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

May 25, 2007

Date of Report (Date of earliest event reported)

ABRAXAS PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	001-16071	74-2584033
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

500 N. Loop 1604 East, Suite 100

San Antonio, Texas 78232

(210) 490-4788

(Address of principal executive offices and 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):

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

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

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

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

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Item 1.01Entry into a Material Definitive Agreement.

Contribution, Conveyance and Assumption Agreement

On May 25, 2007, Abraxas Petroleum Corporation, which we refer to as Abraxas or the Company, entered into a contribution, conveyance and assumption agreement with Abraxas Energy Partners, L.P., a Delaware limited partnership, which we refer to as Abraxas Energy Partners or the Partnership, Abraxas General Partner, LLC, a Delaware limited liability company and wholly-owned subsidiary of Abraxas which we refer to as the GP, Abraxas Energy Investments, LLC, a Texas limited liability company and wholly-owned subsidiary of Abraxas which we refer to as the LP, and Abraxas Operating, LLC, a Texas limited liability company and wholly-owned subsidiary of Abraxas Energy Partners which we refer to as the Operating Company. Among other things, the contribution agreement provided for the contribution by Abraxas to the Operating Company of certain assets located in South and West Texas in exchange for all of the equity interests of the Operating Company. The assets contributed to the Partnership had estimated proved reserves of approximately 65 Bcfe as of December 31, 2006 and accounted for approximately 85% of Abraxas’ daily production on the date of the contribution.

In consideration for these assets, the Partnership and the Operating Company, jointly and severally, assumed all of Abraxas’ existing indebtedness under its Floating Rate Senior Secured Notes due 2009, which we refer to as the notes, and the obligation to pay certain preformation and transaction expenses and issued General Partner Units and Common Units to the GP and the LP in exchange for their ownership interests in the Operating Company. After consummation of the transactions described under “Partnership Purchase Agreement” below, the General Partner Units and the Common Units owned by the GP and the LP constituted a 47.2% ownership interest in the Partnership. These transfers and distributions were made in a series of steps outlined in the contribution agreement.

Partnership Purchase Agreement

On May 25, 2007, Abraxas Energy Partners sold 6,002,408 Common Units, representing an approximate 52.8% interest in Abraxas Energy Partners, for $16.66 per Common Unit, or approximately $100 million, pursuant to a purchase agreement dated May 25, 2007, to a group of institutional investors. The Common Units have not been registered under the Securities Act of 1933, as amended, or any applicable state securities laws in reliance on the exemption provided by Section 4(2) of the Securities Act and Rule 506 of the regulations promulgated thereunder. The Common Units may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. There was no general solicitation involved in the offer. The Partnership paid a cash commission of $7.0 million out of the proceeds to A.G. Edwards & Sons, Inc. which acted as the Partnership’s placement agent.

Partnership Registration Rights Agreement

The Partnership also entered into a registration rights agreement with the investors on May 25, 2007. Under the registration rights agreement, as soon as practicable after May 25, 2007, the Partnership agreed (a) to prepare and file with the SEC a registration statement for (i) the initial public offering, or IPO, of the Common Units and (ii) a shelf registration statement for the resale of the Common Units by the investors and (b) to use its commercially reasonable efforts to cause the IPO registration statement and the shelf registration statement to be declared effective by February 14, 2008. The Partnership also agreed to cause the shelf registration

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statement to remain continuously effective for a period ending on the date that is the earlier of (i) the date on which all of the Common Units covered by the shelf registration statement have been distributed as set forth in the shelf registration statement, (ii) the date on which the investors may sell all Common Units then held by them without restriction under Rule 144(k), or (iii) the date that such Common Units are otherwise no longer a Registrable Security (as such term is defined in the registration rights agreement).

The Partnership is required to pay liquidated damages if the IPO registration statement or the shelf registration statement is not filed or declared effective by February 14, 2008, if the shelf registration statement is not maintained in accordance with the agreement and with respect to any Common Units required to be included in the shelf registration statement that are not included. The liquidated damages amount payable is $0.04165 per Common Unit entitled to liquidated damages for the first 60 days after February 14, 2008, with such amount increasing by an additional $0.04165 per Common Unit for each 30-day period for the next 60 days up to a maximum of $0.1666 per Common Unit.

Omnibus Agreement

In connection with the transactions contemplated by the purchase agreement, Abraxas, the GP, the Operating Company and the Partnership entered into an omnibus agreement dated as of May 25, 2007. The omnibus agreement governs (i) the obligations of Abraxas to provide certain management services to the Partnership and the Operating Company and (ii) Abraxas’ obligations to indemnify the Partnership and Operating Company against certain environmental and other liabilities that occurred or existed prior to the closing date.

First Amended and Restated Partnership Agreement

On May 25, 2007, the GP, the LP and the investors entered into the First Amended and Restated Partnership Agreement of the Partnership, which we refer to as the Partnership Agreement. Among other things, the Partnership Agreement provides for quarterly distributions of available cash to all of the parties on a pro rata basis, including the GP and the LP.

Partnership Credit Facility

On May 25, 2007, the Partnership entered into a new senior secured revolving credit facility with Société Générale, as administrative agent and issuing lender, and the lenders signatory thereto, which we refer to as the Credit Facility. The Credit Facility has a maximum commitment of $150 million. Availability under the Credit Facility is subject to a borrowing base consistent with normal and customary natural gas and crude oil lending transactions. Outstanding amounts under the Credit Facility bear interest at the reference rate announced from time to time by Société Générale or, if the Partnership elects, at the London Interbank Offered Rate plus 1.25% - 2.25%, depending on the utilization of the borrowing base. Subject to earlier termination rights and events of default, the Credit Facility’s stated maturity date is May 25, 2011. Interest is payable quarterly on reference rate advances and not less than quarterly on Eurodollar advances. The Partnership is permitted to terminate the Credit Facility, and under certain circumstances, may be required, from time to time, to permanently reduce the lenders’ aggregate commitment under the Credit Facility.

Each of the GP and the Operating Company has guaranteed the Partnership’s obligations under the Credit Facility on a senior secured basis. Obligations under the Credit Facility are secured by a first priority perfected security interest, subject to certain permitted encumbrances,

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in all of the GP’s, the Partnership’s and the Operating Company’s material property and assets, other than the GP’s General Partner Units.

Under the Credit Facility, the Partnership is subject to customary covenants, including certain financial covenants and reporting requirements. The Credit Facility requires the Partnership to maintain a minimum current ratio and a net cash interest coverage ratio and also requires the Partnership to enter into hedging agreements for not less than 75% (no more than 90%) of the Partnership’s projected natural gas and crude oil production. On May 25, 2007, the Partnership entered into fixed price commodity swaps at then current market prices on approximately 75% of the Partnership’s projected proved developed producing reserves for the period beginning June 2007 through December 2010.

In addition to the foregoing and other customary covenants, the Credit Facility contains a number of covenants that, among other things, will restrict the Partnership’s ability to:

• incur or guarantee additional indebtedness;

• transfer or sell assets;

• create liens on assets;

• engage in transactions with affiliates;

• make any change in the principal nature of its business; and

• permit a change of control.

The Credit Facility also contains customary events of default, including nonpayment of principal or interest, violations of covenants, cross default and cross acceleration to certain other indebtedness, bankruptcy and material judgments and liabilities.

Abraxas Petroleum Securities Purchase Agreement

On May 25, 2007, Abraxas entered into a Securities Purchase Agreement with certain accredited investors pursuant to which the Company agreed to issue 5,874,678 shares of its common stock, par value $0.01 per share, which we refer to as Common Stock, and warrants, which we refer to as Warrants, to purchase 1,174,938 shares of Common Stock, which we refer to as Warrant Shares, to the investors at a price of $3.83 per share, or an aggregate of $22.5 million in cash before transaction expenses. The Warrants expire on May 25, 2012 and are exercisable at a price of $3.83 per share, subject to certain adjustments. The Common Stock sold by the Company, the Warrants and the Warrant Shares have not been registered under the Securities Act of 1933, as amended, or any applicable state securities laws in reliance on the exemption provided by Section 4(2) of the Securities Act and Rule 506 of the regulations promulgated thereunder. The Common Stock, Warrants and Warrant Shares may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. There was no general solicitation involved in the offer. The Company paid a cash commission of $1.575 million out of the proceeds to A.G. Edwards & Sons, Inc. which acted as the Company’s placement agent.

The Company also agreed promptly following the closing but no later than June 25, 2007, to prepare and file with the Securities and Exchange Commission a registration statement on Form S-3 or such other successor form (except that if the Company is not then eligible to register for resale the Common Stock on Form S-3, then such registration shall be on Form S-1 or any successor form) to enable the resale of the Common Stock and the Warrant Shares, which we

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refer to as Registrable Securities, by the investors or their transferees from time to time over any national stock exchange on which the Company’s Common Stock is then traded, or in privately-negotiated transactions. The Company has agreed to use its commercially reasonable efforts to cause the registration statement to become effective by the 90^th calendar day following the Closing Date, which we refer to as the Required Effective Date, and to remain continuously effective for a period ending on the date that is the earlier of (i) the date on which the investors may sell all Registrable Securities then held by them without restriction under Rule 144(k) or (ii) such time as all Registrable Securities have been sold or otherwise transferred.

If the registration statement is not declared effective by the Required Effective Date, then in addition to any other rights the investors may have under the Registration Rights Agreement or under applicable law, the Company is required to pay an amount in cash as liquidated damages and not as a penalty, equal to 1.0% of the aggregate purchase price paid pursuant to the Purchase Agreement for any of the shares of Common Stock and Warrant Shares then held by such investor per 30-day period.

Exchange and Registration Rights Agreement

Abraxas, Abraxas Energy Partners and the investors in the Common Units of the Partnership also entered into an Exchange and Registration Rights Agreement dated May 25, 2007. Under the terms of this agreement, in the event that the Partnership has not consummated the IPO by November 15, 2008, which we refer to as the Trigger Date, the investors will have the right to convert their common units into shares of Abraxas Common Stock. Each Common Unit will be convertible into a number of shares of Common Stock equal to $16.66 divided by the then current market price of the Common Stock times 0.9. In the event that the rules of the American Stock Exchange or the exchange on which the Common Stock is then traded require stockholder approval for such issuance, Abraxas has agreed to call a special meeting of the stockholders within 60 days of November 15, 2008, which we refer to as the Exchange Filing Date and the executive officers and directors of Abraxas have agreed to vote the shares of Common Stock then held by them in favor of such issuance. Under this agreement, the Company also agreed within 30 days of the Trigger Date, to prepare and file with the Securities and Exchange Commission a registration statement on Form S-3 or such other successor form (except that if the Company is not then eligible to register for resale the Common Stock on Form S-3, then such registration shall be on Form S-1 or any successor form), which we refer to as the Exchange Registration Statement, to enable the resale of the Common Stock, which we refer to as the Exchange Shares, by the investors or their transferees from time to time over any national stock exchange on which the Company’s Common Stock is then traded, or in privately-negotiated transactions. The Company has agreed to use its commercially reasonable efforts to cause the Exchange Registration Statement to become effective by the 120^th calendar day following the Trigger Date, subject to certain exceptions, which we refer to as the Exchange Required Effective Date, and to remain continuously effective for a period ending on the date that is the earlier of (i) the date on which the investors may sell all Exchange Shares then held by the investors without restriction under Rule 144(k), or (ii) such time as all Exchange Shares have been sold or otherwise tranferred.

If the Exchange Registration Statement is not declared effective by the Exchange Required Effective Date, then in addition to any other rights the investors may have under the Exchange and Registration Rights Agreement or under applicable law, the Company is required to pay an amount in cash as liquidated damages and not as a penalty, equal to 1.0% of the aggregate purchase price paid pursuant to the Abraxas Petroleum Securities Purchase Agreement times the number of Exchange Shares then held by such investor.

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The foregoing statements are qualified in their entirety by the provisions of the Contribution, Conveyance and Assumption Agreement, Partnership Purchase Agreement, Partnership Registration Rights Agreement, Partnership Agreement, Partnership Credit Agreement, Abraxas Petroleum Securities Purchase Agreement, the form of Warrant and the Exchange and Registration Rights Agreement filed as exhibits to this report.

Item 1.02 Termination of a Material Definitive Agreement.

In connection with the transactions described in Item 1.01, on May 25, 2007, Abraxas terminated its Loan Agreement dated as of October 28, 2004 with Wells Fargo Foothill, Inc., redeemed the notes and terminated the Indenture dated October 28, 2004 governing the notes. The total pay-off amount under the Loan Agreement was $904,376 and each of the notes was redeemed at 104% of the principal amount plus accrued and unpaid interest to the date of redemption June 24, 2007 for a total of $131.03 million or $1,048.23 per $1,000 of principal amount of the notes.

Item 2.01 Completion of Acquisition or Disposition of Assets.

See Item 1.01 under the caption “Contribution, Conveyance and Assumption Agreement” for a description of the assets conveyed by Abraxas to the Partnership.

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

Please see the description under the caption “Partnership Credit Facility” under Item 1.01. The indebtedness incurred by the Partnership under this facility will be included on Abraxas’ consolidated financial statements.

Item 3.02 Unregistered Sales of Equity Securities.

See Item 1.01 above under the caption “Partnership Purchase Agreement” and “Abraxas Securities Purchase Agreement”. Net proceeds from these transactions of approximately $147.3 million (including $35.0 million borrowed under the Credit Agreement) were used to refinance and repay all of Abraxas’ and its subsidiaries’ outstanding indebtedness (including accrued and unpaid interest due June 1, 2007) and pay preformation and transaction expenses with the excess proceeds dedicated to fund future drilling opportunities and for general corporate purposes.

