the Original Lenders, as well as their predecessors, successors, assigns and Related Parties, of and from any and all claims, demands, actions and causes of action of any and every kind or character, past or present, which any Borrower may have against any of them or their predecessors, successors, assigns and Related Parties arising out of or with respect to (a) any right or power to bring any claim for usury or to pursue any cause of action based on any claim of usury, and (b) any and all transactions relating to the Loan Documents occurring prior to the Effective Date hereof, including any loss, cost or damage, of any kind or character, arising out of or in any way connected with or in any way resulting from the acts, actions or omissions of any of them, and their predecessors, successors, assigns and Related Parties, including any breach of fiduciary duty, breach of any duty of fair dealing, breach of confidence, breach of funding commitment, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander or conspiracy, but in each case only to the extent permitted by applicable law.

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Section 12.20Resignation of Predecessor Administrative Agent and Predecessor Issuing Bank; Appointment of Successor Administrative Agent and Successor Issuing Bank; Assignment.

(a)Pursuant to and in accordance with Section 11.06 of the Original Credit Agreement, effective upon the Effective Date, (i) Capital One, the Predecessor Administrative Agent, resigns as Administrative Agent under the Original Credit Agreement and Loan Documents, (ii) the Borrowers and the Lenders waive the requirement of prior notice of such resignation, (iii) RBC is appointed successor administrative agent for the Lenders under this Agreement, the Loan Documents and the Intercreditor Agreement (in such capacity, the “Successor Administrative Agent” and herein and therein the “Administrative Agent”), (iv) the Borrowers consent to the appointment of the Successor Administrative Agent as “Administrative Agent” under this Agreement, the Loan Documents and the Intercreditor Agreement, and (v) RBC accepts its appointment as Successor Administrative Agent and Administrative Agent, and Capital One is relieved of all duties and obligations as Administrative Agent.

(b)Pursuant to and in accordance with Section 2.08(i) of the Original Credit Agreement, effective upon the Effective Date (i) Capital One, the Predecessor Issuing Bank, resigns as Issuing Bank under the Original Credit Agreement, (ii) RBC is appointed successor Issuing Bank under this Agreement (in such capacity, the “Successor Issuing Bank” and herein the “Issuing Bank”)), (iii) RBC accepts its appointment as Successor Issuing Bank and Issuing Bank, and Capital One is relieved of all duties and obligations as Issuing Bank.

(c)Effective as of the Effective Date, Capital One assigns all of the Liens held by it in its capacity as Administrative Agent under the Original Credit Agreement to RBC, as Successor Administrative Agent.  The Lenders authorize Capital One to execute such documents as may be required to effectuate such assignment. In furtherance of the foregoing, following the Effective Date, Capital One agrees to promptly deliver all possessory collateral held by it to RBC and execute and deliver all agreements and documents as may be reasonably requested by RBC or Borrowers to evidence such assignment of the Collateral and the associated Security Instruments.

(d)Capital One’s rights to be indemnified and to be reimbursed for costs pursuant to this Agreement, including Section 12.03, shall extend to actions taken in its capacity as resigning Administrative Agent.

Section 12.21Amendment and Restatement.

(a)Pursuant to the Original Credit Agreement Assignments and Assumptions, on the Effective Date the outstanding amount of principal and interest owing by the Borrowers under the Original Credit Agreement and the notes issued pursuant thereto have been refinanced, renewed, rearranged and extended by Loans under this Agreement.

(b)The parties hereto agree that this Agreement amends, restates and rearranges the Original Credit Agreement in its entirety and that all Loans outstanding under the Original Credit Agreement on the Effective Date shall be and be deemed to be Loans (of the same Type and having the same Interest Periods) made and Letters of Credit issued under this Agreement, and

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shall thereafter be evidenced and governed by the terms and conditions of this Agreement. Article XI and Section 12.03 of the Original Credit Agreement shall survive and inure to the benefit of the Predecessor Administrative Agent with respect to events and conditions that occurred or existed prior to the Effective Date.  The Lenders are subrogated to the rights of the Original Lenders under the Original Credit Agreement to the extent of the Obligations renewed and rearranged hereby.  All Liens created and existing in connection with the Original Credit Agreement, except as otherwise provided in this Agreement with respect to Excluded Swap Obligations, shall continue in force and effect to secure the Obligations of the Borrowers to the Lenders pursuant to the Notes and this Agreement, and each Borrower hereby ratifies, adopts and confirms all such prior Liens.

Section 12.22Termination of Commitment under Original Credit Agreement

As of the Effective Date, the Commitments under the Original Credit Agreement are hereby terminated and the Predecessor Administrative Agent and the Lenders hereby waive any right to receive prior notice of such termination.  Each Lender agrees upon the Effective Date to return to the Borrowers within 30 days all “Notes” as defined under the Original Credit Agreement which were delivered by the Borrowers in exchange for new Notes to be issued pursuant to this Agreement, and, to the extent such Notes are not returned within such time period, the Borrowers shall be entitled to receive a lost note affidavit containing customary indemnities in favor of the Borrowers.

Section 12.23No Novation, Etc.

To the extent of the Commitment outstanding under the Original Credit Agreement in the amount of $95,000,000, nothing contained herein shall be deemed a novation of or a repayment or new advance of any obligation of the Borrowers thereunder.  Only to the extent of an increase in the Commitment over that amount shall there be deemed to be a new advance by the Lenders to the Borrowers under this Agreement.  The Obligations owing under the Original Credit Agreement are renewed, rearranged, extended and carried forward by this Agreement and all of the Liens securing the “Obligations” as defined in the Original Credit Agreement (other than Excluded Swap Obligations) are carried forward and secure, without interruption or loss or priority, the Obligations under this Agreement.

Section 12.24Joint and Several Liability

(a)Each of the Borrowers acknowledges and agrees that it is the intent of the parties that each such Borrower be primarily liable for the Obligations as a joint and several obligor. It is the intention of the parties that with respect to liability of any Borrower hereunder arising solely by reason of its being jointly and severally liable for the Loans and LC Exposure, the obligations of such Borrower shall be absolute, unconditional and irrevocable irrespective of:

(i)any lack of validity, legality or enforceability of this Agreement, any Note, or any other Loan Document as to any other Borrower, as the case may be;

(ii)the failure of the Administrative Agent, the Issuing Bank or any Lender or any holder of any Note;

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(a)to enforce any right or remedy against any other Borrower, as the case may be, or any other Person (including any Guarantor) under the provisions of this Agreement, such Note, any other Loan Document or otherwise; or

(b)to exercise any right or remedy against any Guarantor of, or Collateral securing, the Obligations;

(iii)any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any other Borrower, or any other extension, compromise or renewal of any Obligations of any other Borrower;

(iv)any reduction, limitation, impairment or termination of any Obligations with respect to any other Borrower, as the case may be, for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each of the Borrowers hereby waives any right to or claim of) any defense (other than the defense of payment in full of the Obligations) or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, non-genuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations with respect to any other Borrower, as the case may be;

(v)any addition, exchange, release, surrender or non-perfection of any Collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any Guaranty, held by any Lender or any holder of the Notes or any security interest or Lien securing any of the Obligations; or

(vi)any other circumstance which might otherwise constitute a defense (other than the defense of payment in full of the Obligations) available to, or a legal or equitable discharge of, any Borrower, as the case may be, or any Guarantor.

(b)Each of the Borrowers agrees that its joint and several liability hereunder shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must be restored by any Lender or any holder of any Note, upon the insolvency, bankruptcy or reorganization of any other Borrower, as the case may be, as though such payment had not been made;

(c)Each of the Borrowers hereby expressly waives: (i) notice of the Lenders’ acceptance of this Agreement; (ii) notice of the existence or creation or non-payment of all or any of the Obligations other than notices expressly provided for in this Agreement; (iii) presentment, demand, notice of dishonor, notice of intent to accelerate, notice of acceleration, protest, and all other notices whatsoever other than notices expressly provided for in this Agreement; (iv) any claim or defense based on an election of remedies; and (v) all diligence in collection or protection of or realization upon the Obligations or any part thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing.

(d)No delay on any of the Administrative Agent’s, Issuing Bank’s or any Secured Swap Provider’s part in the exercise of any right or remedy shall operate as a waiver thereof, and

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no single or partial exercise by any of the foregoing of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.

(e)Each of the Borrowers hereby represents and warrants to each of the Administrative Agent and Lenders that it now has and will continue to have independent means of obtaining information concerning the other Borrower’s affairs, financial condition and business. Neither the Administrative Agent nor any Lender shall have any duty or responsibility to provide any Borrower with any credit or other information concerning such other Borrower’s affairs, financial condition or business which may come into the Administrative Agent’s or Lender’s possession.

(f)Each of the Borrowers represents and warrants (i) that the business operations of the Borrowers are interrelated and that the business operations of the Borrowers complement one another, and such entities have a common business purpose, and (ii) that, to permit their uninterrupted and continuous operations, such entities now require and will from time to time hereafter require funds and credit accommodations for general business purposes and (iii) that the proceeds of Loans and LC Disbursements hereunder will directly or indirectly benefit the Borrowers hereunder, severally and jointly, regardless of which Borrower receives part or all of the proceeds of such Loan or LC Disbursement.

(g)Notwithstanding anything to the contrary contained herein, it is the intention of the Borrowers, the Administrative Agent, Issuing Bank and the Lenders that the amount of the respective Borrower’s obligations hereunder shall be in, but not in excess of, the maximum amount thereof not subject to avoidance or recovery by operation of any applicable Debtor Relief Law.  To that end, but only in the event and to the extent that the Borrowers’ respective obligations hereunder or any payment made pursuant thereto would, but for the operation of the foregoing proviso, be subject to avoidance or recovery under any applicable Debtor Relief Law, the amount of the Borrowers’ respective obligations hereunder shall be limited to the largest amount which, after giving effect thereto, would not, under applicable Debtor Relief Laws, render the Borrower’s respective obligations hereunder unenforceable or avoidable or subject to recovery under applicable Debtor Relief Laws.  To the extent any payment actually made hereunder exceeds the limitation contained in this Section 12.07(g), then the amount of such excess shall, from and after the time of payment by the Borrowers (or any of them), be reimbursed by the Lenders upon demand by such Borrowers.  The foregoing proviso is intended solely to preserve the rights of the Administrative Agent, Issuing Bank and the Lenders hereunder against the Borrowers to the maximum extent permitted by applicable Debtor Relief Laws and neither any Borrower nor any Guarantor nor any other Person shall have any right or claim under this Section 12.07(g) that would not otherwise be available under applicable Debtor Relief Laws.

Section 12.25Keepwell.

(a)Each Borrower that is a Qualified ECP Credit Party hereby jointly and severally guarantees the payment and performance of all Obligations of each Loan Party (other than such Borrower) and absolutely, unconditionally and irrevocably undertakes to provide such funds or

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other support as may be needed from time to time by each Benefitting Loan Party in order for such Benefitting Loan Party to honor its obligations (without giving effect to Section 12.25(b)) under the Guaranty and any other Security Instrument including obligations with respect to Swap Agreements (provided, however, that a Borrower shall only be liable under this Section 12.25(a) for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 12.25(a), or otherwise under this Agreement or any Loan Document, as it relates to such Benefitting Loan Party, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of the Borrowers under this Section 12.25(a) shall remain in full force and effect until all Obligations are paid in full to the Lenders, the Administrative Agent and all Secured Swap Providers, and all of the Lenders’ Commitments are terminated. The Borrowers intend that this Section 12.25(a) constitute, and this Section 12.25(a) shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each Benefitting Loan Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

(b)Notwithstanding any other provisions of this Agreement or any other Loan Document, Obligations guaranteed by any Loan Party, or secured by the grant of any Lien by any Loan Party under any Security Instrument, shall exclude all Excluded Swap Obligations with respect to such Loan Party.