Item 7.01 Regulation FD Disclosure.

On May 29, 2007, Abraxas announced that it had executed a commitment letter with Société Générale for a $50 million credit facility with an expected initial borrowing base of $6.5 million.

Item 9.01 Financial Statements and Exhibits.

(b) Pro forma financial information.

The following unaudited pro forma financial statements of the Company are included at the end of this Report:

1. Unaudited Pro Forma Condensed Balance Sheets at March 31, 2007.

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2. Unaudited Pro Forma Statement of Operations for the year Ended December 31, 2006 and three months ended March 31, 2007.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information is derived from the historical financial statements of the Company adjusted to reflect the following:

On May 25, 2007, the Company entered into a contribution, conveyance and assumption agreement with Abraxas Energy Partners, L.P., a Delaware limited partnership, Abraxas General Partner, LLC, a Delaware limited liability company and wholly-owned subsidiary of Abraxas , and Abraxas Energy Investments, LLC, a Texas limited liability company and wholly-owned subsidiary of Abraxas. Among other things, the contribution agreement provided for the contribution by Abraxas to the Operating Company of certain assets located in South and West Texas. The assets contributed to the Partnership had estimated proved reserves of approximately 65 Bcfe as of December 31, 2006 and accounted for approximately 85% of Abraxas’ daily production on the date of the contribution.

In consideration for these assets, the Partnership and the Operating Company, jointly and severally, assumed all of Abraxas’ existing indebtedness under its Floating Rate Senior Secured Notes due 2009, and the obligation to pay certain preformation and transaction expenses and issued General Partner Units and Common Units to the GP and the LP in exchange for their ownership interests in the Operating Company.

On May 25, 2007, Abraxas Energy Partners sold 6,002,408 Common Units, representing an approximate 52.8% interest in Abraxas Energy Partners, for $16.66 per Common Unit, or approximately $100 million, pursuant to a purchase agreement dated May 25, 2007, to a group of institutional investors.

On May 25, 2007, Abraxas entered into a Securities Purchase Agreement with certain accredited investors pursuant to which the Company issued 5,874,678 shares of its common stock, par value $0.01 per shareand warrantsto purchase 1,174,938 shares of Common Stock at $3.83 per share.

On May 25, 2007, the Partnership entered into a new senior secured credit facility and borrowed $35.0 million.

The Unaudited Pro Forma Condensed Balance Sheet of the Company as of March 31, 2007, has been prepared assuming that the formation of Abraxas Energy Partners, borrowings under the credit facility and the issuance of common stock were consummated on March 31, 2007. The Unaudited Pro Forma Statements of Operations of the Company for the year ended December 31, 2006 and for the three month period ended March 31, 2007 have been prepared assuming that the formation of Abraxas Energy Partners, borrowings under the credit facility and the issuance of common stock were consummated at the beginning of the reporting period.

The Unaudited Pro Forma Financial Information should be read in conjunction with the notes thereto, the Consolidated Financial Statements of the Company and the notes thereto.

The Unaudited Pro Forma Financial Information is not indicative of the financial position or results of operations of the Company which would actually have occurred if the formation of Abraxas Energy Partners, borrowings under the credit facility and the issuance of common stock

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had occurred at the dates presented or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to normal crude oil and natural gas production declines, reductions in prices paid for crude oil and natural gas, future acquisitions and other factors.

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Abraxas Petroleum Corporation

Unaudited Proforma Condensed Balance Sheet

March 31, 2007

(in thousands)

	Historical		Pro Forma adjustments					Pro Forma
Assets:
Current assets:
Cash	$	610	$	7,419		(	a)	$	8,029
Accounts receivable, net:
Joint owners		949		—					949
Oil and gas production		5,285		—					5,285
Other		37		—					37
		6,271		—					6,271
Other current assets		315		—					315
Total current assets		7,196		7,419					14,615
Property and equipment:
Oil and gas properties, full cost method of accounting:
Proved		351,141		—					351,141
Other property and equipment		3,523		—					3,523
Total		354,664		—					354,664
Less accumulated depreciation, depletion, and amortization		249,208		—					249,208
Total property and equipment – net		105,456		—					105,456
Deferred financing fees, net		4,049		(3,199	)	(	b)		850
Other assets		1,001		—					1,001
Total assets	$	117,702	$	4,220				$	121,922

SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.

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Abraxas Petroleum Corporation

Unaudited Proforma Condensed Balance Sheet (continued)

March 31, 2007

(in thousands)

	Historical			Pro Forma adjustments					Pro Forma
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	2,480		$	—				$	2,480
Oil and gas production payable		2,547			—					2,547
Accrued interest		5,423			(5,423	)	(	c)		—
Other accrued expenses		975			—					975
Total current liabilities		11,425			(5,423	)				6,002
Long-term debt		127,322			(92,322	)	(	d)		35,000
Future site restoration		1,046			—					1,046
Total liabilities		139,793			(97,745	)				42,048
Minority interest		—			21,564		(	e)		21,564
Stockholders’ deficit:
Common Stock, par value $.01 per share-
authorized 200,000,000 shares		429			58		(	f)		487
Additional paid-in capital		164,224			20,775		(	f)		184,999
Accumulated deficit		(187,681	)		59,568		(	g)		(121,031	)
Accumulated other comprehensive income		937			—					937
Total stockholders’ deficit		(22,091	)		80,401					58,310
Total liabilities and stockholders’ deficit	$	117,702		$	4,220				$	121,922

SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.

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Abraxas Petroleum Corporation

Unaudited Proforma Statement of Operations

Year Ended December 31, 2006

	Historical			ProFormaAdjustments					ProForma
	(In thousands except per share data)
Revenues:
Oil and gas production revenues	$	50,094		$	—				$	50,094
Rig revenues		1,613			—					1,613
Other		16			—					16
		51,723			—					51,723
Operating costs and expenses:
Lease operating and production taxes		11,776			—					11,776
Depreciation, depletion, and amortization		14,393			—					14,393
Rig operations		819			—					819
General and administrative		5,160			1,880		(	a)		7,040
		32,148			1,880					34,028
Operating income		19,575			(1,880	)				17,695
Other (income) expense:
Interest income		(29	)		—					(10	)
Amortization of deferred financing fees		1,591			(1,378	)	(	b)		213
Interest expense		16,767			(14,069	)	(	c)		2,698
		18,329			(15,447	)				2,882
Net income before minority interest		1,246			13,567					14,813
Minority interest		-			(8,503	)	(	d)		(8,503	)
Net income	$	1,246		$	5,064				$	6,310
Basic earnings per common share:
Net income per common share - basic	$	0.03							$	0.15
Net income per common share - diluted	$	0.03							$	0.14
Weighted average shares:
Basic		42,578,584			530,967		(	e)		43,109,551
Diluted		43,862,381			530,967					44,423,348

SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

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Abraxas Petroleum Corporation

Unaudited Proforma Statement of Operations

Three Months Ended March 31, 2007

	Historical			ProFormaAdjustments					ProForma
	(in thousands except per share data)
Revenues:
Oil and gas production revenues	$	11,322		$	—				$	11,322
Rig revenues		328			—					328
Other		1			—					1
		11,651			—					11,651
Operating costs and expenses:
Lease operating and production taxes		2,962			—					2,962
Depreciation, depletion, and amortization		3,401			—					3,401
Rig operations		171			—					171
General and administrative		1,316			—					1,316
		7,850			—					7,850
Operating income		3,801			—					3,801
Other (income) expense:
Interest income		(14	)		—					(14	)
Amortization of deferred financing fees		398			(345	)	(	a)		53
Interest expense		4,151			(3,480	)	(	b)		671
		4,535			(3,825	)				710
Net income before minority interest		(734	)		3,825					3,091
Minority interest		-			(1,690	)	(	c)		(1,690	)
Net income	$	(734	)	$	2,135				$	1,401
Basic earnings per common share:
Net income per common share - basic	$	(0.02	)						$	0.03
Net income per common share - diluted	$	(0.02	)						$	0.03
Weighted average shares:
Basic		42,681,278			530,967		(	d)		43,212,245
Diluted		43,295,089			530,967					43,826,056

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NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

NOTE 1. The Unaudited Pro Forma Condensed Balance Sheet as of March 31, 2007, reflects the formation of Abraxas Energy Partners, borrowings under the credit facility and the issuance of common stock as if it had occurred as of March 31, 2007:

(a) Net cash distribution to Abraxas after payment of debt, accrued interest and expenses of the transaction.

(b) Adjust deferred financing fees associated with retired debt and record deferred financing fees related to new debt.

Deferred financing fees associated with retired debt	$	(4,049	)
Deferred financing fees associated with new debt		850
Net decrease in deferred financing fees	$	(3,199	)

(c) Assumption of accrued interest related to retired debt.

(d) Pay off retired debt and record new debt.

Old debt retired	$	(127,322	)
Issuance of new debt		35,000
Net decrease in long term debt	$	(92,322	)

(e) Record minority interest in newly formed Abraxas Energy Partners on a consolidated basis. Under US GAAP, the Company anticipates that it will consolidate the newly formed Abraxas Energy Partners because the presumption of the general partners control is not overcome.

(f) Record issuance of 5,574,678 shares of common stock, net of broker discount and fees of $1.7 million.

(g) Record gain on the sale of partnership interest to third parties.

Book value of assets transferred to partnership	$	89,284
Capital Contribution		13,414
Book value of debt assumed by partnership		(133,455	)
Net book value of 100% owned subsidiary		(30,757	)
Net proceeds from sale of partnership units		91,797
Net book value of partially owned subsidiary		61,040
Interest in partially owned subsidiary		47.2	%
Investment in MLP after sale of LP units		28,811
Investment at 100% ownership		(30,757	)
Gain	$	59,568

NOTE 2. The Unaudited Pro Forma Statement of Operations for the year ended December 31, 2006, reflects the formation of Abraxas Energy Partners, borrowings under the credit facility and the issuance of common stock as if it were consummated on January 1, 2006

(a) Record fair value of warrants issued in connection with the issuance of Abraxas Petroleum Corporation equity.

(b) Adjust amortization of deferred financing fees related to retired debt and record amortization of deferred financing fees related to new debt. Deferred financing fees on the retired debt were being amortized over four to five years using the effective interest rate method. The financing fees on the new debt will be amortized over the four year term of the debt using the effective interest rate method

Reverse amortization of deferred financing fees related to retired debt $ (1,591 )

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Record amortization of deferred financing fees related to new debt		213
Net decrease in amortization of deferred financing fees	$	(1,378	)

(c) Adjust interest expense related to retired debt and record interest expense for new debt. The retired debt bore interest at 12.85%; the interest rate on the new debt is 7.5%.

Interest expense related to retired debt	$	(16,767	)
Interest expense related to new debt		2,698
Net decrease in interest expense	$	(14,069	)

(d) Reflect minority interest in earnings of Abraxas MLP.

(e) Pro forma shares, for purposes of calculating earnings per share, include only those shares for which the proceeds were used to retire debt. Approximately 9% of the outstanding debt was retired by equity proceeds, accordingly an equal percentage of the shares issued are included in the calculation of pro forma earning per share

NOTE 3. The Unaudited Pro Forma Statement of Operations for the year ended March 31, 2007, reflects the formation of Abraxas Energy Partners, borrowings under the credit facility and the issuance of common stock as if it were consummated on January 1, 2006.

(a) Adjust amortization of deferred financing fees related to retired debt and record amortization of deferred financing fees related to new debt. Deferred financing fees on the retired debt were being amortized over four to five years using the effective interest rate method. The financing fees on the new debt will be amortized over the four year term of the debt using the effective interest rate method.

Amortization of deferred financing fees related to retired debt	$	(398	)
Amortization of deferred financing fees related to new debt		53
Net decrease in amortization of deferred financing fees	$	(345	)

(b) Adjust interest expense related to retired debt and record interest expense for new debt. The retired debt bore interest at 12.85%; the interest rate on the new debt is 7.5%

Interest expense related to retired debt	$	(4,151	)
Interest expense related to new debt		671
Net decrease in interest expense	$	(3,480	)

(c) Reflect minority interest in earnings of Abraxas Energy Partners.

(d) Pro forma shares, for purposes of calculating earnings per share, include only those shares for which the proceeds were used to retire debt. Approximately 9% of the outstanding debt was retired by equity proceeds, accordingly an equal percentage of the shares issued are included in the calculation of pro forma earning per share

(c) Exhibits.

Exhibit 10.1 Contribution, Conveyance and Assumption Agreement dated as of May 25, 2007 by and among Abraxas Petroleum Corporation, Abraxas Energy Partners, L.P., Abraxas General Partner, LLC, Abraxas Energy Investments, LLC and Abraxas Operating, LLC.

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4774316v.1 128655/00003

Exhibit 10.2 Purchase Agreement dated as of May 25, 2007, by and among Abraxas Petroleum Corporation, Abraxas Energy Partners, L.P., Abraxas General Partner, LLC, Abraxas Operating, LLC and the purchasers named therein.

Exhibit 10.3 Registration Rights Agreement dated as of May 25, 2007, by and among Abraxas Energy Partners, L.P. and the purchasers named therein.

Exhibit 10.4 Omnibus Agreement dated as of May 25, 2007, by and among Abraxas Petroleum Corporation, Abraxas Energy Partners, L.P., Abraxas General Partner, LLC and Abraxas Operating, LLC.

Exhibit 10.5 Credit Agreement dated May 25, 2007 among Abraxas Energy Partners, L.P., the lenders party thereto and Société Générale as Administrative Agent and Issuing Lender.