[Signatures Begin Next Page]

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The parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

BORROWERS:
SANCHEZ ENERGY CORPORATION,
a Delaware corporation
By:	/s/ Michael G. Long
Michael G. Long
Senior Vice President — Chief Financial Officer
SEP HOLDINGS III, LLC,
a Delaware limited liability company
By:	/s/ Michael G. Long
Michael G. Long
Senior Vice President — Chief Financial Officer
SN MARQUIS LLC,
a Delaware limited liability company
By:	/s/ Michael G. Long
Michael G. Long
Senior Vice President — Chief Financial Officer
SN COTULLA ASSETS, LLC,
a Delaware limited liability company
By:	/s/ Michael G. Long
Michael G. Long
Senior Vice President — Chief Financial Officer

Signature Page to Credit Agreement

ADMINISTRATIVE AGENT:
ROYAL BANK OF CANADA
By:	/s/ Ann Hurley
Name:	Ann Hurley
Title:	Manager, Agency
PREDECESSOR ADMINISTRATIVE AGENT AND PREDECESSOR ISSUING BANK:
CAPITAL ONE, NATIONAL ASSOCIATION
By:	/s/ Michael Higgins
Name:	Michael Higgins
Title:	Vice President
LENDERS:
ISSUING BANK AND LENDER:
ROYAL BANK OF CANADA
By:	/s/ Mark Lumpkin, Jr.
Name:	Mark Lumpkin, Jr.
Title:	Authorized Signatory
CAPITAL ONE, NATIONAL ASSOCIATION
By:	/s/ Michael Higgins
Name:	Michael Higgins
Title:	Vice President

Signature Page to Credit Agreement

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH
By:	/s/ Vipul Dhadda	/s/ Michael Spaight
Name:	Vipul Dhadda	Michael Spaight
Title:	Authorized Signatory	Authorized Signatory
COMPASS BANK
By:	/s/ Ian Payne
Name:	Ian Payne
Title:	Vice President
SUNTRUST BANK
By:	/s/ John Kovarik
Name:	John Kovarik
Title:	Vice President
ING CAPITAL LLC
By:	/s/ Charles Hall
Name:	Charles Hall
Title:	Managing Director
BRANCH BANKING AND TRUST COMPANY
By:	/s/ James Giordano
Name:	James Giordano
Title:	Vice President
IBERIABANK
By:	/s/ Moni Collins
Name:	Moni Collins
Title:	Vice President

Signature Page to Credit Agreement

UNION BANK, N.A.
By:	/s/ Damien G. Melburger
Name:	Damien G. Melburger
Title:	Senior Vice President
SOCIÉTÉ GENÉRALÉ
By:	/s/ David M. Bornstern
Name:	David M. Bornstern
Title:	Director

Signature Page to Credit Agreement

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-185853) and Form S-8 (File No. 333-178920) of Sanchez Energy Corporation (“Sanchez Energy”) of our report dated May 31, 2013 relating to the Statements of Revenues and Direct Operating Expenses of the Eagle Ford assets acquired by Sanchez Energy from Hess Corporation, which appears in Sanchez Energy’s Current Report on Form 8-K dated June 3, 2013.

/s/ BDO USA, LLP

Houston, Texas

June 3, 2013

EX-99.1

Exhibit 99.1

As used herein, unless otherwise indicated, (i) “the company,” “we,” “our,” “us” or similar terms refer collectively to Sanchez Energy Corporation and its operating subsidiaries; (ii) the “Cotulla acquisition” refers to the transactions contemplated by the purchase and sale agreement we entered into with Hess Corporation on March 18, 2013, which closed on May 31, 2013; (iii) the “Cotulla assets” refers to the assets acquired in the Cotulla acquisition; (iv) “SEP I” refers to Sanchez Energy Partners I, LP, a Delaware limited partnership; (v)“SEP Holdings III” refers to SEP Holdings III, LLC, a Delaware limited liability company and wholly owned subsidiary of the company, which we acquired from SEP I concurrently with the closing of our initial public offering in December 2011; and (vi) “SEP I Assets” refers to the assets we acquired through our acquisition of the limited liability company interests in SEP Holdings III.

Our estimated proved reserve information as of March 31, 2013 are based on reports prepared by Ryder Scott Company, L.P. (‘‘Ryder Scott’’), our independent reserve engineers. The March 31, 2013 information includes our reserves and, unless otherwise stated, the reserves acquired in the Cotulla acquisition. Unless otherwise stated, all references herein to reserves, acreage, operational and production information as of March 31, 2013 or later are pro forma for the Cotulla acquisition. A glossary of some of the oil and natural gas terms used herein may be found under “Glossary of Selected Oil and Natural Gas Terms” in our latest annual report on Form 10-K. PV-10 as presented herein is a supplemental measure not required by, or presented in accordance with, accounting principles generally accepted in the United States, or GAAP.  Please see “Reconciliation of PV-10 to Standardized Measure” herein for a discussion of PV-10 and a reconciliation to the standardized measure.

Our Core Properties

Eagle Ford Shale

Our primary focus is the black oil and volatile oil areas of the Eagle Ford Shale in South Texas, one of the fastest growing and most prolific unconventional shale trends in North America. According to RigData’s Land Rig Newsletter, the drilling rig count in the Eagle Ford Shale grew 390% from 42 rigs in March 2010 to 206 rigs in March 2013. Based on a recent study by the Society of Petroleum Engineers, the aerial extent of the trend is thought to be approximately 11 million acres.

The following table provides information regarding our proved reserves by area as of March 31, 2013:

	Estimated Total Proved Reserves
	Oil (mmbbls)	NGLs (mmbbls)	Natural Gas (bcf)	Total (mmboe)	% Oil		% Developed		PV-10 (in millions)
Marquis	2.4	0.3	1.4	3.0	81	%	61	%	$	94.2
Cotulla	9.3	1.8	18.4	14.2	66	%	48	%	291.1
Maverick	0.5	0.0	0.0	0.5	100	%	92	%	23.0
Palmetto	15.1	2.0	9.4	18.6	81	%	11	%	326.0
Total	27.3	4.1	29.2	36.3	75	%	31	%	$	734.3

We and our predecessor entities have a long history in the Eagle Ford Shale where we have assembled approximately 139,000 net leasehold acres with an average working interest of approximately 88%. Using approximately 80 acre well-spacing and assuming 80% of acreage is drillable for each area, except for the Palmetto area which assumes 90% of acreage is drillable, we believe there could be up to 1,525 gross (1,330 net) locations for potential future drilling. We also believe that down-spacing in our areas of operation will provide additional recoveries of oil in place and could materially increase our total inventory of drilling locations. Consistent with other operators in this area, we perform multi-stage hydraulic fracturing up to 30 stages on each well depending upon the length of the lateral section. For the year 2013, we plan to invest substantially all of our capital budget in the Eagle Ford Shale.

In our Marquis area, we have approximately 56,345 net operated acres, the majority of which are in southwest Fayette and northeast Lavaca Counties, Texas with a 100% working interest. We believe that our Marquis acreage lies in the volatile oil window where we anticipate drilling, completion and facilities costs on our acreage to be between $9.0 million and $11.0 million per well based on our historical well costs and publicly available information. We have drilled nine horizontal wells that had a range of average initial 24-hour production rates between 205 and 1,377 boe/d. We have identified up to 555 gross and net locations based on 80 acre well-spacing for potential future drilling on our Marquis acreage. We have recently completed a 60 acre well-spacing test in the western Prost area of our Marquis area. For 2013, we plan to spend approximately $180 million to drill 18 gross (18 net) wells in our Marquis area.

In our recently acquired Cotulla area, we have approximately 44,461 net acres in Dimmit, Frio, LaSalle and Zavala Counties, Texas with an average working interest of approximately 90%. We believe that our Cotulla acreage lies in the black oil and volatile oil window where we anticipate drilling, completion and facilities costs on our acreage to be between $7.0 million and $9.0 million per well based on our historical well costs and publicly available information. We have 53 gross wells on our acreage producing an estimated average of approximately 4,950 boe/d for the month of May 2013. We

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have identified up to 445 gross (400 net) locations based on 80 acre well-spacing for potential future drilling in our Cotulla area. For 2013, we plan to spend approximately $75 million to drill 11 gross (9.7 net) wells in our Cotulla area.

In our Maverick area, we have approximately 28,289 net operated acres in Zavala and Frio Counties, Texas with an average working interest of approximately 87%. We believe that our Maverick acreage lies in the black oil window, where we anticipate drilling, completion and facilities costs on our acreage to be between $5.5 million and $6.5 million per well based on our historical well costs and publicly available information. We have drilled ten gross horizontal wells that had a range of average initial 24-hour production rates between 214 and 931 boe/d. We have also drilled four vertical wells that had average initial 24-hour rates between 94 and 264 boe/d. We have identified up to 315 gross (275 net) locations based on 80 acre well-spacing for potential future drilling on our Maverick acreage. For 2013, we plan to spend approximately $10 million to drill 2 gross (2 net) wells in our Maverick area.

In our Palmetto area, we have approximately 9,695 net acres in Gonzales County, Texas with an average working interest of approximately 48%. We believe that our Palmetto acreage lies in the volatile oil window where we anticipate drilling, completion and facilities costs on our acreage to be between $7.5 million and $11.0 million per well based on our historical well costs and publicly available information. We have participated in the drilling of 25 gross wells on our acreage that had an average initial 24-hour production rates between 370 and 3,139 boe/d. We have identified up to 210 gross (100 net) locations based on 80 acre well-spacing for potential future drilling in our Palmetto area. We recently completed a five-well pilot program from a single pad to test 40 acre well-spacing in our southern portion of the Palmetto area, and Ryder Scott has given us 80 acre well-spaced proved undeveloped locations in the same area in its December 31, 2012 and March 31, 2013 reserve reports. For 2013, we plan to spend approximately $170 million to drill 34 gross (17.0 net) wells in our Palmetto area.

Other

In addition to our Eagle Ford Shale acreage, we have approximately 700 net acres in the Haynesville Shale in Natchitoches Parish, Louisiana, which are operated by Chesapeake Energy Corporation. The majority of our Haynesville leases are held by production, giving us and our partners the option to accelerate drilling should natural gas prices increase. Furthermore, we have amassed approximately 82,000 net acres in northern Montana which we believe may be prospective for the Heath, Three Forks and Bakken Shales. Our lease terms in northern Montana are for five years with options in 2013 and 2014 to renew for another five years at $10 per acre, which we do not anticipate exercising. We do not anticipate spending any capital expenditures in these areas in 2013.