Exhibit 10.6 Securities Purchase Agreement dated May 25, 2007 by and among Abraxas Petroleum Corporation and the purchasers named therein.

Exhibit 10.7 Form of Common Stock Purchase Warrant.

Exhibit 10.8 Exchange and Registration Rights Agreement dated as of May 25, 2007 by and among Abraxas Petroleum Corporation, Abraxas Energy Partners, L.P. and the purchasers named therein

Exhibit 99.1 Press Release dated May 25, 2007.

Exhibit 99.2 Press Release dated May 29, 2007.

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4774316v.1 128655/00003

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.

ABRAXAS PETROLEUM CORPORATION

By: /s/ Chris E. Williford

Chris E. Williford

Executive Vice President, Chief Financial

Officer and Treasurer

Dated: May 31, 2007

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4774316v.1 128655/00003

EX-10

Exhibit 10.1

Execution Copy

CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

AMONG

ABRAXAS PETROLEUM CORPORATION

ABRAXAS GENERAL PARTNER, LLC,

ABRAXAS ENERGY PARTNERS, L.P.,

ABRAXAS ENERGY INVESTMENTS, LLC

AND

ABRAXAS OPERATING, LLC

May 25, 2007

CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

This Contribution, Conveyance and Assumption Agreement, dated as of May 25, 2007, is entered into by and among Abraxas Petroleum Corporation, a Nevada corporation (“APC”), Abraxas General Partner, LLC, a Delaware limited liability company (the “General Partner”), Abraxas Energy Partners, L.P., a Delaware limited partnership (the “Partnership”), Abraxas Energy Investments, LLC, a Texas limited liability company (“Investments”), and Abraxas Operating, LLC, a Texas limited liability company (the “Operating LLC”). The above-named entities are sometimes referred to in this Agreement each as a “Party” and collectively as the “Parties.” Capitalized terms used herein shall have the meanings assigned to such terms in Section 1.1.

RECITALS

A.           APC, Investments and the General Partner have caused the Partnership to be formed pursuant to the Delaware Revised Uniform Limited Partnership Act (the “Delaware LP Act”) for the purpose of engaging in any business activity that is approved by the General Partner and that lawfully may be conducted by a limited partnership organized pursuant to the Delaware LP Act;

B.           In order to accomplish the objectives and purposes in the preceding recital, each of the following actions has been taken prior to the date hereof:

1. APC formed the General Partner under the terms of the Delaware Limited Liability Company Act (the “Delaware LLC Act”), and contributed an aggregate of $20 to the General Partner in exchange for all of the membership interests of the General Partner.

2. APC formed Investments under the terms of the Texas Business Organizations Code (the “TBOC”), and contributed an aggregate of $980 to Investments in exchange for all of the membership interests of Investments.

3. APC formed Operating LLC under the terms of the TBOC and contributed an aggregate of $1,000 to Operating LLC in exchange for all of the membership interests of Operating LLC (the “Operating LLC Interests”).

4. The General Partner and Investments formed the Partnership under the terms of the Delaware LP Act and (a) the General Partner contributed, as an initial capital contribution, $20 to the Partnership in exchange for 1 General Partner Unit of the Partnership (the “Initial GP Unit”), and (b) Investments contributed, as an initial capital contribution, $980 to the Partnership in exchange for 1 Common Unit of the Partnership (the “Initial LP Unit”).

5. The General Partner, Investments, Operating LLC and the Partnership became Subsidiary Guarantors pursuant to the terms of the Indenture.

6. APC, all of the Subsidiary Guarantors named in the Indenture, the General Partner, Investments, Operating LLC and the Partnership executed and delivered the Assumption and Indemnification Agreement.

C.           Concurrently with the consummation of the transactions contemplated hereby and by the Assignment, each of the following actions shall occur in the order specified in Section 2.12:

1. APC will contribute, as an additional capital contribution, all of its right, title and interest in and to the Assets, subject to the Permitted Liens, to Operating LLC in exchange for its continued ownership of all of the Operating LLC Interests and the right to be reimbursed the Preformation Expenditures.

2. APC will contribute, as an additional capital contribution, all of its right, title and interest in and to (a) 2.0% of the Operating LLC Interests, subject to the Existing Liens, to the General Partner, and (b) 98.0% of the Operating LLC Interests, subject to the Existing Liens, to Investments.

3. The General Partner will contribute, as an additional capital contribution, all of its right, title and interest in and to the Operating LLC Interests owned by it, subject to the Existing Liens, to the Partnership in exchange for 227,231 General Partner Units of the Partnership, which, together with the Initial GP Unit, represent a 2.0% General Partner Interest in the Partnership.

4. Investments will contribute, as an additional capital contribution, all of its right, title and interest in and to the Operating LLC Interests owned by it, subject to the Existing Liens, to the Partnership in exchange for 5,131,958 Common Units of the Partnership, which, together with the Initial LP Unit, represent a 45.2% Limited Partner Interest in the Partnership.

5. In connection with the Partnership’s private placement of Common Units (the “Offering”), the Initial Private Purchasers, pursuant to the terms of the Purchase Agreement, will contribute, as capital contributions, $100,000,000 in cash to the Partnership in exchange for 6,002,408 Common Units of the Partnership, representing, in the aggregate, a 52.8% Limited Partner Interest in the Partnership.

6. The Partnership will enter into a $150,000,000 revolving credit facility with Société Générale as Administrative Agent and Issuing Lender (the “Revolving Credit Facility”).

7. The proceeds of the Offering and the Revolving Credit Facility will, to the extent necessary, be applied by the Partnership to (a) pay up to eighty percent (80%) of all organization, syndication and transaction costs and expenses incurred or assumed by the Partnership and APC in connection with all of the transactions contemplated by this Agreement, the Purchase Agreement and the Partnership Agreement (including, without limitation, the fee of the placement agent and loan commitment and origination costs, expenses and fees and certain hedging costs) and the transactions contemplated hereby and thereby, which costs, fees and

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expenses are estimated to be $10,245,000in the aggregate, and (b) refinance, pay-off and retire the Existing Indebtedness to the extent assumed hereby by the Partnership and Operating LLC and reimburse APC for certain Preformation Expenditures, which amount is estimated to be $147,255,000.

8. The organizational documents of the Parties shall be amended and restated as necessary to reflect the matters set forth above and as otherwise contemplated by this Agreement.

NOW, THEREFORE, in consideration of their mutual undertakings and agreements hereunder, the Parties undertake and agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Terms.

The following defined terms shall have the meanings given below:

“Agreement” means this Contribution, Conveyance and Assumption Agreement.

“Affiliates” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“APC” has the meaning set forth in the opening paragraph of this Agreement.

“Assets” means the assets listed on Exhibit A hereto and as described in the Assignment with respect thereto.

“Assignment” means one or more Assignment and Assumption Agreement and Bill of Sale substantially in the form attached as Exhibit B.

“Assumed Liabilities” has the meaning set forth in Section 2.8.

“Assumption and Indemnification Agreement” means that certain Assumption and Indemnification Agreement dated as of May 22, 2007 by and among APC, the Subsidiary Guarantors named in the Indenture, the General Partner, Investments, Operating LLC and the Partnership.

“Common Units” has the meaning set forth in the Partnership Agreement.

“Conflicts Committee” means the Conflicts Committee of the General Partner.

“Defensible Title” to an Asset means such title of the Operating LLC that, that (i) is free from reasonable doubt to the end that a prudent purchaser engaged in the business of the

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ownership, development and operation of producing oil and gas properties, with knowledge of all of the facts and their legal bearing, would be willing to accept and pay full value for the Asset; (ii) is deducible of record from the records of the applicable county; (iii) as to each of the leases, units or wells described in Exhibit A, entitles or obligates Operating LLC, as APC’s successor in title, to receive not less than the Net Revenue Interest of production and bear not greater than the Working Interest share of costs and expenses with respect to such leases, units or well in Exhibit A; and (iv) is free and clear of Liens and material encumbrances and defects, except for Permitted Liens.

“Delaware LLC Act” has the meaning set forth in the Recitals of this Agreement.

“Delaware LP Act” has the meaning set forth in the Recitals of this Agreement.

“Effective Date” means May 25, 2007.

“Effective Time” means 12:01 a.m. San Antonio, Texas time onMay 25, 2007.

“Environmental Laws” has the meaning set forth in the Omnibus Agreement.

“Existing Credit Facility” means that certain Loan Agreement, dated as of October 28, 2004, by and among APC, the subsidiaries of APC signatory thereto, the lenders signatory thereto and Wells Fargo Foothill, Inc., as the Arranger and the Administrative Agent, as amended.

“ExistingIndebtedness” means APC’s payment obligations and indebtedness under the Senior Notes and the Existing Credit Facility.

“Existing Liens” shall mean the Liens granted pursuant to the Indenture and the Existing Credit Facility.

“General Partner” has the meaning set forth in the opening paragraph of this Agreement.

“General Partner Interest” has the meaning set forth in the Partnership Agreement.

“General Partner Units” has the meaning set forth in the Partnership Agreement.

“Governmental Entity” means any court or tribunal in any jurisdiction (domestic or foreign) or any public, governmental, or regulatory body, agency, department, commission, board, bureau, or other authority or instrumentality (domestic or foreign).

“Guarantors” shall have the meaning set forth in the Existing Credit Facility.

“Indemnified Party” means either the Partnership Group or APC, as the case may be, each in its capacity as a party entitled to indemnification in accordance with Article III.

“Indemnifying Party” means either the Partnership Group or APC, as the case may be, each in its capacity as a party from whom indemnification may be required in accordance with Article III.

“Initial GP Unit” has the meaning set forth in the Recitals of this Agreement.

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“Initial LP Unit” has the meaning set forth in the Recitals of this Agreement.

“Initial Private Purchasers” means each Person named as a purchaser in the Purchase Agreement who purchases Common Units pursuant thereto.

“Indenture” means that certain Indenture dated as of October 28, 2004 among APC, the Subsidiary Guarantors named therein and U.S. Bank National Association as Trustee, as amended and supplemented.

“Investments” has the meaning set forth in the opening paragraph of this Agreement.

“Laws” has the meaning set forth in the Omnibus Agreement.

“Liens” means mortgages, charges, pledges, liens (statutory or other), security interests, hypothecations, assignments for security, claims, or preferences or priorities or other encumbrances or similar agreements or preferential agreements of any kind or nature whatsoever serving to provide security for any obligations whether or not filed, recorded or otherwise perfected under applicable law upon or with respect to any kind of property or asset, whether real, personal or mixed, or tangible or intangible, and any right-of-way, easement, encroachment, burden, restriction, or encumbrance of any kind.

“Limited Partner Interest” has the meaning set forth in the Partnership Agreement.

“Losses” shall have the meaning set forth in Section 3.1.

“Net Revenue Interest” (expressed in a percentage) means the proportionate share of the production of oil, gas and other hydrocarbons produced from an oil, gas and mineral lease, well or unit, as the case may be, to which the Operating LLC is entitled after deduction of all royalties, overriding royalty interests, production payments and other burdens on or payments out of production.

“Offering” has the meaning set forth in the Recitals of this Agreement.

“Omnibus Agreement” means the Omnibus Agreement dated as of the date hereof, among APC, the General Partner, Operating LLC and the Partnership.

“Operating LLC” has the meaning set forth in the opening paragraph of this Agreement.

“Operating LLC Interests” has the meaning set forth in the Recitals of this Agreement.

“Ordinary Course of Business” means an action taken by a Person if that action: (a)   is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; (b) does not require authorization by the board of directors or shareholders of such Person (or by any Person or group of Persons exercising similar authority) and does not require any other separate or special authorization of any nature; and (c)  is similar in nature, scope and magnitude to actions customarily taken, without any separate or special authorization, in the ordinary course of the

5

normal, day-to-day operations of other Persons that are in the same line of business as such Person.

“Party” or “Parties” has the meaning set forth in the opening paragraph of this Agreement.

“Partnership” has the meaning set forth in the opening paragraph of this Agreement.

“Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of the Partnership, as it may be amended, supplemented or restated from time to time.

“Partnership Group” means the General Partner, the Partnership, Investments, the Operating LLC and all of their respective Subsidiaries.

“Permitted Liens” means:

(i)           Liens for Taxes that are not yet delinquent or which are being contested in good faith;

(ii)          normal and customary Liens of co-owners under operating agreements, unitization agreements, and pooling orders relating to the Properties which Liens do not secure amounts past due;

(iii)         any prohibitions or restrictions similar to those contained in Article VIII.D of the A.A.P.L. Form 610 1982 Model Form Operating Agreement and any contribution obligations under provisions similar to Article VII.B of such Model Form Operating Agreement;

(iv)         mechanic’s and materialmen’s Liens relating to the Assets, which obligations are not yet due;

(v)          Liens in the ordinary course of business consisting of minor defects and irregularities in title or other restrictions (whether created by or arising out of joint operating agreements, farm-out agreements, leases and assignments, contracts for purchases of Hydrocarbons or similar agreements, or otherwise in the ordinary course of business) that are of the nature customarily accepted by prudent purchasers of oil and gas properties and that do not materially adversely affect the value of any Asset encumbered thereby if the net cumulative effect of the foregoing does not operate to reduce the Net Revenue Interests of any of the Assets to less than the Net Revenue Interest set forth in Exhibit A or increase the Working Interest of any of the Properties to more than the Working Interest set forth in Exhibit A;

(vi)         all licenses, rights of way and other similar contracts, approvals and consents required to be obtained from Governmental Entities that are lessors under leases forming a part of the Assets (or who administer such leases on behalf of such lessors) which are customarily obtained post-closing if the net cumulative effect of such licenses, rights of way and other similar contracts, approvals and consents does not operate to

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reduce the Net Revenue Interests of any of the Assets to less than the Net Revenue Interest set forth in Exhibit A or increase the Working Interest of any of the Properties to more than the Working Interest set forth in Exhibit A;

(vii)       conventional rights of reassignment normally actuated by an intent to abandon or release a lease and requiring notice to the holders of such rights;

(viii)      lessors’ royalties, overriding royalties, other royalty interests, reversionary interests and similar burdens if the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interests of any of the Assets to less than the Net Revenue Interest set forth in Exhibit A;

(ix)         the terms and conditions of any leases identified on Exhibit A if the net cumulative effect of such terms and conditions does not operate to reduce the Net Revenue Interests of any of the Assets to less than the Net Revenue Interest set forth in Exhibit A or increase the Working Interest of any of the Assets to more than the Working Interest set forth in Exhibit A;

(x)          easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, pipelines, grazing, or the like; and easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements, and rights-of-way, on, over or in respect of any of the Assets to the extent that they do not interfere with the operation of the Assets as they were being operated as of the Effective Time; and

(xi) Existing Liens.