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The following table presents summary data for each of our primary project areas as of March 31, 2013 and our revised drilling capital expenditure budget for 2013:

					Identified		2013 Drilling Capital Expenditure Budget
		Average			Drilling				Drilling
	Net	Working			Locations(1)		Gross	Net	Capex
	Acreage	Interest		Operator	Gross	Net	Wells	Wells	(in millions)
Marquis	56,345	100	%	Sanchez	555	555	18	18.0	$	180
Cotulla	44,461	90	%	Sanchez	445	400	11	9.7	75
Maverick	28,289	87	%	Sanchez	315	275	2	2.0	10
Palmetto(2)	9,695	48	%	Marathon	210	100	34	17.0	170
Total Eagle Ford Shale	138,790	88	%		1,525	1,330	65	46.7	435
Bakken	82,274	100	%	Sanchez	—	—	—	—	—
Haynesville	720	25	%	Chesapeake	—	—	—	—	—
Total	221,784	91	%		1,525	1,330	65	46.7	$	435

(1)Total identified drilling locations are calculated using 80 acre well-spacing and assumes 80% of acreage is drillable for each area, except for the Palmetto area which assumes 90% of acreage is drillable.

(2)In our Palmetto area, we have 109 gross (54.5 net) locations that are classified as proved undeveloped at March 31, 2013. We intend to drill all of those proved undeveloped locations within the next five years.

4

Estimated Proved Reserves

The following table presents historical and pro forma estimated net proved oil and natural gas reserves attributable to our properties and the standardized measure amounts associated with the estimated proved reserves attributable to our properties on a pro forma basis for the Cotulla acquisition as of March 31, 2013 and on a historical basis as of December 31, 2012, 2011 and 2010. The data are based on reserve reports prepared by Ryder Scott, our independent reserve engineers. The standardized measure amounts shown in the table are not intended to represent the current market value of our estimated oil and natural gas reserves.

	Pro Forma		Historical
	As of March 31,		As of December 31,
	2013		2012		2011		2010
Reserve Data(1):
Estimated proved reserves:
Oil (mbo)	27,380		18,266		5,610		2,631
Natural gas liquids (mbbl)	4,104		310		—		—
Natural gas (mmcf)	29,119		15,788		6,418		2,652
Total estimated proved reserves (mboe)(2)	36,337		21,207		6,680		3,073
Estimated proved developed reserves:
Oil (mbo)	7,785		3,211		689		362
Natural gas liquids (mbbl)	1,362		99		—		—
Natural gas (mmcf)	12,739		2,433		1,674		1,541
Total estimated proved developed reserves (mboe)(2)	11,270		3,716		968		619
Estimated proved undeveloped reserves:
Oil (mbo)	19,595		15,055		4,921		2,269
Natural gas liquids (mbbl)	2,742		211		—		—
Natural gas (mmcf)	16,380		13,355		4,744		1,112
Total estimated proved undeveloped reserves (mboe)(2)	25,067		17,491		5,712		2,454
PV-10 (in millions)(3)(4)	$	734.3	$	360.3	$	152.4	$	50.7
Standardized measure (in millions)(1)(4)(5)	$	559.8	$	286.3	$	133.2	$	50.7
Average price used in calculation of Standardized Measure(1):
Oil ($ per bo)	$	92.63	$	94.71	$	96.19	$	79.43
NGLs ($ per bbl)	$	38.71	—		—		—
Natural Gas ($ per mcf)	$	2.95	$	2.76	$	4.12	$	4.38

(1)Our estimated net proved reserves and related standardized measure were determined using index prices for oil and natural gas, without giving effect to commodity derivative contracts, held constant throughout the life of our properties. The prices are based on the average prices during the 12-month period prior to the ending date of the period covered, determined as the unweighted arithmetic average of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, and are adjusted by lease for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price realized at the wellhead. For a description of our commodity derivative contracts, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Costs and Operating Expenses — Commodity Derivative Transactions” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Derivative Instruments” in our latest quarterly report on Form 10-Q and annual report on Form 10-K.

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(2)One boe is equal to six mcf of natural gas or one bo of oil or NGLs based on a rough energy equivalency. This is a physical correlation and does not reflect a value or price relationship between the commodities.

(3)PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved crude oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash inflows and using the twelve-month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months. PV-10 differs from the standardized measure because it does not include the effect of future income taxes. For a reconciliation of our standardized measure to PV-10, see “Reconciliation of PV-10 to Standardized Measure” below.

(4)Our 2010 PV-10 and standardized measure are equivalent because we were not subject to entity level taxation prior to completion of our IPO in December 2011.

(5)Standardized measure is calculated in accordance with Statement of Financial Accounting Standards No. 69, Disclosures About Oil and Gas Producing Activities, as codified in ASC Topic 932, Extractive Activities — Oil and Gas. For further information regarding the calculation of the standardized measure, see “Supplementary Information on Oil and Natural Gas Exploration, Development and Production Activities (Unaudited)” included in the financial statements included in our latest annual report on Form 10-K.

The data in the table above represents estimates only. Oil, NGLs and natural gas reserve engineering is inherently a subjective process of estimating underground accumulations of oil, NGLs and natural gas that cannot be measured exactly. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. Accordingly, reserve estimates may vary from the quantities of oil, NGLs and natural gas that are ultimately recovered. For a discussion of risks associated with internal reserve estimates, please read “Risk Factors — Our estimated reserves and future production rates are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our estimated reserves” in our latest annual report on Form 10-K.

Future prices realized for production and costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates. The standardized measure amounts shown above should not be construed as the current market value of our estimated oil and natural gas reserves. The 10% discount factor used to calculate standardized measure, which is required by FASB pronouncements, is not necessarily the most appropriate discount rate. The present value, no matter what discount rate is used, is materially affected by assumptions as to timing of future production, which may prove to be inaccurate.

6

Development of Proved Undeveloped Reserves

None of our proved undeveloped reserves at March 31, 2013 are scheduled to be developed on a date more than five years from the date the reserves were initially booked as proved undeveloped. Historically, our drilling and development programs were substantially funded from capital contributions, cash flow from operations and the issuance of equity securities. Based on our current expectations of our cash flows and drilling and development programs, which includes drilling of proved undeveloped locations, we believe that we can fund the drilling of our current inventory of proved undeveloped locations and our expansions and extensions in the next five years from our cash on hand combined with cash flow from operations, expected increases to our borrowing capacity under our credit facilities and possible issuance of debt or equity securities.

For more information about our historical costs associated with the development of proved undeveloped reserves, please read “Supplementary Information on Oil and Natural Gas Exploration, Development and Production Activities (Unaudited)” included in the financial statements included in our latest annual report on Form 10-K.

Estimated Probable and Possible Reserves

Unless otherwise specifically identified in this offering memorandum, the summary data with respect to our estimated reserves has been prepared by our independent reserve engineers in accordance with rules and regulations of the SEC applicable to companies involved in oil and natural gas producing activities.

The reserve estimates at March 31, 2013 presented in the table below are based on a report prepared by Ryder Scott, our independent reserve engineers. For more information regarding our independent reserve engineers, please see “— Qualifications of Responsible Technical Persons” in our latest annual report on Form 10-K. The information in the following table does not give any effect to or reflect our commodity derivative instruments.

Estimates of probable reserves are inherently imprecise. When producing an estimate of the amount of oil and natural gas that is recoverable from a particular reservoir, an estimated quantity of probable reserves is an estimate of those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. Estimates of probable reserves are also continually subject to revisions based on production history, results of additional exploration and development, price changes and other factors.

When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates. Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir. Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

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Estimates of possible reserves are also inherently imprecise. When producing an estimate of the amount of oil and natural gas that is recoverable from a particular reservoir, an estimated quantity of possible reserves is an estimate that might be achieved, but only under more favorable circumstances than are likely. Estimates of possible reserves are also continually subject to revisions based on production history, results of additional exploration and development, price changes and other factors.

When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserve where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir. Possible reserves also include incremental quantities associated with a greater percentage of recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.

Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.

	Pro Forma as of March 31, 2013(1)
	Proved Reserves (mboe)(3)	PV-10(4) (in millions)		Probable Reserves(2) (mboe)(3)	PV-10(4) (in millions)		Possible Reserves(2) (mboe)(3)	PV-10(4) (in millions)
Project Area
Marquis	2,964	$	94.2	1,944	$	15.7	—	$	—
Cotulla	14,204	291.1		—	—		—	—
Maverick	534	23.0		—	—		—	—
Palmetto	18,635	326.0		4,893	26.2		5,071	15.7
Total	36,337	$	734.3	6,837	$	41.9	5,071	$	15.7

(1)Our estimated net proved, probable and possible reserves and related PV-10 at March 31, 2013 were determined using index prices for oil and natural gas, without giving effect to commodity derivative contracts, held constant throughout the life of the properties. The unweighted arithmetic average first-day-of-the-month prices for the prior twelve months were $92.63/bo for oil, $38.71/bbl for NGLs and $2.95/mmbtu for natural gas. These prices were adjusted by lease for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price realized at the wellhead. As of March 31, 2013, the average realized prices for oil, NGLs and natural gas were $104.44 per bo, $30.41 per bbl and $2.95 per mcf, respectively.

(2)In addition to the estimated proved reserve report dated March 31, 2013, Ryder Scott provided us with a probable and possible reserve report as of March 31, 2013 for the Palmetto and Marquis areas. Probable and possible reserves included in the report totaled 12 mmboe and $57.6 million in

8

additional PV-10 value. Of these reserves, 84% were attributed to our Palmetto area and 16% were attributed to our Marquis area, and 5,614 mbo and 4,140 mbo were classified as oil, 3,174 mmcf and 2,484 mmcf were classified as natural gas and 694 mbo and 517 were classified as NGLs, respectively. Estimates of probable and possible reserves that may potentially be recoverable through additional drilling or recovery techniques are by nature more uncertain than estimates of proved reserves and accordingly are subject to substantially greater risk of not actually being realized by us. All of our probable and possible reserves are classified as undeveloped.

(3)One boe is equal to six mcf of natural gas or one bo of oil or NGLs based on a rough energy equivalency. This is a physical correlation and does not reflect a value or price relationship between the commodities.

(4)PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved crude oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash inflows and using the twelve-month unweighted arithmetic average of the first-day-of-the-month price for each of the preceding twelve months. PV-10 differs from the standardized measure because it does not include the effect of future income taxes. For a reconciliation of our standardized measure to PV-10, see “Reconciliation of PV-10 to Standardized Measure” below.

Reconciliation of PV-10 to Standardized Measure

PV-10 is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. PV-10 is a computation of the standardized measure on a pre-tax basis. PV-10 is equal to the standardized measure at the applicable date, before deducting future income taxes, discounted at 10%. We believe that the presentation of PV-10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to our estimated net proved reserves prior to taking into account future corporate income taxes, and it is a useful measure for evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. We use this measure when assessing the potential return on investment related to our oil and natural gas properties. PV-10, however, is not a substitute for the standardized measure. Our PV-10 measure and the standardized measure do not purport to present the fair value of our oil and natural gas reserves.