“Person” means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.

“Preformation Expenditures” means capital expenditures incurred by APC with respect to the Assets prior to the Effective Time and organization and syndication costs incurred in connection with the transactions contemplated by this Agreement, the Purchase Agreement and the Partnership Agreement, all as defined in Treas. Reg. § 1.707-4(d).

“Purchase Agreement” means that certain Purchase Agreement dated as of the date hereof among the Partnership and the Initial Private Purchasers signatories thereto.

“Reserved and Excluded Properties” has the meaning set forth in the Assignment.

“RetainedLiabilities” has the meaning set forth in Section 2.9.

“Revolving Credit Facility” has the meaning set forth in the Recitals to this Agreement.

“Senior Notes” means APC’s $125 million Floating Rate Senior Secured Notes due 2009.

“Subsidiary Guarantors” shall have the meaning set forth in the Indenture.

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“Tax” has the meaning set forth in the Omnibus Agreement.

“TBOC” has the meaning set forth in the Recitals to this Agreement.

“Transaction Documents” has the meaning set forth in the Purchase Agreement.

“Working Interest” (expressed in a percentage) shall mean with respect to a particular oil, gas and mineral lease, well, or unit, as the case may be, the Operating LLC’s share of the cost of exploration, development and production of oil, gas and other minerals produced from or attributable to such oil and gas lease, well or unit.

ARTICLE II

CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS

Section 2.1 Contribution of Assets by APC to Operating LLC.

APC hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to Operating LLC, its successors and assigns, for its own use forever, all of APC’s right, title and interest in and to the Assets subject to Permitted Liens, as shall be further evidenced by the execution and delivery of the Assignment, as an additional capital contribution in exchange for (a) all of the Operating LLC Interests, and (b) the right to be reimbursed the Preformation Expenditures, and Operating LLC hereby accepts such capital contribution.

Section 2.2 Contribution of Operating LLC Interests by APC to General Partner.

APC hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to the General Partner, its successors and assigns, for its own use forever, all of APC’s right, title and interest in and to 2.0% of the Operating LLC Interests owned by APC, subject to the Existing Liens, as an additional capital contribution, and the General Partner hereby accepts such additional capital contribution.

Section 2.3 Contribution of Operating LLC Interests by APC to Investments.

APC hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to Investments, its successors and assigns, for its own use forever, all of APC’s right, title and interest in and to 98.0% of the Operating LLC Interests owned by APC, subject to the Existing Liens, immediately before the transaction described in Section 2.2, as an additional capital contribution, and Investments hereby accepts such additional capital contribution.

Section 2.4 Contribution of Operating LLC Interests by the General Partner to the Partnership.

The General Partner hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to the Partnership, its successors and assigns, for its own use forever, all of the General Partner’s right, title and interest in and to all of the Operating LLC Interests owned by the General Partner, subject to the Existing Liens, as an additional capital contribution, in exchange for 227,231 General Partner Units of the Partnership, which together with the Initial GP Unit represent a 2.0% General Partner Interest in the Partnership. The Partnership hereby accepts and acknowledges receipt of such additional capital contribution.

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Section 2.5 Contribution of Operating LLC Interests by Investments to the Partnership.

Investments hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to the Partnership, its successors and assigns, for its own use forever, all of its right, title and interest in and to all of the Operating LLC Interests owned by Investments, subject to the Existing Liens, as an additional capital contribution, in exchange for 5,131,958 Common Units of the Partnership, which together with the Initial LP Unit represent a 45.2% Limited Partner Interest in the Partnership. The Partnership hereby accepts and acknowledges receipt of such additional capital contribution.

Section 2.6 Initial Private Purchasers Cash Contributions.

The Parties hereby acknowledge the receipt by the Partnership of cash capital contributions to the Partnership by the Initial Private Purchasers in the gross amount of $100,000,000 in exchange for 6,002,408 Common Units of the Partnership representing, in the aggregate, a 52.8% Limited Partner Interest in the Partnership, and the Partnership hereby accepts and acknowledges receipt of such capital contributions.

Section 2.7 Proceeds from Revolving Credit Facility.

The Parties hereby acknowledge the receipt by the Partnership of $35,000,000 in loan proceeds in connection with a borrowing under the Revolving Credit Facility.

Section 2.8 Assumption of Liabilities.

Upon and after the Effective Time, except for the Retained Liabilities, Operating LLC and the Partnership, jointly and severally, do hereby agree to assume and perform all the rights, duties, obligations and liabilities of ownership and operation of the Assets including, without limitation: (a) all of the liabilities and obligations of APC with respect to or relating in any manner to the Existing Indebtedness; (b) all of the express and implied obligations and covenants first arising at or after the Effective Time under the terms of any leases, contracts, or instruments including, without limitation, orders, to which the Assets are subject; (c) responsibility for all royalties, overriding royalties, production payments, net profits obligations, rentals, shut-in payments and other burdens or encumbrances to which the Assets are subject first arising at or after the Effective Time; (d) responsibility for compliance with all applicable Laws pertaining to the Assets, and the procurement and maintenance of all permits required by public authorities in connection with the Assets at or after the Effective Time; and (e) responsibility for any Taxes (including applicable penalties and interest) for which the Partnership Group has agreed to be responsible pursuant to Section 2.2 of the Omnibus Agreement. The rights, duties, obligations and liabilities assumed by Operating LLC and the Partnership pursuant to this Section 2.8 shall be referred to as the “Assumed Liabilities”.

Section 2.9 Retained Liabilities.

Except for the Assumed Liabilities, and subject to and without limitation of the Partnership Group’s indemnification obligations pursuant to the Omnibus Agreement or hereunder, APC shall retain and remain responsible after the Effective Time for all costs, expenses and liabilities incurred in connection with (i) the ownership or operation of the Assets

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for all periods before the Effective Time, including, without limitation, (a) all of the express and implied obligations and covenants arising before the Effective Time under the terms of any leases, contracts, or instruments, including without limitation, orders, to which the Assets are subject; (b) responsibility for all royalties, overriding royalties, production payments, net profits obligations, rentals, shut-in payments and other burdens or encumbrances to which the Assets are subject arising before the Effective Time; (c) responsibility for the failure to comply with all applicable Laws (other than Environmental Laws) pertaining to the Assets for all periods before the Effective Time; (d) responsibility for any Taxes (including applicable penalties and interest) for which the Partnership Group has not agreed to be responsible pursuant to Section 2.2 of the Omnibus Agreement; (e) responsibility for Covered Environmental Losses for which APC has agreed to be responsible pursuant to Section 2.1(a) of the Omnibus Agreement; and (f) subject to the limitation set forth in Section 2.3 of the Omnibus Agreement, the condition of the Assets before the Effective Time, and (ii) the Reserved and Excluded Properties. All of the foregoing liabilities retained by APC pursuant to this Section 2.9 shall be referred to as the “Retained Liabilities”.

Section 2.10 Assumption and Payment of Transaction Expenditures.

To the extent not incurred directly by the Partnership, the Partnership hereby assumes and agrees to pay all of the costs, expenses, fees and other liabilities incurred by the Parties (other than the Partnership) that are described in the next succeeding sentence. The Parties hereby acknowledge the payment by the Partnership of an aggregate amount of $10,245,000in satisfaction of all organization, syndication and transaction costs and expenses incurred or assumed by the Partnership in connection with all of the transactions contemplated by this Agreement, the Purchase Agreement, the Partnership Agreement and all other documents and instruments referenced or contemplated hereby or thereby (including, without limitation, the fee of the placement agent and loan commitment and origination costs, expenses and fees).

Section 2.11 Certain Distributions.

The Parties hereby acknowledge that immediately following the consummation of the preceding transactions described in this Article II, a cash distribution in the aggregate amount of $7,044,064has been made by the Partnership to the General Partner and Investments, in proportion to their respective interests in the Partnership, and from the General Partner and Investments to APC, all of which is in reimbursement of the Preformation Expenditures.

Section 2.12 Ordering Rules.

Each of the Parties to whom a contribution has been made pursuant to Sections 2.2 through 2.5 hereby agrees to and does, successively, assume the obligation of Operating LLC to reimburse the Preformation Expenditures of APC. Each of the transactions described in Sections 2.1 through 2.3 shall be deemed to have occurred successively, in the order stated. The transactions described in Sections 2.4 through 2.6 shall be deemed to have occurred simultaneously, immediately following consummation of the transactions described in Sections 2.1 through 2.3.

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ARTICLE III

INDEMNIFICATION

Section 3.1 Indemnification for Assumed Liabilities. The Partnership Group shall indemnify, defend and hold harmless APC from and against any and all losses, liabilities, claims, obligations, deficiencies, demands, judgments, damages, interest, fines, penalties, claims, suits, actions, causes of action, assessments, awards, costs and expenses claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent (collectively, “Losses”), suffered by APC by reason of, or arising out of, or in connection with, the Assumed Liabilities; provided, that APC shall not be entitled to be indemnified for Losses to the extent caused by gross negligence, bad faith or fraud or willful misconduct of APC or any of its Affiliates (other than the Partnership Group) or for Losses suffered by the APC by reason of, or arising out of, or in connection with, the Retained Liabilities. All indemnification obligations in this Section 3.1 shall terminate on the fourth anniversary of the Effective Date.

Section 3.2 Indemnification for Retained Liabilities. APC shall indemnify, defend and hold harmless the Partnership Group from and against any and all Losses suffered by the Partnership Group by reason of, or arising out of, or in connection with, the Retained Liabilities and from and against any and all Losses suffered or incurred by the Partnership Group by reason of, or arising out of, or in connection with, the failure to convey Defensible Title to the Assets to the Operating LLC subject only to the Permitted Liens; provided that the Partnership Group shall not be entitled to be indemnified for Losses pursuant to this Section 3.2 to the extent caused by gross negligence, bad faith or fraud or willful misconduct of any member of the Partnership Group, other than any member of the Partnership Group that is controlled by APC.

Section 3.3 Indemnification Procedures.

(a)          The Indemnified Party agrees that within a reasonable period of time after it becomes aware of facts giving rise to a claim for indemnification pursuant to this Article III, it will provide notice thereof in writing to the Indemnifying Party specifying the nature of and specific basis for such claim; provided, however, that (i) the Indemnified Party shall not submit claims more frequently than once a calendar quarter (or twice in the case of the last calendar quarter prior to the expiration of the applicable indemnity coverage under this Agreement) and (ii) the omission to so notify the Indemnifying Party shall not relieve it from any liability which it may have to the Indemnified Party unless and to the extent the Indemnifying Party did not otherwise learn of such action and such failure results in the forfeiture by the Indemnifying Party of substantial rights and defenses.

(b)          The Indemnifying Party shall have the right to control all aspects of the defense of (and any counterclaims with respect to) any claims brought against the Indemnified Party that are covered by the indemnification set forth in this Article III, including, without limitation, the selection of counsel, determination of whether to appeal any decision of any court and the settling of any such matter or any issues relating thereto; provided, however, that no such settlement shall be entered into without the consent (which consent shall not be unreasonably withheld, conditioned or delayed) of the Indemnified Party (with the concurrence of the Conflicts

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Committee in the case of the Partnership Group) unless it includes a full release of the Indemnified Party from such matter or issues, as the case may be.

(c)          The Indemnified Party agrees to cooperate fully with the Indemnifying Party with respect to all aspects of the defense of any claims covered by the indemnification set forth in this Article III, including, without limitation, the prompt furnishing to the Indemnifying Party of any correspondence or other notice relating thereto that the Indemnified Party may receive, permitting the names of the Indemnified Party to be utilized in connection with such defense, the making available to the Indemnifying Party of any files, records or other information of the Indemnified Party that the Indemnifying Party considers relevant to such defense and the making available to the Indemnifying Party of any employees of the Indemnified Party; provided, however, that in connection therewith the Indemnifying Party agrees to use reasonable efforts to minimize the impact thereof on the operations of the Indemnified Party and further agrees to maintain the confidentiality of all files, records and other information furnished by the Indemnified Party pursuant to this Section 3.3. In no event shall the obligation of the Indemnified Party to cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection with the defense of any claims covered by the indemnification set forth in this Article III; provided, however, that the Indemnified Party may, at its own option, cost and expense, hire and pay for counsel in connection with any such defense. The Indemnifying Party agrees to keep any such counsel hired by the Indemnified Party reasonably informed as to the status of any such defense, but the Indemnifying Party shall have the right to retain sole control over such defense.