The following table provides a reconciliation of PV-10 to the standardized measure for our pro forma proved, probable and possible reserves as of March 31, 2013 and for our historical proved reserves as of December 31, 2012, 2011 and 2010:

	Pro Forma Reserves as of March 31, 2013
	Proved			Probable			Possible
	(in millions)
PV-10	$	734.3		$	41.9		$	15.7
Present value of future income taxes discounted at 10%	(174.5		)	(14.7		)	(5.5		)
Standardized measure(1)	$	559.8		$	27.2		$	10.2

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	Pro Forma			Historical
	As of March 31,			As of December 31,
	2013			2012			2011			2010
				(in millions)
PV-10 of proved reserves	$	734.3		$	360.3		152.4			$	50.7
Present value of future income taxes discounted at 10%	(174.5		)	(74.0		)	(19.2		)	—
Standardized measure(1)	$	559.8		$	286.3		$	133.2		$	50.7

(1)Standardized measure is calculated in accordance with Statement of Financial Accounting Standards No. 69, Disclosures About Oil and Gas Producing Activities, as codified in ASC Topic 932, Extractive Activities — Oil and Gas. For further information regarding the calculation of the standardized measure, see “Supplementary Information on Oil and Natural Gas Exploration, Development and Production Activities (Unaudited)” included in the financial statements in our latest annual report on Form 10-K.

Production, Revenues and Price History

The following table sets forth information regarding combined net production of oil and natural gas and certain price and cost information attributable to our properties for each of the periods presented, both on a historical basis and on a pro forma basis for the Cotulla acquisition:

	Pro Forma
	Twelve Months	Historical
	Ended March 31,	Year Ended December 31,
	2013	2012	2011	2010
Production:
Oil — mbo
Marquis	134.6	67.4	—	—
Cotulla	1,096.0	—	—	—
Maverick	136.2	87.8	13.7	12.4
Palmetto	354.4	262.7	132.2	43.4
Other	—	—	—	—
Total	1,721.2	417.9	145.9	55.8
Natural gas liquids — mmbl
Marquis	0.5	—	—	—
Cotulla	181.6	—	—	—
Maverick	2.8	0.1	—	—
Palmetto	38.8	0.6	0.5	—
Other	—	—	—	—
Total	223.7	0.7	0.5	—

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	Pro Forma
	Twelve Months		Historical
	Ended March 31,		Year Ended December 31,
	2013		2012		2011		2010
Natural gas — mmcf
Marquis	39.0		—		—		—
Cotulla	1,394.0		—		—		—
Maverick	0.4		—		—		—
Palmetto	337.9		226.7		104.5		31.9
Other	53.5		74.5		59.6		—
Total	1,824.8		301.2		164.1		31.9
Net production volumes:
Total oil equivalent (mboe)	2,249.0		468.8		173.7		61.1
Average daily production (boe/d)	6,161.7		1,280.8		475.9		167.4
Average Sales Price:
Oil ($ per bo)(1)	$	102.10	$	101.40	$	95.31	$	78.92
Natural gas liquids ($ per bbl)	$	20.74	$	23.26	$	47.62	$	—
Natural gas ($ per mcf)	$	2.41	$	2.54	$	3.59	$	4.68
Oil equivalent ($ per boe)(1)	$	82.16	$	92.07	$	83.57	$	74.50
Average unit costs per boe:
Oil and natural gas production expenses	$	29.50	$	7.26	$	9.37	$	6.41
Production and ad valorem taxes	$	4.51	$	4.53	$	4.78	$	3.50
General and administrative(2)	$	6.23	$	24.95	$	30.91	$	86.32
Depreciation, depletion, amortization and accretion	$	32.15	$	33.96	$	24.47	$	23.40

(1)Excludes the impact of oil derivative instruments.

(2)For the year ended December 31, 2012, general and administrative excludes non-cash stock-based compensation expense of approximately $25.5 million, or $54.49 per boe. Pro forma for the twelve months ended March 31, 2013, general and administrative excludes non-cash stock-based compensation expense of approximately $24.7 million, or $10.99 per boe. We did not have any stock-based compensation expense for the prior periods presented.

Drilling Activities

The following table sets forth information with respect to wells drilled and completed during the periods indicated. The information should not be considered indicative of future performance, nor should

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a correlation be assumed between the number of productive wells drilled, quantities of reserves found or economic value.

	Three Months
	Ended
	March 31,		Year Ended December 31,
	2013		2012		2011		2010
	Gross	Net	Gross	Net	Gross	Net	Gross	Net
Development wells:
Productive	52.0	50.5	14.0	9.5	3.0	1.6	6.0	3.0
Dry	—	—	—	—	—	—	—	—
Exploratory wells:
Productive	5.0	5.0	6.0	5.5	—	—	2.0	0.8
Dry	—	—	—	—	—	—	—	—
Total wells:
Productive	57.0	55.5	20.0	15.0	3.0	1.6	8.0	3.8
Dry	—	—	—	—	—	—	—	—

The following table sets forth information at March 31, 2013 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 production, 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 own an interest, and net wells are the sum of our fractional working interests owned in gross wells.

			Natural
	Oil		Gas
	Gross	Net	Gross	Net
Operated by us	70	67.0	—	—
Non-operated	16	8.0	1	0.3
Total	86	75.0	1	0.3

We brought 20 wells on-line in 2012, 6 wells during the first quarter of 2013 and now have a total of 102 wells on-line. We also had 18 wells in various stages of drilling, Completion or initial flow back as of May 31, 2013.

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Developed and Undeveloped Acreage

The following table sets forth information as of March 31, 2013 relating to our leasehold acreage. Acreage related to royalty, overriding royalty and other similar interests is excluded from this summary. As of March 31, 2013, approximately 26% of our acreage was held by production.

	Developed Acreage		Undeveloped Acreage
	Gross	Net	Gross	Net
Eagle Ford Shale — Marquis	560	560	55,785	55,785
Eagle Ford Shale — Cotulla	4,080	3,672	45,321	40,789
Eagle Ford Shale — Maverick	840	792	31,666	27,497
Eagle Ford Shale — Palmetto	1,280	614	18,950	9,081
Other	240	60	84,832	82,934
Total	7,000	5,697	236,554	216,086

Excluding our Bakken acreage, as of March 31, 2013, we had leases representing 38,006 net acres (37,996 of which were in the Eagle Ford Shale) expiring in 2013, 7,884 net acres (7,882 of which were in the Eagle Ford Shale) expiring in 2014, and 56,933 net acres (all of which were in the Eagle Ford Shale) expiring in 2015 and beyond. We anticipate that our current and future drilling plans along with selected lease extensions will address the majority of our leases expiring in the Eagle Ford Shale in 2013. In addition, included in the acreage expiring in 2013 in the Eagle Ford Shale is a single lease for approximately 6,100 net acres, and a single well drilled to any depth producing commercial quantities of oil and gas will hold the lease, which we plan to drill in June 2013. Our 82,274 net acres in the Heath, Three Forks and Bakken Shales expire in 2013 and 2014 and we do not anticipate exercising the option we have to renew for another five years at $10 per acre.

Delivery Commitments

We have made commitments to certain refineries and other buyers to deliver a portion of our gas production. The total amount contracted to be delivered is approximately 40 billion cubic feet of gas through 2021. The price for these deliveries is set at the time of delivery of the product. We have more production capacity than the amounts committed and none of the commitments in any given year are material.

Liquidity and Hedging

We currently anticipate enough liquidity from cash on hand, cash flow from operations, completion of recently announced transactions and our first lien credit facility, including future growth in our borrowing base, to fund our operations through 2015 based on the current rig count.

Following our acquisition of the Cotulla properties, we expect to execute additional commodity derivative contracts in the future to ensure that our hedged volumes closely resemble historical levels.  Our ongoing hedging program targets having in place commodity derivative contracts covering approximately 50% of our annual production.  We may, however, from time to time hedge more or less than this amount.

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Selected Historical and Pro Forma Financial Data

The summary historical and pro forma financial data table below shows selected pro forma financial data as of and for the twelve months ended March 31, 2013, for the three months ended March 31, 2013 and 2012 and for the year ended December 31, 2012 and selected historical financial data as of March 31, 2013, for the three months ended March 31, 2013 and 2012 and as of and for each of the three years in the period ended December 31, 2012. The selected historical financial data as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 are derived from our unaudited condensed consolidated historical financial statements and the selected historical financial data as of December 31, 2012, 2011 and 2010 and for the years ended December 31, 2012, 2011 and 2010 are derived from our audited historical financial statements.

The selected pro forma financial data are derived from our unaudited condensed consolidated historical financial statements, our audited historical financial statements and audited and unaudited financial statements relating to the Cotulla assets. The pro forma adjustments have been prepared as if certain transactions had taken place as of January 1, 2012, in the case of the pro forma statement of operations data, or as of March 31, 2013, in the case of the pro forma balance sheet data. These transactions include:

·The issuance and sale by us in a private offering to eligible purchasers of 4,500,000 shares of Series B Convertible Preferred Stock, which was completed March 27, 2013, and the application of the proceeds thereof to fund a portion of the purchase price for the Cotulla acquisition; and

·The Cotulla acquisition (including the borrowings related thereto incurred on May 30, 2013 under our first lien credit facility and the payment of the purchase price and expenses), which closed on May 31, 2013.

The selected pro forma financial data may not necessarily be indicative of the actual results of operations that might have occurred if we operated the Cotulla assets during the periods presented.

Our historical financial statements prior to December 19, 2011 have been prepared on a carve-out basis from the accounts of SEP I. The carved-out financial information includes all assets, liabilities and results of operations of the unconventional oil and natural gas properties and related assets contributed to us by SEP I for the periods prior to December 19, 2011. These historical financial statements prior to December 19, 2011 may not necessarily reflect our financial position, results of operations, and cash flows as if we had operated as a stand-alone public company during those periods. The historical financial data prior to December 19, 2011 reflect historical accounts attributable to the SEP I Assets on a “carve-out” basis, including allocated overhead from our predecessor in interest, for periods prior to our acquisition of the SEP I Assets on December 19, 2011 and do not reflect any estimate of additional overhead that we may incur as a separate company.

The selected financial data should be read together with the financial statements and related notes included in this current report on Form 8-K and our other filings with the SEC.

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	Pro Forma												Historical
	Twelve Months Ended March 31,			Three Months Ended March 31,						Year Ended December 31,			Three Months Ended March 31,						Year Ended December 31,
	2013			2013			2012			2012			2013			2012			2012			2011			2010
	(in thousands, except per share amounts)
REVENUES:
Oil sales	$	175,735		$	60,046		$	23,543		$	139,232		$	29,327		$	7,461		$	42,377		$	13,905		$	4,404
Natural gas liquids sales	4,639			1,797			264			3,106			740			2			15			22			—
Natural gas sales	4,406			1,880			264			2,790			737			185			766			589			149
Total revenues	184,780			63,723			24,071			145,128			30,804			7,648			43,158			14,516			4,553
COSTS AND EXPENSES:
Oil and natural gas production expenses	66,342			18,850			6,652			54,144			3,027			775			3,401			1,628			391
Production and ad valorem taxes	10,145			3,803			1,179			7,521			2,050			394			2,124			830			214
Depreciation, depletion, amortization and accretion	72,323			25,714			6,752			53,361			13,373			2,244			15,922			4,252			1,430
General and administrative(1)	38,722			7,737			6,254			37,239			7,737			6,254			37,239			5,368			5,276
Total operating costs and expenses	187,532			56,104			20,837			152,265			26,187			9,667			58,686			12,078			7,311
Operating income (loss)	(2,752		)	7,619			3,234			(7,137		)	4,617			(2,019		)	(15,528		)	2,438			(2,758		)
Other income (expense):
Interest and other income	87			21			8			74			21			8			74			10			—
Interest expense	(5,866		)	(1,903		)	(1,288		)	(5,251		)	(1,084		)	—			(99		)	—			—
Realized and unrealized losses on derivatives	(3,337		)	(3,628		)	(1,033		)	(742		)	(3,628		)	(1,033		)	(742		)	(480		)	—
Net income (loss)	(11,868		)	2,109			921			(13,056		)	(74		)	(3,044		)	(16,295		)	1,968			(2,758		)
Less:
Preferred stock dividends	(18,566		)	(5,484		)	(3,656		)	(16,738		)	(2,072		)	—			(2,112		)	—			—
Net income (loss) attributable to common stockholders	$	(30,434	)	$	(3,375	)	$	(2,735	)	$	(29,794	)	$	(2,146	)	$	(3,044	)	$	(18,407	)	$	1,968		$	(2,758	)
Net income (loss) per common share — basic and diluted	$	(0.92	)	$	(0.10	)	$	(0.08	)	$	(0.90	)	$	(0.06	)	$	(0.09	)	$	(0.56	)	$	0.09		$	(0.12	)
Weighted average number of shares used to calculate net income (loss) attributable to common stockholders — basic and diluted(2)(3)(4)(5)	33,025			33,099			33,000			33,000			33,099			33,000			33,000			22,479			22,091

(1)	Includes stock-based compensation expense of $25.5 million for the year ended December 31, 2012 and $3.13 million and $3.97 million for the three months ended March 31, 2013 and 2012, respectively.
(2)	Weighted average shares excluded from the calculation of the denominator for diluted earnings per common share as these shares were anti-dilutive were (i) 324,047 shares of weighted average restricted stock and 14,253,107 shares of common stock resulting from an assumed conversion of the Company’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock for the twelve months ended March 31, 2013; (ii) 579,019 shares of weighted average restricted stock and 17,491,500 shares of common stock resulting from an assumed conversion of the Company’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock for the three months ended March 31, 2013; (iii) 19,750 shares of weighted average restricted stock and 10,516,500 shares of common stock resulting from an assumed conversion of the Company’s Series B Convertible Preferred Stock for the three months ended March 31, 2012; and, (iv) 184,230 shares of weighted average restricted stock and 12,509,357 shares of common stock resulting from an assumed conversion of the Company’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock for the year ended December 31, 2012.
(3)	The three months ended March 31, 2013 excludes 579,019 shares of weighted average restricted stock and 7,422,400 shares of common stock resulting from an assumed conversion of the Company’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock from the calculation of the denominator for diluted earnings per common share as these shares were anti-dilutive. The three months ended March 31, 2012 excludes 1,455,810 shares of weighted average restricted stock from the calculation of the denominator for diluted earnings per common share as these shares were anti-dilutive.

15

(4)

The year ended December 31, 2012 excludes 184,230 shares of weighted average restricted stock and 1,992,857 shares of common stock resulting from an assumed conversion of the Company’s Series A Convertible Preferred Stock from the calculation of the denominator for diluted earnings per common share as these shares were anti-dilutive. The Company had no outstanding stock awards prior to its initial grants in January 2012.

(5)

Weighted average shares used to compute earnings (loss) per share for the years ended December 31, 2011 and 2010 represent those shares issued to SEP I by the Company in connection with and as partial consideration for the acquisition of the SEP I Assets, which shares have been retroactively reflected as outstanding for the periods presented.

	Pro Forma								Historical
	Twelve Months Ended March 31,		Three Months Ended March 31,				Year Ended December 31,		Three Months Ended March 31,					Year Ended December 31,
	2013		2013		2012		2012		2013		2012			2012			2011		2010
	(in thousands)
Other financial data:
EBITDA	$	66,234	$	29,705	$	8,953	$	45,482	$	14,362	$	(808	)	$	(348	)	$	6,219	$	(1,328	)
Adjusted EBITDA	93,666		35,721		13,511		71,456		20,378		3,750			25,626			6,699		(1,328		)

	Pro Forma		Historical
	As of March 31,		As of March 31,		As of December 31,
	2013		2013		2012		2011		2010
	(in thousands)
Balance sheet data:
Cash and cash equivalents	$	55,697	$	269,630	$	50,347	$	63,041	$	—
Oil and natural gas properties, net	714,633		431,304		348,855		151,334		24,040
Total assets	791,627		716,656		426,574		217,356		26,765
Long-term debt	113,800		50,000		—		—		—
Total liabilities	201,031		133,110		59,831		2,215		4,603
Stockholders’ equity	590,596		583,546		366,743		215,141		22,162

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

We define EBITDA as net income (loss):

·Plus:

·Interest expense, including realized and unrealized losses on interest rate derivative contracts;

·Income tax expense (benefit);

·Depreciation, depletion, and amortization;

·Accretion of asset retirement obligations;

·Less:

·Interest income;

We define Adjusted EBITDA as EBITDA:

·Plus:

·Loss (gain) on sale of oil and natural gas properties;

16

·Unrealized losses on derivatives;

·Impairment of oil and natural gas properties;

·Stock-based compensation expense; and

·Other non-recurring items that we deem appropriate.

·Less:

·Unrealized gains on derivatives; and

·Other non-recurring items that we deem appropriate.

EBITDA and Adjusted EBITDA are used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess:

·our operating performance as compared to that of other companies and companies in our industry, without regard to financing methods, capital structure or historical cost basis; and

·our ability to incur and service debt and fund capital expenditures.

Our EBITDA and Adjusted EBITDA should not be considered an alternative to net income or loss, operating income or loss, cash flows provided by or used in operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate EBITDA and Adjusted EBITDA in the same manner.

The following table presents a reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA:

	Pro Forma
	Twelve Months Ended March 31,			Three Months Ended March 31,						Year Ended December 31,
	2013			2013			2012			2012
	(in thousands)
Net income (loss)	$	(11,868	)	$	2,109		$	921		$	(13,056	)
Plus:
Interest expense	3,344			1,467			625			2,502
Amortization of debt issuance costs	2,522			436			663			2,749
Depreciation, depletion, amortization and accretion	72,323			25,714			6,752			53,361
Less:
Interest income	(87		)	(21		)	(8		)	(74		)
EBITDA	66,234			29,705			8,953			45,482
Plus:
Stock-based compensation	24,706			3,134			3,970			25,542
Unrealized losses on derivative instruments	2,726			2,882			588			432
Adjusted EBITDA	$	93,666		$	35,721		$	13,511		$	71,456

17

	Historical
	Three Months Ended March 31,						Year Ended December 31,
	2013			2012			2012			2011			2010
	(in thousands)
Net income (loss)	$	(74	)	$	(3,044	)	$	(16,295	)	$	1,968		$	(2,758	)
Plus:
Interest expense	842			—			—			—			—
Amortization of debt issuance costs	242			—			99			—			—
Depreciation, depletion, amortization and accretion	13,373			2,244			15,922			4,252			1,430
Less:
Interest income	(21		)	(8		)	(74		)	(1		)	—
EBITDA	14,362			(808		)	(348		)	6,219			(1,328		)
Plus:
Stock-based compensation	3,134			3,970			25,542			—			—
Unrealized losses on derivative instruments	2,882			588			432			480			—
Adjusted EBITDA	$	20,378		$	3,750		$	25,626		$	6,699		$	(1,328	)

18

EX-99.2

Exhibit 99.2

Sanchez Energy Completes Acquisition of New Core Area in the Eagle Ford Shale

Houston, Texas — (PR Newswire) — May 31, 2013 — Sanchez Energy Corporation (NYSE: SN), a fast growing independent oil and gas company targeting the liquids-rich Eagle Ford Shale, Austin Chalk, Buda Limestone, and Pearsall Shale, today reported the closing of the previously announced acquisition of Eagle Ford Shale assets from Hess Corporation with an effective date of March 1, 2013.  Including the $13.25 million deposit previously paid, total consideration for the acquisition was $280.4 million, which includes the $265.0 million purchase price and $15.4 million in normal and customary closing adjustments.  The final purchase price is subject to further customary post-closing adjustments.  The transaction was funded from cash on hand from the net proceeds of the previously issued $225 million of 6.50% Cumulative Perpetual Convertible Preferred Stock, Series B and drawings under the Company’s first lien credit facility.

Tony Sanchez III, President and Chief Executive Officer of Sanchez Energy, commented: “This targeted Eagle Ford Shale oil weighted acquisition adds an additional core Eagle Ford operating area with solid proved reserves, production and cash flow. Additionally, it contributes considerable upside to our already substantial asset base and growing production profile with the benefit of significantly increasing our future financial flexibility.  From all respects, this acquisition further advances our core strategy as a rapidly growing, oil resource Company.”

About Sanchez Energy Corporation

Sanchez Energy Corporation is a Houston, Texas based growth oriented independent exploration and production company currently focused on the prolific Eagle Ford Shale trend of south Texas.  The Company has approximately 139,000 net acres targeting the liquids-rich Eagle Ford Shale, Austin Chalk, Buda Limestone, and Pearsall Shale. For more information about Sanchez Energy Corporation, please visit our website:  www.sanchezenergycorp.com

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Sanchez Energy expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the company based on management’s experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words “will,” “potential,” “believe,” “estimate,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “project,” “profile,” “model,” or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a number of assumptions,

risks and uncertainties, many of which are beyond the control of Sanchez Energy, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements, including, but not limited to, the assumption of unknown liabilities in the acquisition, failure of the acquired assets to produce as anticipated, failure to successfully integrate the acquired assets, the continued production of oil and gas at historical rates, realization of anticipated benefits from our recently closed acquisition, costs of operations, delays, and any other difficulties related to producing oil or gas, the price of oil or gas, marketing and sales of produced oil and gas, estimates made in evaluating reserves, competition, general economic conditions and the ability to manage and continue growth and other factors described in Sanchez Energy’s Annual Report for the fiscal year ended December 31, 2012 and any updates to those risk factors set forth in Sanchez Energy’s Quarterly Reports on Form 10-Q.  Further information on such assumptions, risks and uncertainties is available in Sanchez Energy’s filings with the Securities and Exchange Commission (“SEC”). Sanchez Energy’s filings with the SEC are available on its website at www.sanchezenergycorp.com and on the SEC’s website at www.sec.gov.  Any forward-looking statement speaks only as of the date on which such statement is made and Sanchez Energy undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Cautionary Note to U.S. Investors

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves.  We may use certain terms in our press releases, such as net resource potential and other variations of the foregoing terms that the SEC’s guidelines strictly prohibit us from including in filings with the SEC.  U.S. Investors are urged to consider closely the reserves disclosures in our filings with the SEC available on our website at www.sanchezenergycorp.com and the SEC’s website at www.sec.gov.  You can also obtain this information from the SEC by calling its general information line at 1-800-SEC-0330.