(d)          In determining the amount of any loss, cost, damage or expense for which the Indemnified Party is entitled to indemnification under this Agreement, the gross amount of the indemnification will be reduced by (i) any insurance proceeds realized by the Indemnified Party, and such correlative insurance benefit shall be net of any incremental insurance premium that becomes due and payable by the Indemnified Party as a result of such claim, (ii) the amount of tax benefits received by the Indemnified Party with respect to such loss, cost, damage or expense and (iii) all amounts recovered by the Indemnified Party under contractual indemnities from third Persons.

ARTICLE IV

TITLE MATTERS

Section 4.1 Encumbrances.

(a) Except to the extent provided in any other document executed in connection with this Agreement or the Offering, the contribution and conveyance (by operation of law or otherwise) of the Assets pursuant to this Agreement are made expressly subject to all Permitted Liens and the Existing Liens to the extent the same are valid and enforceable and affect the Assets.

(b) To the extent that certain jurisdictions in which the Assets are located may require that documents be recorded in order to evidence the transfers of title reflected in

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this Agreement, then the provisions set forth in Section 4.1(a) immediately above shall also be applicable to the conveyances under such documents.

Section 4.2 Disclaimer of Warranties; Subrogation.

(a) EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING, THE PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF THE PARTIES HAS MADE, DOES NOT MAKE, AND EACH SUCH PARTY SPECIFICALLY NEGATES AND DISCLAIMS, ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS, IMPLIED OR STATUTORY, ORAL OR WRITTEN, PAST OR PRESENT, REGARDING (A) THE VALUE, NATURE, QUALITY OR CONDITION OF THE ASSETS INCLUDING THE WATER, SOIL, GEOLOGY OR ENVIRONMENTAL CONDITION OF THE ASSETS GENERALLY OR INCLUDING THE PRESENCE OR LACK OF HAZARDOUS SUBSTANCES OR OTHER MATTERS ON THE ASSETS, (B) THE INCOME TO BE DERIVED FROM THE ASSETS, (C) THE SUITABILITY OF THE ASSETS FOR ANY AND ALL ACTIVITIES AND USES THAT MAY BE CONDUCTED THEREON, (D) THE COMPLIANCE OF OR BY THE ASSETS OR THEIR OPERATION WITH ANY LAWS (INCLUDING ANY ZONING, ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS), OR (E) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE ASSETS. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING, THE PARTIES ACKNOWLEDGE AND AGREE THAT EACH HAS HAD THE OPPORTUNITY TO INSPECT THE RESPECTIVE ASSETS, AND EACH IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE RESPECTIVE ASSETS AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY ANY OF THE PARTIES. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING, NONE OF THE PARTIES IS LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE ASSETS FURNISHED BY ANY AGENT, EMPLOYEE, SERVANT OR THIRD PARTY. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING, EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE CONTRIBUTION OF THE ASSETS AS PROVIDED FOR HEREIN IS MADE IN AN “AS IS”, “WHERE IS” CONDITION WITH ALL FAULTS, AND THE ASSETS ARE CONTRIBUTED AND CONVEYED SUBJECT TO ALL OF

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THE MATTERS CONTAINED IN THIS SECTION. THIS SECTION SHALL SURVIVE SUCH CONTRIBUTION AND CONVEYANCE OR THE TERMINATION OF THIS AGREEMENT. THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED BY THE PARTIES AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE ASSETS THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR OTHERWISE, EXCEPT AS SET FORTH IN THIS AGREEMENT OR ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING.

(b) The contributions of the Assets made under this Agreement are made with full rights of substitution and subrogation of the respective Parties receiving such contributions, and all persons claiming by, through and under such Parties, to the extent assignable, in and to all covenants and warranties by the predecessors-in-title of the Parties contributing the Assets, and with full subrogation of all rights accruing under applicable statutes of limitation and all rights of action of warranty against all former owners of the Assets.

(c) Each of the Parties agrees that the disclaimers contained in this Section 4.2 are “conspicuous” disclaimers. Any covenants implied by statute or law by the use of the words “grant,” “contribute,” “distribute,” “convey,” “bargain,” “assign,” “transfer,” “deliver” or “set over” or any of them or any other words used in this Agreement are hereby expressly disclaimed, waived or negated.

(d) Each of the Parties hereby waives compliance with any applicable bulk sales law or any similar law in any applicable jurisdiction in respect of the transactions contemplated by this Agreement.

ARTICLE V

FURTHER ASSURANCES; ELLENBURGER MATTERS

Section 5.1 Further Assurance.

From time to time after the date hereof, and without any further consideration the Parties agree to execute, acknowledge and deliver all such additional deeds, assignments, bills of sale, conveyances, instruments, notices, releases, acquittances and other documents, and will do all such other acts and things, all in accordance with applicable law, as may be necessary or appropriate (a) more fully to assure that the applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers and privileges granted by this Agreement, or which are intended to be so granted, or (b) more fully and effectively to vest in the applicable Parties and their respective successors and assigns beneficial and record title to the interests contributed and assigned by this Agreement or intended so to be and to more fully and effectively carry out the purposes and intent of this Agreement.

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Section 5.2 Ellenburger Matters.

APC agrees that neither it nor any of its successors or assigns will complete, or participate in the completion of, a well in the Ellenburger formation within the same fault block within which the Devon Energy Production G. T. Hall 31-1 well is completed. The Devon Energy Production G. T. Hall 31-1 well is located 660’ FSEL in Section 31, S.F. #7688, L.F. Freeman, Original Grantee, Ward County, Texas. The Ellenburger formation being the stratigraphic equivalent to 15.906’ – 15,252’ from the Compensation Neutron Log of the Tenneco Oil Co. Hall 31-1.

ARTICLE VI

EFFECTIVE TIME

Notwithstanding anything contained in this Agreement to the contrary, none of the provisions of Article II or Article III of this Agreement shall be operative or have any effect until the Effective Time, at which time all the provisions of Article II and Article III of this Agreement shall be effective and operative without further action by any Party.

ARTICLE VII

MISCELLANEOUS

Section 7.1Costs.

Except as provided in the Omnibus Agreement (with respect to indemnification for certain liabilities, including certain Tax payments), the Partnership shall pay all expenses, fees and costs, including sales, use and similar taxes arising out of the contributions, conveyances and deliveries to be made hereunder, and shall pay all documentary, filing, recording, transfer, deed and conveyance taxes and fees required in connection therewith. In addition, the Partnership shall be responsible for all costs, liabilities and expenses (including court costs and reasonable attorneys’ fees) incurred in connection with the implementation of any conveyance or delivery by APC pursuant to its obligations under Article V of this Agreement.

Section 7.2 Headings; References; Interpretation.

All Article and Section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement. All references herein to Articles and Sections shall, unless the context requires a different construction, be deemed to be references to the Articles and Sections of this Agreement, respectively. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders, and the singular shall include the plural and vice versa. The terms “include,” “includes,” “including” or words of like import shall be deemed to be followed by the words “without limitation.”

Section 7.3 Successors and Assigns.

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The Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.

Section 7.4 No Third Party Rights.

The provisions of this Agreement are intended to bind the parties signatory hereto as to each other and are not intended to and do not create rights in any other person or confer upon any other person any benefits, rights or remedies and no person is or is intended to be a third party beneficiary of any of the provisions of this Agreement.

Section 7.5 Counterparts.

This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the Parties.

Section 7.6 Governing Law.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state. Each party hereby submits to the jurisdiction of the state and federal courts in the State of Texas and to venue in Texas.

Section 7.7 Severability.

If any of the provisions of this Agreement are held by any court of competent jurisdiction to contravene, or to be invalid under, the laws of any political body having jurisdiction over the subject matter hereof, such contravention or invalidity shall not invalidate the entire Agreement. Instead, this Agreement shall be construed as if it did not contain the particular provision or provisions held to be invalid, and an equitable adjustment shall be made and necessary provision added so as to give effect to the intention of the Parties as expressed in this Agreement at the time of execution of this Agreement.

Section 7.8 Amendment or Modification.

This Agreement may be amended or modified from time to time only by the written agreement of all the Parties.

Section 7.9 Integration.

This Agreement and the instruments referenced herein supersede all previous understandings or agreements among the Parties, whether oral or written, with respect to its subject matter. This document and such instruments contain the entire understanding of the Parties. No understanding, representation, promise or agreement, whether oral or written, is intended to be or shall be included in or form part of this Agreement unless it is contained in a written amendment hereto executed by the Parties after the date of this Agreement.

Section 7.10 Bill of Sale; Assignment.

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To the extent required and permitted by applicable law, this Agreement shall also constitute a “bill of sale” or “assignment” of the assets and interests referenced herein; provided that in such event, as regards the Assets, any conflict between this Agreement and the Assignment shall be construed in favor of this Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of the date first written above.

APC

ABRAXAS PETROLEUM CORPORATION

By: /s/ Chris E. Williford

Name: Chris E. Williford

Title: Executive Vice President, Chief Financial

Officer and Treasurer

GENERAL PARTNER

ABRAXAS GENERAL PARTNER, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

PARTNERSHIP

ABRAXAS ENERGY PARTNERS, L.P.

By: Abraxas General Partner, LLC,

its General Partner

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

INVESTMENTS

ABRAXAS ENERGY INVESTMENTS, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

[Signature Page to Contribution. Agreement]

OPERATING LLC

ABRAXAS OPERATING, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

[Signature Page to Contribution. Agreement]

EX-10

Exhibit 10.6

Execution Copy

SECURITIES PURCHASE AGREEMENT

by and among

ABRAXAS PETROLEUM CORPORATION

and

THE PURCHASERS NAMED IN THIS AGREEMENT

TABLE OF CONTENTS

Page

 

1. Definitions 1

 

2. Agreement to Purchase Securities. 5

 

2.1 Sale and Issuance of Common Stock 5

 

2.2 Issuance of Warrants 6

 

3. Closing 6

 

4. Purchasers’ Representations and Warranties 6

 

4.1 Organization; Authority 6

 

4.2 Compliance with Laws and Other Instruments 6

 

4.3 Consents 6

 

4.4 Investment Intent 7

 

4.5 Access to Information 7

 

4.6 Nature of Purchasers 7

 

4.7 Knowledge and Experience 7

 

4.8 Suitability and Reliance on Own Advisors 7

 

4.9 Ability to Bear Risk of Loss 8

 

4.10 Non-Registered Common Stock 8

 

4.11 Truth and Accuracy 8

 

4.12 Brokers or Finders 8

 

4.13 Certain Trading Activities 8

 

5. Issuer’s Representations and Warranties 9

 

5.1 Corporate Existence; Authority 9

 

5.2 Enforceability 9

 

5.3 Capitalization 9

 

5.4 Formation of Subsidiaries 10

 

5.5 Ownership of Subsidiaries 10

 

5.6 No Conflicts 10

 

5.7 SEC Documents. 10

 

5.8 Litigation 11

 

5.9 No Material Adverse Change 11

 

5.10 Environmental 11

 

5.11 No Consents 12

 

5.12 Compliance with Laws, Other Instruments 12

 

5.13 Observance of Agreements, Statutes and Orders 12

 

5.14 Private Placement 13

 

5.15 Brokers or Finders 13

 

5.16 No Integrated Offering 13

 

5.17 Foreign Corrupt Practices Act 13

 

5.18 Internal Controls 13

 

5.19 Listing 14

 

5.20 Use of Proceeds 14

 

5.21 Title to Properties and Assets; Liens, Etc 14

 

5.22 Intellectual Property. 14

 

5.23 Tax Returns and Payments 15

 

5.24 Employees; Employee Benefits. 17

 

5.25 Registration Rights and Voting Rights; Preemptive Rights. 18

 

5.26 Insurance 18

 

5.27 Full Disclosure 18

 

6. Issuer Closing Deliveries 18

 

6.1 MLP Closing 18

 

6.2 Opinion of Issuer’s Counsel 19

 

6.3 Certificates 19

 

6.4 Secretary’s Certificate 19

 

7. Purchaser Closing Deliveries 19

 

7.1 MLP Closing 19

 

7.2 Payment of Purchase Price 19

 

8. Restrictions on Transfer. 19

 

8.1 Resale Restrictions 19

 

8.2 Short Selling Acknowledgement and Agreement 20

 

8.3 Restrictive Legend 20

 

8.4 Illiquid Investment 20

 

9. Registration of the Purchased Shares; Compliance with the Securities Act. 20

 

9.1 Registration Procedures and Other Matters 20

 

9.2 Failure of Registration Statement to Become Effective 23

 

9.3 Transfer of Shares After Registration; Suspension. 24

 

9.4 Indemnification. 25

 

9.5 Registration Expenses 29

 

9.6 Termination of Conditions and Obligations 29

 

10. Notices 29

 

11. Reliance 30

 

12. Miscellaneous. 30

 

12.1 Survival 30

 

12.2 Assignment 30

 

12.3 Execution and Delivery of Agreement 30

 

12.4 Titles 30

 

12.5 Severability 30

 

12.6 Entire Agreement 31

 

12.7 Waiver and Amendment 31

 

12.8 Counterparts 31

 

12.9 Governing Law 31

 

12.10 Submission to Jurisdiction 31

 

12.11 Attorney’s Fees 32

 

12.12 Independent Nature of Purchaser’s Obligations and Rights 32

 

12.13 Successors and Assigns 32

 

12.14 Remedies 33

SCHEDULES:

1. List of Purchasers and Commitment Amounts

EXHIBITS:

A. Form of Warrant

B. Form of Opinion of Issuer’s Counsel

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (“Agreement”) is made and entered into as of the 25th day of May, 2007, by and between Abraxas Petroleum Corporation, a Nevada corporation (the “Issuer”), and each of the persons listed on Schedule 1 attached to this Agreement (each a “Purchaser” and collectively the “Purchasers”).