# # #

Company contact:
Michael G. Long
Senior Vice President and Chief Financial Officer
Sanchez Energy Corporation
(713) 783-8000

EX-99.3

Exhibit 99.3

Sanchez Energy Announces Revised 2013 Capital Program and Production Guidance for 2013 and 2014

Houston, Texas – (PR Newswire) – June 3, 2013 – Sanchez Energy Corporation (NYSE: SN), a fast growing independent oil and gas company targeting the liquids-rich Eagle Ford Shale, Austin Chalk, Buda Limestone, and Pearsall Shale, today provided a capital spending and operations update following the closing of its acquisition of the Cotulla Eagle Ford properties from Hess Corporation.

Summary Highlights

·Estimated average production rate for May 2013, pro forma for the Cotulla assets, of 12,200 BOE/d, an increase of over 200% over our average 2013 first quarter production rate of 3,943 BOE/d

·Increased 2013 total capital expenditure program of approximately $475 million as compared to the previously announced level of $347 million, with over 90% of the capital spending directed to the drilling and completion of approximately 47 net (65 gross) wells

·Estimated 2013 production exit rate range of 15,000 to 17,000 BOE/d, an increase of over 255%, at the midpoint of the range, over our 2012 exit rate of approximately 4,500 BOE/d

·Estimated 2014 production exit range of 20,000 to 22,000 BOE/d

·Proved reserves, pro-forma for the acquired Cotulla assets, of 36.3 mmboe (87% liquids), with a PV-10 of $734 million (PV-10 is a non-GAAP financial measure.  See “Reconciliation of PV-10 to Standardized Measure” below)

Management Comments

Tony Sanchez III, President and Chief Executive Officer of Sanchez Energy, commented: “As a result of the closing of our Cotulla asset acquisition and an updated review of our operational opportunities, we have increased our 2013 capital program and activity levels. The primary change to our capital program is the result of the addition of the new Cotulla assets, where we expect to run one rig continuously drilling approximately 10 net wells for the remainder of 2013.  Furthermore, due to continued strong well performance in our Palmetto area, we have increased the number of wells we expect to drill by 4.5 net (9 gross) wells to a total of 17 net (34 gross) wells in 2013.  In order to accommodate the increased well count in the Palmetto area, we expect a third rig to be added during the second half of the year.  Given that we, along with our partner Marathon Oil Corporation, have shifted our development plans to an average of four wells per pad in this area, we expect the incremental production resulting from this increased well count to come on line either late in the fourth quarter of this year or early next year.

In the Marquis area, we continue to experience strong well performance and are on track to drill a total of 18 gross and net wells this year.  A second rig is expected to arrive in the area this month, and we have shifted our operations and development plans to focus on multi-well pad drilling.

This increased level of activity is well within our technical and administrative capabilities and should enable us to reach a 2013 year-end production exit rate range of 15,000 to 17,000 BOE/d as well as position us for continued strong production growth through 2014, which we expect to exit producing between 20,000 and 22,000 BOE/d.”

2013 Capital Program and Operating Plans

Sanchez Energy’s 2013 updated capital program calls for total spending of approximately $475 million to drill 46.7 net (65 gross) wells and to fund production facilities and related expenditures, additional acreage acquisition, and seismic expenditures. Over 90% of the capital program will be allocated towards drilling and completing wells in the Company’s four project areas, as outlined below:

Project Area	Planned Gross Wells	Planned Net Wells	Drilling Budget ($MM)
Marquis	18	18.0	$	180
Palmetto	34	17.0	170
Cotulla	11	9.7	75
Maverick	2	2.0	10
Total Eagle Ford	65	46.7	$	435
Facilities, Leasing, & Seismic			40
Total Capital Program			$	475

2013 Operating and Financial Guidance

The following table provides the Company’s operating and financial guidance for 2013:

Metrics	Range
Production Guidance
Full Year 2013 Production (MBOE)	3,500	—	4,000
2013 Year-End Exit Rate (BOE/d)	15,000	—	17,000
2014 Year-End Exit Rate (BOE/d)	20,000	—	22,000
Full Year 2013 Financial Guidance ($/BOE)
Lease Operating Expense	$9.00	—	$10.00
Production & Ad Valorem Taxes	$6.00	—	$7.00
G&A, Excluding Stock-Based Compensation	$5.00	—	$6.00

Reconciliation of PV-10 to Standardized Measure

The following table reconciles PV-10 to our standardized measure of discounted future net cash flows, the most directly comparable measure calculated and presented in accordance with GAAP. PV-10 should not be considered as an alternative to the standardized measure as computed under GAAP. Standardized measure is calculated in accordance with Statement of Financial Accounting Standards No. 69, “Disclosures About Oil and Gas Producing Activities,” as codified in ASC Topic 932, “Extractive Activities—Oil and Gas.” For further information regarding the calculation of the standardized measure,

see “Unaudited Supplementary Information” included in the financial statements included in our Annual Report for the fiscal year ended December 31, 2012.

	Pro Forma As of March 31, 2013 (in millions)
PV-10	$	734.3
Present Value of Future Income Taxes Discounted at 10%	(174.5		)
Standardized Measure	$	559.8

About Sanchez Energy Corporation

Sanchez Energy Corporation is a Houston, Texas based growth oriented independent exploration and production company currently focused on the prolific Eagle Ford Shale trend of south Texas.  The Company has approximately 139,000 net acres targeting the liquids-rich Eagle Ford Shale, Austin Chalk, Buda Limestone, and Pearsall Shale. For more information about Sanchez Energy Corporation, please visit our website:  www.sanchezenergycorp.com

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Sanchez Energy expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the company based on management’s experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words “will,” “potential,” “believe,” “estimate,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “project,” “profile,” “model,” or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Sanchez Energy, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements, including, but not limited to, the assumption of unknown liabilities in the acquisition, failure of the acquired assets to produce as anticipated, failure to successfully integrate the acquired assets, the continued production of oil and gas at historical rates, realization of anticipated benefits from our recently closed acquisition, costs of operations, delays, and any other difficulties related to producing oil or gas, the price of oil or gas, marketing and sales of produced oil and gas, estimates made in evaluating reserves, competition, general economic conditions and the ability to manage and continue growth and other factors described in Sanchez Energy’s Annual Report for the fiscal year ended December 31, 2012 and any updates to those risk factors set forth in Sanchez Energy’s Quarterly Reports on Form 10-Q.

Further information on such assumptions, risks and uncertainties is available in Sanchez Energy’s filings with the Securities and Exchange Commission (“SEC”). Sanchez Energy’s filings with the SEC are available on its website at www.sanchezenergycorp.com and on the SEC’s website at www.sec.gov.  Any forward-looking statement speaks only as of the date on which such statement is made and Sanchez Energy undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Cautionary Note to U.S. Investors

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves.  We may use certain terms in our press releases, such as net resource potential and other variations of the foregoing terms that the SEC’s guidelines strictly prohibit us from including in filings with the SEC.  U.S.  Investors are urged to consider closely the reserves disclosures in our filings with the SEC available on our website at www.sanchezenergycorp.com and the SEC’s website at www.sec.gov.  You can also obtain this information from the SEC by calling its general information line at 1-800-SEC-0330.

# # #

Company contact:
Michael G. Long
Senior Vice President and Chief Financial Officer
Sanchez Energy Corporation
(713) 783-8000

EX-99.4

Exhibit 99.4

Report of Independent Auditors

Board of Directors and Stockholders

Sanchez Energy Corporation

Houston, Texas

We have audited the accompanying statements of revenues and direct operating expenses of the working interests in oil and natural gas producing properties acquired (the “Cotulla Assets”) by Sanchez Energy Partners and subsidiaries (the “Company”) on May 31, 2013 from Hess Corporation for the years ended December 31, 2012 and 2011.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these statements of revenues and direct operating expenses in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. The accompanying statements of revenues and direct operating expenses were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 1 and are not intended to be a complete presentation of the results of operations of the Cotulla Assets.

Auditor’s Responsibility

Our responsibility is to express an opinion on these statements of revenues and direct operating expenses based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of revenues and direct operating expenses are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statements of revenues and direct operating expenses. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statements of revenues and direct operating expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the statements of revenues and direct operating expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statements of revenues and direct operating expenses.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the statements of revenues and direct operating expenses referred to above present fairly, in all material respects, the revenues and direct operating expenses of the Cotulla Assets for the years ended December 31, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Houston, Texas

May 31, 2013

Statements of Revenues and Direct Operating Expenses

Of the Oil and Natural Gas Properties Sanchez Energy Corporation

Purchased on May 31, 2013 from Hess Corporation

(in thousands)

	For the
	Three Months Ended				For the Year Ended
	March 31,				December 31,
	2013		2012		2012		2011
	(Unaudited)
Revenues	$	32,919	$	16,423	$	101,970	$	18,662
Direct operating expenses:
Oil and natural gas production expenses	15,823		5,877		50,743		13,678
Production and ad valorem taxes	1,753		785		5,397		908
Total direct operating expenses	17,576		6,662		56,140		14,586
Excess of revenues over direct operating expenses	$	15,343	$	9,761	$	45,830	$	4,076

The accompanying notes are an integral part of these statements of revenues and direct operating expenses.

Statements of Revenues and Direct Operating Expenses

Of the Oil and Natural Gas Properties Sanchez Energy Corporation

Purchased on May 31, 2013 from Hess Corporation

Notes to the Financial Statements

Note 1. The Properties

On March 18, 2013, Sanchez Energy Corporation (together with its consolidated subsidiaries, the “Company,” “we,” “our,” “us” or similar terms) entered into a definitive agreement to purchase assets in the Eagle Ford Shale in South Texas (the “Properties”) from Hess Corporation (“Hess”) for approximately $265 million in cash, subject to customary adjustments.  The closing of this transaction was completed on May 31, 2013 for an aggregate adjusted purchase price of $280.4 million, subject to customary post-closing adjustments.

Note 2. Basis of Presentation

During the periods presented, the Properties were not accounted for or operated as a separate division by Hess.  Certain costs, such as depreciation, depletion and amortization, accretion, general and administrative expenses, interest and corporate income taxes were not allocated to the individual properties.  Accordingly, full separate financial statements prepared in accordance with accounting principles generally accepted in the United States do not exist and are not practicable to obtain in these circumstances.

Revenues and direct operating expenses included in the accompanying financial statements represent Hess’s net working interest in the properties acquired for the year ended December 31, 2012 and 2011 and the three months ended March 31, 2013 and 2012 and are presented on the accrual basis of accounting.  The revenues and direct operating expenses presented herein relate only to the interest in the producing oil and natural gas properties acquired and do not represent all of the oil and natural gas operations of Hess, the other owners, or other third party working interest owners.  Depreciation, depletion and amortization, accretion, general and administrative expenses, interest and corporate income taxes have been excluded.  The financial statement presented are not indicative of the results of operations of the properties described above going forward due to changes in the business and inclusion of results for a full year.

The Company reviewed events occurring after the date of the latest financial statement which could affect the Properties’ results of operations for the period.  The Company reviewed and evaluated events through May 31, 2013, the date these financial statements were available to be issued.

Note 3. Commitments and Contingencies

Pursuant to the terms of the definitive agreement between the Company and Hess, any claims, litigation or disputes pending as of the effective date (March 1, 2013) and any matters arising in connection with ownership of the Properties prior to the effective date are retained by Hess.  Notwithstanding this indemnification, the Company is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the statements of revenue and direct operating expenses.