W I T N E S S E T H

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act, the Issuer desires to issue and sell to each Purchaser, and each Purchaser desires to purchase from the Issuer, certain securities of the Issuer as more fully described in this Agreement (the “Private Placement”);

WHEREAS, it is a condition to the obligations of the Purchasers hereunder that the Issuer provide the Purchasers with certain registration rights as set forth herein;

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows:

1. Definitions. The following terms have the meanings indicated:

“Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the introductory paragraph.

“AMEX” means the American Stock Exchange.

“Annual Report” has the meaning set forth in Section 5.7(b).

“Benefit Plan” means any employee pension benefit plan (as defined in Section 3(2) of ERISA) which is covered by ERISA and with respect to which any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” within the meaning of Section 3(5) of ERISA.

“Black Out Period” has the meaning set forth in Section 9.3(c).

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

“Closing” has the meaning set forth in Section 3.

“Closing Date” has the meaning set forth in Section 3.

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“Common Stock” has the meaning set forth in Section 2.1.

“Effectiveness Date” has the meaning set forth in Section 9.1(b).

“Environmental Laws and Regulations” means all Laws of any Governmental Authority relating to pollution, nuisance, natural resources or the protection of health and safety (relating to exposure to Hazardous Materials), the environment, (including emissions, discharges, Releases, or threatened Releases of any Hazardous Material; and the manufacture, processing, distribution, use, coverage, disposal, transportation, storage or handling of any Hazardous Material) in effect as of the date hereof including, without limitation, (i) the Federal Clean Air Act, 42 U.S.C. §§ 7401 et seq.; (ii) the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq.; (iii) the Federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. §§ 1101 et seq.; (iv) the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; (v) the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq.; (vi) the Solid Waste Disposal Act, 42 U.S.C. §§ 6901 et seq.; (vii) the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.; and (viii) the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.

“ERISA Affiliate” has the meaning set forth in Section 5.25(c).

“Evaluation Date” has the meaning set forth in Section 5.18.

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

“Exchange and Registration Rights Agreement” means that certain Exchange and Registration Rights Agreement dated as of May 25, 2007, among Issuer, Abraxas Energy Partners, L.P. and the purchasers named therein.

“FCPA” has the meaning set forth in Section 5.17.

“Filing Date” has the meaning set forth in Section 9.1(a).

“Floating Rate Senior Secured Notes” means the Floating Rate Senior Secured Notes due 2009 issued by the Issuer pursuant to that certain Indenture dated as of October 23, 2004 by and among the Issuer, the subsidiary guarantors named therein and U.S. Bank National Association, as Trustee.

“Governmental Authority” means any United States or foreign, federal, state, local or provincial government or any governmental, regulatory or administrative authority, agency, commission, body or other entity or any court, tribunal, or judicial or arbitral body.

“Hazardous Materials” means any substance that is designated, defined or classified under any applicable Environmental Laws and Regulations as a hazardous, infectious or toxic substance, chemical, pollutant, contaminant, emission or waste which, or is otherwise regulated

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or requires removal, remediation or reporting under any applicable Environmental Laws and Regulations. Hazardous Materials include, without limitation, anything which is: (i) defined as a “pollutant” pursuant to 33 U.S.C. § 1362(6) as of the date of this Agreement; (ii) defined as a “hazardous waste” pursuant to 42 U.S.C. § 6921 as of the date of this Agreement; (iii) defined as a “regulated substance” pursuant to 42 U.S.C. § 6991 as of the date of this Agreement; (iv) defined as a “hazardous substance” pursuant to 42 U.S.C. § 9601(14) as of the date of this Agreement; (v) defined as a “pollutant or contaminant” pursuant to 42 U.S.C. § 9601(33) as of the date of this Agreement; (vi) petroleum; (vii) asbestos; (viii) polychlorinated biphenyl; and (ix) radon.

“Issuer” has the meaning set forth in the introductory paragraph.

“Law” means any United States or foreign, federal, state, local or provincial statute, treaty, law, ordinance, regulation, rule, code, judgment, injunction, decree, Order or other requirement or rule of law in effect as of the date hereof.

“Liquidated Damages Amount” has the meaning set forth in Section 9.2.

“Material Adverse Effect” means with respect to any Person (i) a material adverse effect on the legality, validity or enforceability of this Agreement, the Purchased Shares or the Warrants, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of any such Person, (iii) a material adverse effect on the ability of such Person to perform in any material respect on a timely basis its obligations under this Agreement, or (iv) an event which would reasonably be expected to subject such Person to any material liability.

“MLP” means Abraxas Energy Partners, L.P., a Delaware limited partnership

“MLP Closing” means the Closing as such term is defined in the MLP Purchase Agreement.

“MLP Purchase Agreement” means that certain Purchase Agreement dated as of even date herewith, by and among the Issuer, Abraxas Energy Partners, L.P., Abraxas General Partner, LLC, and the purchasers listed therein.

“Order” means the entry in any judicial or administrative proceeding brought under any Law by any Governmental Authority or any other Person of any permanent or preliminary injunction or other order.

“Person” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability Issuer, joint stock Issuer, government (or an agency or subdivision thereof) or any court or other federal, state, local or other Governmental Authority or other entity of any kind.

“Placement Agent” means A.G. Edwards & Sons, Inc.

“PowerPoint Presentation” means the PowerPoint Presentation titled “Private Placement of Common Stock” dated April 2007.

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“Preliminary Prospectuses” and individually, “Preliminary Prospectus” has the meaning set forth in 9.1(e).

“Private Placement” has the meaning set forth in the recitals.

“Prospectus” has the meaning set forth in 9.1(c).

“Purchase Price” has the meaning set forth in Section 2.1.

“Purchased Shares” has the meaning set forth in Section 2.1.

“Purchaser” and collectively the “Purchasers” has the meaning set forth in the introductory paragraph.

“Purchaser Underwriter Registration Statement” has the meaning set forth in Section 9.1.

“Quarterly Report” has the meaning set forth in Section 5.7(b).

“Registrable Securities” means (i) the Purchased Shares, (ii) the Warrant Shares and (iii) Common Stock issued as Liquidated Damages pursuant to Section 9.2 of this Agreement, if any, all of which Registrable Securities are subject to the rights provided herein until such rights terminate pursuant to the provisions hereof.

“Registration Statement” has the meaning set forth in Section 9.1(a).

“Release” means the active or passive spilling, emitting, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the indoor or outdoor environment.

“SEC” has the meaning set forth in Section 9.1(a).

“SEC Filings” has the meaning set forth in Section 5.7.

“Securities Act” has the meaning set forth in Section 4.4.

“Selling Stockholder Indemnified Parties” has the meaning set forth in Section 9.4(b).

“Series A Preferred Stock” has the meaning set forth in Section 5.3(a).

“Senior Credit Agreement” means that certain Loan Agreement dated as of October 28, 2004 by and among the Issuer, the subsidiaries of the Issuer named therein, the lenders signatory thereto and Wells Fargo Foothill, Inc.

“Series B Preferred Stock” has the meaning set forth in Section 5.3(a).

“Short Sales” means, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act)

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and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

“Subsidiary” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares or member interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, (b) a partnership (whether general or limited) or limited liability company in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership or member of such limited liability company, but only if more than 50% of the partnership or member interests of such partnership or limited liability company (considering all of the partnership or member interests of the partnership or limited liability company as a single class) is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, or (c) any other Person (other than a corporation, partnership or limited liability company) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Suspension” has the meaning set forth in Section 9.3(c).

“Suspension Notice” has the meaning set forth in Section 9.3(c).

“Tax” or “Taxes” has the meaning set forth in Section 5.23.

“Tax Returns” has the meaning set forth in Section 5.23.

“Trading Affiliate” means an Affiliate of a Purchaser which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares discretion relating to such Purchaser’s investments or trading or information concerning such Purchaser’s investments, including in respect of the Purchased Shares and the Warrant, and (iii) is subject to such Purchaser’s review or input concerning such Affiliate’s investments or trading.

“Underwritten Offering” means an offering (including an offering pursuant to a Registration Statement) in which shares of Common Stock are sold to an underwriter on a firm commitment basis for reoffering to the public or an offering that is a “bought deal” with one or more investment banks.

“Warrant Shares” has the meaning set forth in Section 4.4.

“Warrants” has the meaning set forth in Section 2.2.

2. Agreement to Purchase Securities.

2.1Sale and Issuance of Common Stock. Subject to the terms and conditions set forth in this Agreement, each Purchaser hereby agrees, severally and not jointly, to purchase at the Closing, and the Issuer agrees to sell and issue to each Purchaser at the Closing the number of

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shares of the Issuer’s Common Stock, par value $.01 per share (“Common Stock”), shown opposite such Purchaser’s name on Schedule 1, at a price of $3.83 per share (the “Purchased Shares”), for an aggregate purchase price to be paid by such Purchaser (the “Purchase Price”) in the amount shown opposite such Purchaser’s name on Schedule 1.

2.2Issuance of Warrants. As additional consideration for each Purchaser’s agreement to the terms and conditions of this Agreement, the Issuer shall issue to each Purchaser a warrant in substantially the form attached hereto as Exhibit A to purchase a number of shares of Common Stock equal to the product of (a) the number of Purchased Shares purchased by such Purchaser, times (b) 0.20, on the additional terms and conditions set forth in Exhibit A (the “Warrants”).

3.Closing. The execution and delivery of this agreement, payment by each Purchaser and the consummation of the transactions contemplated hereby (the “Closing”) shall take place at the offices of Jackson Walker L.L.P., 112 E. Pecan St., Suite 2400, San Antonio, Texas 78205 on May 25, 2007 (the “Closing Date”).

4.Purchasers’ Representations and Warranties. Each Purchaser, severally and not jointly, hereby represents and warrants to the Issuer that:

4.1Organization; Authority. Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Purchaser has the requisite corporate, partnership or limited liability company power and authority to enter into this Agreement and to consummate the transactions hereunder and otherwise to carry out its obligations hereunder. The purchase by Purchaser of the Purchased Shares and the Warrants has been duly authorized by all necessary action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes the valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, except as limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and except to the extent that the enforceability of the indemnification provisions of Section 9.1 relating to registration rights granted hereunder may be limited by applicable laws.

4.2Compliance with Laws and Other Instruments. The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby do not conflict with or result in any violation of or default under any provision of any charter, bylaws, trust agreement, partnership agreement, or other organizational document, as the case may be, of the Purchaser or any agreement, certificate, or other instrument to which the Purchaser is a party or by which the Purchaser or, to Purchaser’s knowledge, any of its properties is bound, or any permit, franchise, judgment, decree, statute, rule, regulation, or other Law applicable to the Purchaser or the business or properties of the Purchaser.

4.3Consents. No consent, approval or authorization of, or filing, registration or qualification with, any court or governmental or regulatory department, agency or authority having jurisdiction over the Purchaser or its business or properties is required for the execution

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and delivery of this Agreement by the Purchaser or the performance of the Purchaser’s obligations and duties hereunder.

4.4Investment Intent. Such Purchaser is acquiring the Purchased Shares and Warrants solely for the Purchaser’s own account for investment purposes, and not with a view to, or for offer or sale in connection with, any distribution of the Purchased Shares or Warrants in violation of the Securities Act of 1933, as amended (the “Securities Act”). No other person has a beneficial interest in the Purchased Shares or Warrants, and no other person has furnished or will furnish directly or indirectly, any part of or guarantee the payment of any part of the Purchase Price. Such Purchaser does not intend to dispose of all or any part of the Purchased Shares, Warrants or Common Stock issuable upon the exercise of the Warrants (the “Warrant Shares”) except in compliance with the provisions of the Securities Act and applicable state securities laws, and understands that the Purchased Shares and Warrants are being offered pursuant to one or more specific exemptions under the provisions of the Securities Act, which exemption(s) depend(s), among other things, upon compliance with the provisions of the Securities Act.

4.5Access to Information. Such Purchaser acknowledges that it has (a) had access to the SEC Filings and (b) been provided a reasonable opportunity to ask questions of and receive answers from representatives of the Issuer regarding such matters.

4.6Nature of Purchasers. Such Purchaser represents and warrants to, and covenants and agrees with, Issuer that, (a) it is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated by the SEC pursuant to the Securities Act and (b) by reason of its business and financial experience it has such knowledge, sophistication and experience in making similar investments and in business and financial matters generally so as to be capable of evaluating the merits and risks of the prospective investment in the Purchased Shares and Warrants, is able to bear the economic risk of such investment and, at the present time, would be able to afford a complete loss of such investment.

4.7Knowledge and Experience. Such Purchaser is experienced in evaluating and investing in the securities of businesses in the Issuer’s industry, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Purchased Shares and Warrants and of protecting its interests in connection with an acquisition of the Purchased Shares and Warrants. Such Purchaser understands that the acquisition of the Purchased Shares and Warrants is a speculative investment and involves substantial risks and the Purchaser could lose its entire investment in the Purchased Shares and Warrants.

4.8Suitability and Reliance on Own Advisors. Such Purchaser has carefully considered, and has, to the extent the Purchaser deems it necessary, discussed with the Purchaser’s own professional legal, tax and financial advisers the suitability of an investment in the Purchased Shares and Warrants for the Purchaser’s particular tax and financial situation, and the Purchaser has determined that the Purchased Shares and Warrants are a suitable investment for the Purchaser. Such Purchaser has not relied upon the Issuer or its advisers for legal or tax advice.