Statements of Revenues and Direct Operating Expenses

Of the Oil and Natural Gas Properties Sanchez Energy Corporation

Purchased on May 31, 2013 from Hess Corporation

Supplemental Oil and Natural Gas Information

(Unaudited)

Oil and Natural Gas Reserve Information

Proved oil, natural gas liquids (“NGLs”) and natural gas reserve quantities are based on estimates prepared by the Ryder Scott Company L.P. and from information provided by Hess, in accordance with guidelines established by the Securities and Exchange Commission.

There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures.  Prior year reserve data was calculated using only production and new discovery quantities and valuation. The following reserve data represents estimates only and should not be considered exact:

	Oil (mbo)		Natural Gas Liquids (mbbl)		Natural Gas (mmcf)		mboe
Balance as of December 31, 2010	—		—		—		—
Extensions and discoveries	10,765		2,015		20,035		16,118
Production	(191	)	(19	)	(174	)	(239	)
Balance as of December 31, 2011	10,574		1,996		19,861		15,879
Production	(945	)	(142	)	(1,044	)	(1,261	)
Balance as of December 31, 2012	9,629		1,854		18,817		14,618
Proved developed reserves:
As of December 31, 2011	5,491		1,058		12,046		8,556
As of December 31, 2012	4,546		916		11,002		7,295
Proved undeveloped reserves:
As of December 31, 2011	5,083		938		7,815		7,323
As of December 31, 2012	5,083		938		7,815		7,323

Future Net Cash Flows

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves (“Standardized Measure”) is a disclosure requirement under Accounting Standards Codification (“ASC”) 932.  The Standardized Measure does not purport to be, nor should it be interpreted to present, the fair market value of the proved oil and natural gas reserves of the Properties acquired by the Company, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.  An estimate of fair market value would also take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.

For the December 31, 2012 and 2011 calculations in the following table, estimated future cash inflows were based on the average prices during the 12-month period prior to the ending date of the period covered in the report, determined as the unweighted arithmetic average of the prices in effect on the first-day-of-the month for each month within such period, unless prices were defined by contractual arrangements. The pricing used for the estimates of the Company’s reserves of oil and condensate as of December 31, 2012 and 2011 was based on an unweighted twelve month West Texas Intermediate posted price of $92.63, respectively. For NGLs, the average price was based on an unweighted twelve month Mt. Belvieu posted price of $38.71 as of December 31, 2012 and 2011, respectively.  For natural gas the average price was based on an unweighted twelve month Henry Hub spot natural gas price average of $2.95 as of December 31, 2012 and 2011, respectively.  Operating costs, production and

Statements of Revenues and Direct Operating Expenses

Of the Oil and Natural Gas Properties Sanchez Energy Corporation

Purchased on May 31, 2013 from Hess Corporation

Supplemental Oil and Natural Gas Information

(Unaudited)

ad valorem taxes and future development costs are based on current costs with no escalation in future years.  Future income taxes are calculated at the statutory federal income tax rate of 35%.  The estimated future net cash flows are then discounted at a rate of 10%.  No deduction has been made for general and administrative expense, interest expense or depreciation, depletion and amortization.

The following table sets forth unaudited information concerning future net cash flows for oil and natural gas reserves associated with the Properties (in thousands):

	As of December 31,
	2012			2011
Standardized Measure
Future cash inflows	$	1,070,505		$	1,172,475
Future production costs	(331,885		)	(388,024		)
Future development costs	(176,356		)	(176,356		)
Future income taxes	(181,257		)	(197,298		)
Discount to present value at 10% annual rate	(174,455		)	(193,869		)
Standardized measure of discounted future net cash flows	$	206,552		$	216,928

The following table sets forth the principal sources of change in discounted future net cash flows associated with the Properties for the years ended December 31, 2012 and 2011, respectively (in thousands):

	Year Ended December 31,
	2012			2011
Summary of Changes
Balance, beginning of period	$	216,928		$	—
Sales of oil and gas - net of production costs	(45,830		)	(4,076		)
Extensions and discoveries	—			326,725
Net change in income taxes	6,656			(105,721		)
Accretion of discount	21,693			—
Other - net	7,105			—
Net change	(10,376		)	216,928
Balance, end of period	$	206,552		$	216,928

EX-99.5

Exhibit 99.5

Sanchez Energy Corporation

Unaudited Pro Forma Combined Financial Information

On March 18, 2013, Sanchez Energy Corporation (together with its consolidated subsidiaries, the “Company,” “we,” “our,” “us” or similar terms) executed a definitive agreement to purchase assets in the Eagle Ford Shale in South Texas from Hess Corporation (“Hess”) for approximately $265 million in cash, subject to customary adjustments (the “Hess acquisition”).  The closing of this transaction was completed on May 31, 2013 for an aggregate adjusted purchase price of $280.4 million, subject to customary post-closing adjustments to be determined.  The effective date of this acquisition is March 1, 2013.  The purchase price was funded with borrowings under the Company’s first lien credit agreement (the “First Lien Credit Agreement”) and proceeds from the Company’s private placement of preferred stock, described below.

In connection with the proposed Hess acquisition, the Company entered into commitment letters for $325 million in debt financing and issued the Series B Convertible Preferred Stock described below.  The $325 million in debt financing contemplated by the commitment letters consisted of an amendment and restatement of the Company’s First Lien Credit Agreement described below to increase the borrowing base from the current $95 million to $175 million and a $150 million bridge loan credit facility.  Availability of the debt financing was conditioned upon, and was intended to be available concurrently with, the closing of the Hess acquisition and subject to the satisfaction of various customary closing conditions, including the execution and delivery of definitive documents.  The Company did not utilize the bridge loan credit facility.

On March 27, 2013, the Company completed a private placement of 4,500,000 shares of 6.500% Cumulative Perpetual Convertible Preferred Stock, Series B, par value $0.01 per share and liquidation preference of $50 per share (the “Series B Convertible Preferred Stock”), which were sold in a private offering to eligible purchasers under the Securities Act. The issue price of each share of the Series B Convertible Preferred Stock was $50.00. The Company received net proceeds from the private placement of approximately $216.6 million, after deducting placement agent’s fees and offering costs payable by the Company of approximately $8.4 million.

The following unaudited pro forma combined financial information is based on the historical consolidated financial statements of the Company adjusted to reflect the Hess acquisition.  The Company’s historical balance as of March 31, 2013 has been adjusted to include the pro forma effect of the Hess acquisition as presented in Note 2 to the unaudited pro forma combined financial information.  The Company’s historical consolidated statements of operations for the year ended December 31, 2012 and the three months ended March 31, 2013 have also been adjusted to give pro forma effect to the Hess acquisition as presented in Note 3 to the unaudited pro forma combined financial information.

The unaudited pro forma combined financial statements give effect to the events set forth below:

·The Hess acquisition completed May 31, 2013.

·The increase in borrowings under the First Lien Credit Agreement to finance a portion of the acquisition, and the related adjustments to interest expense.

·Issuance of Series B Convertible Preferred Stock and related adjustments to preferred dividends.

The unaudited pro forma combined balance sheet gives effect to the Hess acquisition, and the increase in borrowings under the First Lien Credit Agreement, as if they occurred on March 31, 2013.  The unaudited pro forma combined statements of operations combine the results of operations of the Company for the year ended December 31, 2012 and the three months ended March 31, 2013, as if the Hess acquisition, including the issuance of the Series B Convertible Stock and other financing transactions, had occurred on January 1, 2012.

The unaudited pro forma combined financial information should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2012 and the Company’s Form 10-Q for the quarter ended March 31, 2013.

The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations or financial position that the Company would have reported had the Hess acquisition been completed as of the dates set forth in this unaudited pro forma combined financial information and should not be taken as indicative of the Company’s future combined results of operations or financial position.  The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.

Unaudited Pro Forma Combined

Balance Sheet as of March 31, 2013

(in thousands)

				Pro Forma
				Adjustments
				Hess			Sanchez
	Sanchez			Acquisition			Pro Forma
	Historical			(Note 2)			Combined
ASSETS
Current assets:
Cash and cash equivalents	$	269,630		$	63,800	(a)
				(5,575		)(a)
				(272,158		)(b)	$	55,697
Oil and natural gas receivables	10,754			—			10,754
Fair value of derivative instruments	343			—			343
Other current assets	525			—			525
Total current assets	281,252			(213,933		)	67,319
Oil and natural gas properties, at cost, using the full cost method:
Unproved oil and natural gas properties	157,383			31,136		(b)	188,519
Proved oil and natural gas properties	309,873			252,193		(b)	562,066
Total oil and natural gas properties	467,256			283,329			750,585
Less: Accumulated depreciation, depletion, amortization and impairment	(35,952		)	—			(35,952		)
Total oil and natural gas properties, net	431,304			283,329			714,633
Other assets:
Debt issuance costs	3,229			5,575		(a)	8,804
Fair value of derivative instruments	58			—			58
Other assets	813			—			813
Total assets	$	716,656		$	74,971		$	791,627
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable - related entities	$	30,360		$	—		$	30,360
Accrued liabilities	48,526			—			48,526
Derivative premium liabilities	1,003			—			1,003
Fair value of derivative instruments	1,200			—			1,200
Total current liabilities	81,089			—			81,089
Long term debt	50,000			63,800		(a)	113,800
Fair value of derivative instruments	389						389
Asset retirement obligations	1,632			4,121		(b)	5,753
Total liabilities	133,110			67,921			201,031
Commitments and contingencies
Stockholders’ equity:
Preferred stock	75			—			75
Common stock	346			—			346
Additional paid-in capital	603,738			—			603,738
Accumulated (deficit) retained earnings	(20,613		)	7,050			(13,563		)
Total stockholders’ equity	583,546			7,050			590,596
Total liabilities and stockholders’ equity	$	716,656		$	74,971		$	791,627

Unaudited Pro Forma Combined

Statement of Operations

For the Three Months Ended March 31, 2013

(in thousands)

				Pro Forma
				Adjustments
				Hess			Sanchez
	Sanchez			Acquisition			Pro Forma
	Historical			(Note 3)			Combined
	(in thousands, except per share amounts)
REVENUES:
Oil sales	$	29,327		$	30,719		$	60,046
Natural gas liquids sales	740			1,057			1,797
Natural gas sales	737			1,143			1,880
Total revenues	30,804			32,919		(a)	63,723
COSTS AND EXPENSES:
Oil and natural gas production expenses	3,027			15,823		(b)	18,850
Production and ad valorem taxes	2,050			1,753		(c)	3,803
Depreciation, depletion, amortization and accretion	13,373			12,341		(d)	25,714
General and administrative	7,737			—			7,737
Total operating costs and expenses	26,187			29,917			56,104
Operating income	4,617			3,002			7,619
Other income (expense):
Interest and other income	21			—			21
Interest expense	(1,084		)	(819		)(e)	(1,903		)
Realized and unrealized losses on derivatives	(3,628		)	—			(3,628		)
Net income (loss)	(74		)	2,183			2,109
Less:
Preferred stock dividends	(2,072		)	(3,412		)(f)	(5,484		)
Net loss attributable to common stockholders	$	(2,146	)	$	(1,229	)	$	(3,375	)
Net loss per common share - basic and diluted	$	(0.06	)				$	(0.10	)
Weighted average number of shares used to calculate net loss attributable to common stockholders - basic and diluted	33,099						33,099

Unaudited Pro Forma Combined

Statement of Operations

For the Year Ended December 31, 2012

				Pro Forma
				Adjustments
				Hess			Sanchez
	Sanchez			Acquisition			Pro Forma
	Historical			(Note 3)			Combined
	(in thousands, except per share amounts)
REVENUES:
Oil sales	$	42,377		$	96,855		$	139,232
Natural gas liquids sales	15			3,091			3,106
Natural gas sales	766			2,024			2,790
Total revenues	43,158			101,970		(a)	145,128
COSTS AND EXPENSES:
Oil and natural gas production expenses	3,401			50,743		(b)	54,144
Production and ad valorem taxes	2,124			5,397		(c)	7,521
Depreciation, depletion, amortization and accretion	15,922			37,439		(d)	53,361
General and administrative	37,239			—			37,239
Total operating costs and expenses	58,686			93,579			152,265
Operating income (loss)	(15,528		)	8,391			(7,137		)
Other income (expense):
Interest and other income	74			—			74
Interest expense	(99		)	(5,152		)(e)	(5,251		)
Realized and unrealized losses on derivatives	(742		)	—			(742		)
Net income (loss)	(16,295		)	3,239			(13,056		)
Less:
Preferred stock dividends	(2,112		)	(14,626		)(f)	(16,738		)
Net loss attributable to common stockholders	$	(18,407	)	$	(11,387	)	$	(29,794	)
Net loss per common share - basic and diluted	$	(0.56	)				$	(0.90	)
Weighted average number of shares used to calculate net loss attributable to common stockholders - basic and diluted	33,000						33,000

Notes to Unaudited Pro Forma

Combined Financial Information

Note 1. Basis of Presentation

On March 18, 2013, the Company executed a definitive agreement to purchase assets in the Eagle Ford Shale in South Texas from Hess Corporation (“Hess”) for approximately $265 million in cash, subject to customary adjustments (the “Hess acquisition”).  The closing of this transaction was completed on May 31, 2013 for an aggregate adjusted purchase price of $280.4 million, subject to customary post-closing adjustments to be determined.  The effective date of this acquisition is March 1, 2013.  The purchase price was funded with borrowings under the Company’s first lien credit agreement (the “First Lien Credit Agreement”) and proceeds from the Company’s private placement of preferred stock, described below.

In connection with the proposed Hess acquisition, the Company entered into commitment letters for $325 million in debt financing and issued the Series B Convertible Preferred Stock described below.  The $325 million in debt financing contemplated by the commitment letters consisted of an amendment and restatement of the Company’s First Lien Credit Agreement described below to increase the borrowing base from the current $95 million to $175 million and a $150 million bridge loan credit facility.  Availability of the debt financing was conditioned upon, and was intended to be available concurrently with, the closing of the Hess acquisition and subject to the satisfaction of various customary closing conditions, including the execution and delivery of definitive documents.  The Company did not utilize the bridge loan credit facility.

On March 27, 2013, the Company completed a private placement of 4,500,000 shares of 6.500% Cumulative Perpetual Convertible Preferred Stock, Series B, par value $0.01 per share and liquidation preference of $50 per share (the “Series B Convertible Preferred Stock”), which were sold in a private offering to eligible purchasers under the Securities Act. The issue price of each share of the Series B Convertible Preferred Stock was $50.00. The Company received net proceeds from the private placement of approximately $216.6 million, after deducting placement agent’s fees and offering costs payable by the Company of approximately $8.4 million.

The accompanying unaudited pro forma combined balance sheet as of March 31, 2013 has been prepared to give effect to the Hess acquisition, including the borrowings under the First Lien Credit Agreement and other financing transactions, as if they occurred on March 31, 2013 and the unaudited pro forma combined statements of operations have been prepared to give effect to the Hess acquisition, including the issuance of the Series B Preferred Stock and the borrowings discussed above, as if they had occurred on January 1, 2012.

The unaudited pro forma combined financial statements and underlying pro forma adjustments are based upon currently available information and certain estimates and assumptions made by the Company’s management; therefore, actual results could differ materially from the pro forma information.  However, management believes the assumptions provide a reasonable basis for presenting the significant effects of the Hess acquisition.  The Company believes the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma information.

Note 2. Unaudited Pro Forma Combined Balance Sheet

Adjustments (a) – (b) to the unaudited pro forma combined balance sheet as of March 31, 2013 are to reflect the Company’s Hess acquisition completed on May 31, 2013 as follows:

(a)To record the financing of a portion of the acquisition with borrowings under the Company’s First Lien Credit Agreement, including associated debt issuance costs ($5.6 million).

(b)To record the acquisition of certain unproved and proved oil and natural gas properties and asset retirement obligation ($4.1 million liability) associated with the oil and natural gas properties acquired and estimated transaction expenses of $5.0 million.

Including the $13.3 million deposit previously paid, total cash consideration was $280.4 million, which includes the $265.0 million purchase price and $15.4 million in normal and customary closing adjustments.  The measurement of the fair value at acquisition date of the assets acquired as compared to the fair value of consideration transferred, adjusted for purchase price adjustments, resulted in a gain from bargain purchase of $12.1 million, calculated in the following table (in thousands):

Notes to Unaudited Pro Forma

Combined Financial Information

Fair Value of assets and liabilities acquired:
Oil and natural gas properties	$	296,579
Asset retirement obligation	(4,121		)
Total fair value of assets and liabilities acquired	292,458
Fair value of consideration transferred	280,408
Gain from bargain purchase	$	12,050

Note 3. Unaudited Pro Forma Combined Statement of Operations

The unaudited pro forma combined statements of operations for the three months ended March 31, 2013 and the year ended December 31, 2012 include adjustments to reflect the following:

(a)Represents the increase in oil, natural gas liquids and natural gas sales resulting from the Hess acquisition completed during 2013.

(b)Represents the increase in oil and natural gas production expenses resulting from the Hess acquisition completed during 2013.

(c)Represents the increase in production and ad valorem taxes resulting from the Hess acquisition completed during 2013.

(d)Represents the increase in depreciation, depletion, amortization and accretion resulting from the Hess acquisition completed during 2013.

(e)Represents the pro forma interest expense and amortization of debt issuance costs related to borrowings under the Company’s First Lien Credit Agreement to fund a portion of the Hess acquisition completed during 2013.

(f)Represents the pro forma preferred stock dividends related to the Series B Convertible Preferred Stock, proceeds of which were used to fund a portion of the Hess acquisition completed during 2013.

Summary Pro Forma Combined

Oil, Natural Gas Liquids and Natural Gas

Reserve Data

The following tables set forth summary pro forma information with respect to the Company’s and the Hess acquisition’s pro forma combined estimated net proved, proved developed and proved undeveloped oil, natural gas liquids and natural gas reserves as of and for the year ended December 31, 2012.  This pro forma information gives effect to the Hess acquisition as if it had occurred on January 1, 2012.  Future exploration, exploitation and development expenditures, as well as future commodity prices and services costs, will affect the reserve volumes attributable to the acquired properties and the standardized measure of discounted future net cash flows.

Estimated quantities of oil, natural gas liquids and natural gas reserves as of December 31, 2012:

	Sanchez Historical
	Oil (mbo)		Natural Gas Liquids (mbbl)		Natural Gas (mmcf)		mboe
Balance as of December 31, 2011	5,610		—		6,418		6,680
Revisions of previous estimates	1,022		1		(245	)	981
Extensions and discoveries	12,052		310		9,916		14,015
Purchase of reserves in place	—		—		—		—
Production	(418	)	(1	)	(301	)	(469	)
Balance as of December 31, 2012	18,266		310		15,788		21,207
As of December 31, 2012
Proved developed reserves	3,211		99		2,433		3,716
Proved undeveloped reserves	15,055		211		13,355		17,491
	Hess Acquisition
	Oil (mbo)		Natural Gas Liquids (mbbl)		Natural Gas (mmcf)		mboe
Balance as of December 31, 2011	10,574		1,996		19,861		15,879
Production	(945	)	(142	)	(1,044	)	(1,261	)
Balance as of December 31, 2012	9,629		1,854		18,817		14,618
As of December 31, 2012
Proved developed reserves	4,546		916		11,002		7,295
Proved undeveloped reserves	5,083		938		7,815		7,323
	Sanchez Pro Forma Combined
	Oil (mbo)		Natural Gas Liquids (mbbl)		Natural Gas (mmcf)		mboe
Balance as of December 31, 2011	16,184		1,996		26,279		22,559
Revisions of previous estimates	1,022		1		(245	)	981
Extensions and discoveries	12,052		310		9,916		14,015
Purchase of reserves in place	—		—		—		—
Production	(1,363	)	(143	)	(1,345	)	(1,730	)
Balance as of December 31, 2012	27,895		2,164		34,605		35,825
As of December 31, 2012
Proved developed reserves	7,757		1,015		13,435		11,011
Proved undeveloped reserves	20,138		1,149		21,170		24,814

Summary Pro Forma Combined

Oil, Natural Gas Liquids and Natural Gas

Reserve Data

The standardized measure of discounted future net cash flows relating to the combined proved oil, natural gas liquids and natural gas reserves at December 31, 2012 is as follows (in thousands):

							Sanchez
	Sanchez			Hess			Pro Forma
	Historical			Acquisition			Combined
Standardized Measure
Future cash inflows	$	1,917,692		$	1,070,505		$	2,988,197
Future production costs	(431,347		)	(331,885		)	(763,232		)
Future development costs	(604,543		)	(176,356		)	(780,899		)
Future income taxes	(181,117		)	(181,257		)	(362,374		)
Discount to present value at 10% annual rate	(414,385		)	(174,455		)	(588,840		)
Standardized measure of discounted future net cash flows	$	286,300		$	206,552		$	492,852

For the December 31, 2012 calculations in the preceding table, estimated future cash inflows from estimated future production of proved reserves were computed for oil and condensate using an unweighted twelve month West Texas Intermediate posted price of $94.71 and $92.63, respectively, for the Sanchez historical and the Hess acquisition. For NGLs, the average price was based on an unweighted twelve month Mt. Belvieu posted price of $43.24 and $38.71, respectively, for the Sanchez historical and the Hess acquisition.  For natural gas the average price was based on an unweighted twelve month Henry Hub spot natural gas price average of $2.76 and $2.95, respectively for the Sanchez historical and the Hess acquisition.

The following are the principal sources of change in the combined standardized measure of discounted future net cash flows (in thousands):

							Sanchez
	Sanchez			Hess			Pro Forma
	Historical			Acquisition			Combined
Summary of Changes
Balance, beginning of period	$	133,158		$	216,928		$	350,086
Changes in prices and costs	30,869			—			30,869
Revisions of previous quantity estimates	39,589			—			39,589
Extensions and discoveries	192,075			—			192,075
Sales of oil and gas - net of production costs	(37,633		)	(45,830		)	(83,463		)
Net change in income taxes	(66,109		)	6,656			(59,453		)
Changes in development costs	8,946			—			8,946
Accretion of discount	13,316			21,693			35,009
Other - net	(27,911		)	7,105			(20,806		)
Net change	153,142			(10,376		)	142,766
Balance, end of period	$	286,300		$	206,552		$	492,852