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4.9Ability to Bear Risk of Loss. Such Purchaser is financially able to hold the Purchased Shares, Warrants and Warrant Shares subject to restrictions on transfer for an indefinite period of time, and is capable of bearing the economic risk of losing up to the entire amount of its Purchase Price.

4.10Non-Registered Common Stock. Such Purchaser acknowledges that the offer and sale of the Purchased Shares and Warrants have not been registered under the Securities Act or any state securities laws and the Purchased Shares, Warrants and Warrant Shares may be resold only if registered pursuant to the provisions thereunder or if an exemption from registration is available. Such Purchaser understands that the offer and sale of the Purchased Shares and Warrants are intended to be exempt from registration under the Securities Act, based, in part, upon the representations, warranties and agreements of such Purchaser contained in this Agreement.

4.11Truth and Accuracy. All representations and warranties made by such Purchaser in this Agreement are true and accurate as of the date hereof and shall be true and accurate as of the Closing. If at any time prior to the Closing any representation or warranty shall not be true and accurate in any respect, such Purchaser shall so notify the Issuer.

4.12Brokers or Finders. Such Purchaser has not dealt with any broker or finder other than the Placement Agent in connection with the transactions contemplated by the Agreement, and has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders’ fees or agent’s commissions or any similar charges in connection with the transactions contemplated by the Agreement.

4.13Certain Trading Activities. Other than with respect to the transactions contemplated herein, since the time that such Purchaser was first contacted by the Issuer, the Placement Agent or any other Person regarding the transactions contemplated hereby and by the MLP Purchase Agreement, the Purchaser has not, directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, effected or agreed to effect any transactions in the securities of the Issuer (including, without limitation, any Short Sales involving the Issuer’s securities). Notwithstanding the foregoing, in the case of a Purchaser that is, (i) a broker dealer or an affiliate of a broker dealer whereby the employees responsible for the proprietary trading and market making functions of such Purchaser are separated by an information barrier maintained according to polices and procedures reasonably designed to prevent the flow of information across such barriers, from the employees responsible for the purchase of the securities that are the subject of this Agreement, or (ii) individually or collectively, a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s or Trading Affiliate’s assets, the representation set forth above shall apply only with respect to the portion of assets managed by the portfolio managers that have knowledge about the financing transaction contemplated by this Agreement, or, in the case of a broker dealer only with respect to the portion of assets managed by the employees that have knowledge about the financing transaction contemplated by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all

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disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

5.Issuer’s Representations and Warranties. The Issuer hereby represents and warrants to the Purchasers that:

5.1Corporate Existence; Authority. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of Nevada, and it has all requisite corporate power and authority to carry on its business as it is now being conducted. The individual executing and delivering this Agreement on behalf of the Issuer has been duly authorized to execute and deliver this Agreement on behalf of the Issuer, and the signature of such individual is binding upon the Issuer. All corporate action on the part of the Issuer, its officers, directors and stockholders necessary for the authorization of this Agreement and the Warrants, the performance of all obligations of the Issuer hereunder and thereunder and the authorization, sale, issuance and delivery of the Purchased Shares pursuant hereto and the Warrant Shares pursuant to the Warrants has been taken.

5.2Enforceability. The Issuer has duly executed and delivered this Agreement and the Warrants and (subject to its execution by the Purchasers) each such agreement constitutes a valid and binding agreement of the Issuer enforceable in accordance with its terms against the Issuer, except as such enforceability may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors generally and general principles of equity governing specific performance, injunctive relief or other equitable remedies and except to the extent that the enforceability of the indemnification provisions of Section 9.1 relating to registration rights granted hereunder may be limited by applicable laws.

5.3Capitalization. The authorized capital of the Issuer consists, or will consist immediately prior to the Closing, of:

(a)Preferred Stock. 1,000,000 shares of Preferred Stock, par value $0.01 per share, of which (i) 100,000 shares have been designated Series A Preferred Stock, par value $100.00 per share (the “Series A Preferred Stock”), of which no shares are issued and outstanding; (ii) 45,741 shares have been designated Series B 8% Cumulative Convertible Preferred Stock, par value $100.00 per share (the “Series B Preferred Stock”), of which no shares are issued or outstanding; and (iii) 45,471 shares have been designated as Series 1995-B 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of which no shares are issued and outstanding.

(b)Common Stock. 200,000,000 shares of Common Stock of which 42,878,725 shares are issued and outstanding as of the date of this Agreement.

(c)All of the outstanding shares of Common Stock of the Issuer (i) have been duly and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights and (ii) were issued in compliance with all applicable state and Federal laws concerning the issuance of securities or pursuant to valid exemptions therefrom. The Purchased Shares, Warrants and Warrant Shares have been duly authorized and when issued and delivered

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to the Purchasers against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable and the issuance of such Purchased Shares, Warrants and Warrant Shares will not be subject to any preemptive or similar rights.

(d)Prior to giving effect to the transactions set forth herein, there are no outstanding subscriptions, options, warrants, convertible securities, calls, commitments, agreements or rights to purchase or otherwise acquire from the Issuer any shares of, or any securities convertible into, the capital stock of the Issuer except as disclosed in the SEC Filings.

(e)Except as disclosed in the SEC Filings, no stockholders of the Issuer have any right to require the registration of any securities of the Issuer or to participate in any such registration.

5.4Formation of Subsidiaries. Each of the Subsidiaries has been duly formed and is validly existing as a corporation, limited partnership or limited liability company, as the case may be, under the laws of its state of formation, with all requisite corporate, limited partnership or limited liability company power and authority to own or lease its properties and to conduct its business in all material respects as currently conducted. Each of the Subsidiaries is duly qualified, registered or licensed to do business as a foreign corporation, limited partnership or limited liability company, as the case may be, for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases property, or in which the nature of the business conducted by it makes such qualification necessary (except where the failure to be so qualified or registered or in good standing would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect).

5.5Ownership of Subsidiaries. The Issuer owns, directly or indirectly, all of the capital stock, partnership interests or membership interests, as the case may be, of each Subsidiary free and clear of any and all liens, encumbrances and restrictions, and the issued and outstanding capital stock, partnership interests or membership interests, as the case may be, of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. Neither the Issuer nor any Subsidiary is a party to any material joint venture, partnership or similar arrangement or has any ownership interest in any other entity that is material to the Issuer and not disclosed in the SEC Filings other than as contemplated by the transactions set forth in the MLP Purchase Agreement.

5.6No Conflicts. The issuance and sale of the Purchased Shares and the Warrants to the Purchasers as contemplated hereby and the performance of this Agreement will not violate or conflict with (i) the Issuer’s Articles of Incorporation, as amended, or Bylaws, as amended, or (ii) any material agreements to which the Issuer is a party or by which it is otherwise bound or (iii) any statute, rule or regulation (federal, state, local or foreign) to which it is subject, except, in the case of (iii) above, where such violation or conflict could not reasonably be expected to have a Material Adverse Effect.

5.7SEC Documents. (a)All reports and other documents filed or furnished by the Issuer pursuant to the Exchange Act through the SEC’s Electronic Data Gathering, Analysis and Retrieval system prior to the date hereof (collectively, the “SEC Filings”) are publicly available for viewing by the Purchasers. The SEC Filings are the only filings required of the Issuer

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pursuant to the Exchange Act for such period. At the time of filing thereof, the SEC Filings complied in all material respects with the requirements of the Exchange Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, except to the extent that information contained in any such document has been revised or superseded by a later filed SEC Filing. The Issuer has included in the Annual Report a list of all material agreements, contracts and other documents that it reasonably believes are required to be filed as exhibits to the Annual Report.

(b)The financial statements of the Issuer included in the annual report on Form 10-K for the year ended December 31, 2006 (the “Annual Report”) and the quarterly report on Form 10-Q for the three months ended March 31, 2007 (the “Quarterly Report”), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be indicated in the notes thereto or otherwise, or (ii) as to the Quarterly Report, to the extent it may exclude footnotes) and fairly present in all material respects the financial position of the Issuer as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). The Issuer has not had any disagreement with, and the Issuer has not changed, its independent public accounting firm during the periods covered by the SEC Filings.

5.8Litigation. Except as disclosed in the SEC Filings, there is no litigation or other legal, administrative or governmental proceeding pending or, to the knowledge of the Issuer, threatened against or relating to the Issuer or its properties or business, that if determined adversely to the Issuer could reasonably be expected to have a Material Adverse Effect.

5.9No Material Adverse Change. Since the date of the Annual Report, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Issuer, and no event has occurred or circumstance exists that may result in such a material adverse change except for such changes as may have occurred in the oil and gas industry generally or in the national or world economy.

5.10Environmental. Except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect:

(a)The operations and activities of the Issuer and each of its Subsidiaries are and have at all times been in compliance with all Environmental Laws and Regulations.

(b)The Issuer and each of its Subsidiaries have obtained and are in compliance in all material respects with all requirements, permits, licenses and other authorizations which are required with respect to its operations, under all applicable Environmental Laws and Regulations.

(c)The Issuer and each of its Subsidiaries are not subject to any civil, criminal, administrative or other action, suit, demand, claim, hearing, notice of violation, proceeding, investigation, notice or demand pending, received, or threatened pursuant to any applicable Environmental Laws and Regulations, which has not been abated.

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(d)Neither the Issuer nor any of its Subsidiaries have received any written notification asserting any alleged liability or obligation under any applicable Environmental Laws and Regulations with respect to the Release or threatened Release of any Hazardous Materials at any real property now or previously owned, leased, operated or utilized by the Issuer or any of its Subsidiaries, and there are no conditions or circumstances that could reasonably be expected to result in the receipt of such written notification.

(e)No Hazardous Materials have been Released at, on, under or from any property currently owned, operated or previously owned or operated by the Issuer or any of its Subsidiaries in violation of Environmental Laws and Regulations or in a manner that could give rise to any liability under Environmental Laws and Regulations, or for which remedial or corrective action may be required under applicable Environmental Laws and Regulations.

(f)The Issuer and its Subsidiaries have provided to the Purchasers true and complete copies of all internal and external environmental audits and studies and all correspondence on substantial environmental matters in the possession or control of and relating to the properties or operations of the Issuer and its Subsidiaries.

(g)The representations and warranties made in this Section 5.10 are the exclusive representations and warranties relating to environmental matters made to the Purchasers by the Issuer.

5.11No Consents. No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body having jurisdiction over the Issuer or any of its properties is required for the issuance and sale of the Purchased Shares and Warrants by the Issuer or for the consummation by Issuer of the transactions contemplated hereunder, except in each case for such consents, approvals, authorizations, orders, registrations or qualifications (i) as have been obtained, (ii) as may be required under federal or state securities or blue sky laws in connection with the purchase or registration of the Purchased Shares or (iii) the failure of which to obtain would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.12Compliance with Laws, Other Instruments. The execution, delivery and performance by the Issuer of this Agreement will not (a) contravene, result in any breach of, or constitute a default under or result in the creation of any lien in respect of any property of the Issuer under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or bylaws, or any other material agreement or instrument to which the Issuer is bound or by which the Issuer or any of its respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Issuer or (c) materially violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Issuer.

5.13Observance of Agreements, Statutes and Orders. The Issuer is not in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation

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environmental laws) of any Governmental Authority which default or violation could reasonably be expected to have a material adverse effect upon the operations or financial condition of the Issuer.

5.14Private Placement. Assuming the accuracy of the representations and warranties of the Purchasers contained in this Agreement, the offer, sale and issuance of the Purchased Shares and Warrants to the Purchasers are exempt from the registration requirements of the Securities Act, and the securities laws of any state having jurisdiction with respect thereto and neither the Issuer nor any of its Subsidiaries has taken any action that would cause the loss of such exemption.

5.15Brokers or Finders. Except for the Placement Agent (which has acted as a finder for the transactions contemplated by the Agreement), the Issuer has not dealt with any broker or finder in connection with the transactions contemplated by the Agreement, and except for certain fees and expenses payable by the Issuer to the Placement Agent, the Issuer has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage of finders’ fees or agents commissions or any similar charges in connection with the transactions contemplated by the Agreement.

5.16No Integrated Offering. Neither the Issuer nor any of its Affiliates, nor, to the Issuer’s knowledge, any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security of the Issuer or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Issuer on Section 4(2) of the Securities Act for the exemption from the registration requirements imposed under Section 5 of the Securities Act for the transactions contemplated hereby or that would require such registration the Securities Act.

5.17Foreign Corrupt Practices Act. Neither the Issuer nor, to the Issuer’s knowledge, any of its current or former shareholders, directors, officers, employees, agents or other Persons acting on behalf of the Issuer has on behalf of the Issuer or in connection with its business, taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (“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 Issuer has conducted its businesses in compliance with the FCPA and has instituted and maintains policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.

5.18Internal Controls. The Issuer is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Issuer. The Issuer maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with

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generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Issuer has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the Issuer and has designed such disclosure controls and procedures with the intent of ensuring that material information relating to the Issuer is made known to the certifying officers by others within those entities, particularly with respect to the period covered by the Issuer’s most recently filed period report under the Exchange Act. Under the supervision and with the participation of the Issuer’s management, the Issuer evaluated the effectiveness of the Issuer’s disclosure controls and procedures as of the end of the most recent periodic reporting period under the Exchange Act (such date, the “Evaluation Date”). The Issuer presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date and such conclusions are accurate in all material respects. Since the Evaluation Date, there have been no significant changes in the Issuer’s internal controls (as such term is defined in Item 308(c) of Regulation S-K) or, to the Issuer’s knowledge, in other factors that could significantly affect the Issuer’s internal controls. The Issuer maintains a standard system of accounting established and administered in accordance with generally accepted accounting principles and the applicable requirements of the Exchange Act.

5.19Listing. The Common Stock of the Issuer is listed and posted for trading on the AMEX and the Issuer has not received any notification (written or oral) from the AMEX to the effect that the Issuer is not in compliance with the listing or maintenance requirements of the AMEX.

5.20Use of Proceeds. The Issuer will use the proceeds from the issuance of the Purchased Shares and the Warrants to repay that portion of the Issuer’s outstanding indebtedness, including the Issuer’s Floating Rate Senior Secured Notes currently outstanding not assumed by the MLP and its Subsidiaries and to pay the costs, fees and expenses associated with the transactions contemplated by this Agreement and for general corporate and working capital purposes. Following the application of the proceeds from the issuance of the Purchased Shares and the Warrants and the consummation of the transactions contemplated by the MLP Purchase Agreement, the Issuer will have no indebtedness for borrowed money.

5.21Title to Properties and Assets; Liens, Etc. Each of the Issuer and its Subsidiaries has good and marketable title to its properties and assets other than its oil and gas properties, including the properties and assets reflected in the SEC Filings, and defensible title to its leasehold estates including its oil and gas properties, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from Taxes which have not yet become delinquent, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of each of the Issuer and its Subsidiaries, (c) those that have otherwise arisen in the ordinary course of business, and those that have been granted in favor of the lenders under the Issuers’ Senior Credit Agreement and the holders of the Floating Rate Senior Secured Notes. The Issuer and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound.

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5.22 Intellectual Property.

(a)Each of the Issuer and its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Issuer or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of “off the shelf” or standard products.

(b)Neither the Issuer nor any of its Subsidiaries has received any communications alleging and to its knowledge, that there is no basis for any allegation that Each of the Issuer and its Subsidiaries has violated or would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity.

(c)Neither the Issuer nor any of its Subsidiaries is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to each of the Issuer and its Subsidiaries. Each of the Issuer and its Subsidiaries does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by Each of the Issuer and its Subsidiaries.

5.23Tax Returns and Payments. Each of the Issuer and its Subsidiaries has filed all Tax Returns (federal, state and local) required to be filed, or has properly filed extensions for filing such Tax Returns, and all such returns are true, correct and complete in all material respects. All Taxes shown to be due and payable on such returns, any assessments imposed, and all other Taxes due and payable by each of the Issuer and its Subsidiaries, or any predecessor on or before the Closing, have been paid or will be paid prior to the time they become delinquent or are being contested in good faith by appropriate proceedings. Neither the Issuer nor any of its Subsidiaries has been advised (a) that any of its returns, federal, state or other, have been or are being audited, or (b) of any deficiency, assessment or proposed judgment with regard to its federal, state or other Taxes. There is no liability for any Tax to be imposed upon the properties or assets of each of the Issuer and its Subsidiaries that is not adequately provided for in accordance with generally accepted accounting principles.

There are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of each of the Issuer and its Subsidiaries. Each of the Issuer and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. Neither the Issuer nor any of its Subsidiaries waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

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Neither the Issuer nor any of its Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal Income tax return (other than a group the common parent of which was the Issuer) or (B) has liability for the Taxes of any Person (other than Each of the Issuer and its Subsidiaries) under Reg. §1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

Neither the Issuer nor any of its Subsidiaries participated in any “reportable transaction” or “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4 or 1.6011-4T.

Neither the Issuer nor any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

(A) change in method of accounting for a taxable period ending on or prior to the Closing Date;

(B) “closing agreement” as described in Code §7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date;

(C) intercompany transactions or any excess loss account described in Treasury Regulations under Code §1502 (or any corresponding or similar provision of state, local or foreign income Tax law);

(D) installment sale or open transaction disposition made on or prior to the Closing Date; or

(E) prepaid amount received on or prior to the Closing Date.

Neither the Issuer nor any of its Subsidiaries distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code §355 or Code §361.

“Tax” or “Taxes” means (i) any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property or windfall profits taxes, environmental taxes, customs duties, franchise, employees’ income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, value added, goods and services, alternative or add-on minimum or other tax, fee, assessment or charge of any kind whatsoever including any interest, penalties or additions to Tax or additional amounts in respect of the foregoing; (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, joint or several liability for being a member of an affiliated, consolidated, combined, unitary or other group for any period, or otherwise by operation of law, and (iii) any liability for the payment of amounts described in clause (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to pay or indemnify any other Person.

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“Tax Return” means any return, report, statement, information return or other document (including any schedule or attachment thereto) filed or required to be filed with any taxing authority with respect to the determination, assessment or collection of, or otherwise with respect to, Taxes.

5.24 Employees; Employee Benefits.

(a)The Issuer has no collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Issuer’s knowledge, threatened with respect to the Issuer. To the Issuer’s knowledge, no employee of each of the Issuer and its Subsidiaries, nor any consultant with whom each of the Issuer and its Subsidiaries has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, each of the Issuer and its Subsidiaries because of the nature of the business to be conducted by each of the Issuer and its Subsidiaries; and to the Issuer’s knowledge the continued employment by each of the Issuer and its Subsidiaries of its present employees, and the performance of each of the Issuer and its Subsidiaries’ contracts with its independent contractors, will not result in any such violation. Neither the Issuer nor any of its Subsidiaries received any notice alleging that any such violation has occurred. Neither the Issuer nor any of its Subsidiaries is aware that any officer, key employee or group of employees intends to terminate his, her or their employment with each of the Issuer and its Subsidiaries, nor does each of the Issuer and its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of employees.

(b)Neither the Issuer nor any of its Subsidiaries is delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants, or independent contractors. Each of the Issuer and its Subsidiaries has complied in all material respects with (i) all applicable state and federal equal employment opportunity laws and with other laws related to employment, including those related to wages, hours, worker classification, collective bargaining, and the payment and withholding of taxes and other sums as required by law and (ii) all applicable laws relating to the Benefit Plans. Each of the Issuer and its Subsidiaries has withheld and paid to the appropriate governmental entity or is holding for payment not yet due to such governmental entity all amounts required to be withheld from employees of each of the Issuer and its Subsidiaries and is not liable for any arrears of wages, taxes, penalties, or other sums for failure to comply with any of the foregoing. The only “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) sponsored by each of the Issuer and its Subsidiaries is the Issuer’s 401(k) plan.

(c)None of the Benefit Plans is a “multiemployer plan” as such term is defined in Section 3(37) of ERISA. Each Benefit Plan which is intended to be qualified under Section 401(a) of the Code is so qualified. Neither the Issuer nor any of its Subsidiaries is and has not ever been (i) members of a “controlled group of corporations,” under “common control” or an “affiliated service group” within the meaning of Sections 414(b), (c) or (m) of the Code, (ii) required to be aggregated under Section 414(o) of the Code or (iii) under “common control,” within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or

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proposed under any of the foregoing Sections, in each case with any other entity (an “ERISA Affiliate”).

(d)The execution and delivery of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (1) constitute an event under any Benefit Plan, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any current or former employee, officer, director or independent contractor of each of the Issuer and its Subsidiaries or (2) result in the triggering or imposition of any restrictions or limitations on the right of each of the Issuer and its Subsidiaries to amend or terminate any Benefit Plan (or result in any adverse consequence for any such action). No payment or benefit that will or may be made in connection with the transactions contemplated by this Agreement will be characterized as an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code.

(e)There is no pending litigation, audit, investigation or other proceeding relating to any Benefit Plan or to the employment, termination of employment, compensation or employee benefits of any current or former employee, director or independent contractor nor, to the knowledge of the Issuer, is any such litigation, audit, investigation or other proceeding threatened.

5.25Registration Rights and Voting Rights; Preemptive Rights.The Issuer is presently not under any obligation, and has not granted any rights, to register any of the Issuer’s presently outstanding securities or any of its securities that may hereafter be issued pursuant to the terms of the Securities Act. No stockholder of the Issuer has entered into any agreement with respect to the voting of equity securities of the Issuer. No stockholder of the Issuer has any preemptive or similar rights.

5.26InsuranceAll insurance policies of the Issuer are in full force and effect and provide coverage customary for companies similarly situated to the Issuer. The Issuer’s insurance policies are in amounts and have coverages as required by any agreement to which the Issuer or its Subsidiaries is a party.

5.27Full DisclosureThe Issuer has provided the Purchasers with all information requested by the Purchasers in connection with their decision to purchase the Purchased Shares. The information provided by the Issuer pursuant to this Agreement included in the PowerPoint Presentation was prepared in good faith with a reasonable basis therefor.

6.Issuer Closing Deliveries. At the Closing, subject to the terms and conditions hereof, the Issuer will deliver, or cause to be delivered, to each Purchaser:

6.1MLP Closing. Confirmation that all conditions to closing set forth in MLP Purchase Agreement shall have been satisfied in all material respects or the fulfillment of any such conditions shall have been waived, except for those conditions that, by their nature, will be satisfied concurrently with the MLP Closing.

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6.2Opinion of Issuer’s Counsel. Each Purchaser shall have received from Jackson Walker L.L.P., counsel for the Issuer, an opinion, dated as of the Closing, substantially in the form of Exhibit B.

6.3Certificates. A certificate or certificates (bearing the legend set forth in Section 8.3) representing the Purchased Shares and the Warrants and meeting the requirements of the Bylaws, free and clear of any liens, other than transfer restrictions under applicable federal and state securities laws;

6.4Secretary’s Certificate. Purchasers shall have received from the Issuer’s Secretary or Assistant Secretary, a certificate having attached thereto (i) the Articles of Incorporation as in effect at the time of the Closing, (ii) the Issuer’s Bylaws as in effect at the time of the Closing, (iii) resolutions approved by the Board of Directors authorizing the transactions contemplated by this Agreement and the Warrants, (iv) a list of the officers of the Issuer who are authorized to sign this Agreement and the Warrants, (v) specimen signatures of such authorized officers and (vi) good standing certificates (including tax good standing) with respect to the Issuer from the applicable authorities in Nevada and Texas.

7.Purchaser Closing Deliveries. At the Closing, subject to the terms and conditions hereof, the Issuer will deliver, or cause to be delivered, to each Purchaser:

7.1MLP Closing. Confirmation that all conditions to close set forth in MLP Purchase Agreement shall have been satisfied in all material respects or the fulfillment of any such conditions shall have been waived, except for those conditions that, by their nature, will be satisfied concurrently with the MLP Closing.

7.2Payment of Purchase Price. Such Purchaser shall have delivered, by wire transfer of immediately available funds, the Purchase Price specified in Section 2, and the Issuer shall have received gross proceeds equal to at least $20.0 million in the aggregate pursuant to the transactions contemplated by this Agreement.

8. Restrictions on Transfer.

8.1Resale Restrictions. Each Purchaser understands that the offer and sale of the Purchased Shares and Warrants to the Purchasers have not been registered under the Securities Act or under any state laws. Each Purchaser agrees, severally and not jointly, with the other Purchasers, not to offer, sell or otherwise transfer the Purchased Shares or Warrant Shares, or any interest in the Purchased Shares or Warrant Shares, unless (i) the offer and sale is registered under the Securities Act, (ii) the Purchased Shares or Warrant Shares, as applicable, may be sold in accordance with the applicable requirements and limitations of Rule 144 under the Securities Act and any applicable state laws and, if American Stock Transfer and Trust Company, as transfer agent for the Issuer, reasonably requests, such Purchaser delivers to the Issuer an opinion of counsel (at the expense of the Issuer) to such effect, or (iii) such Purchaser delivers to the Issuer an opinion of counsel (at the expense of the Issuer) reasonably satisfactory to the Issuer that the offer and sale is otherwise exempt from Securities Act registration. Notwithstanding the foregoing subsections (ii) and (iii), no opinion shall be required for transfers by a Purchaser to its Affiliates.

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8.2Short Selling Acknowledgement and Agreement. Each Purchaser understands and acknowledges, severally and not jointly with any other Purchaser, that the SEC currently takes the position that coverage of short sales of securities “against the box” prior to the effective date of a registration statement is a violation of Section 5 of the Securities Act. Each Purchaser agrees, severally and not jointly, that it will not engage in any Short Sales that result in the disposition of the Common Stock acquired hereunder by the Purchaser until such time as the Registration Statement is declared effective; provided, however, that any Purchaser may enter into a cash settled derivative, total return swap or similar transaction with respect to the Purchased Shares purchased by it, subject to compliance with all applicable rules and regulations of the Commission. No Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Issuer otherwise owned by such Purchaser or borrowed from a broker after the time that the transactions contemplated by this Agreement are first publicly announced.

8.3Restrictive Legend. Each Purchaser understands and agrees that a legend in substantially the following form will be placed on the certificates or other documents representing the Purchased Shares and Warrant Shares:

“THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION, AND THE TERMS OF SECTION 8.1 OF THE PURCHASE AGREEMENT PURSUANT TO WHICH THE SHARES OF COMMON STOCK WERE ORIGINALLY PURCHASED AND APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH. A COPY OF THE PURCHASE AGREEMENT IS ON FILE AT THE CORPORATE OFFICE OF THE CORPORATION.”

8.4Illiquid Investment. Each Purchaser acknowledges and agrees that it must bear the economic risk of its investment in the Purchased Shares and Warrant Shares for an indefinite period of time, until such time as the Purchased Shares or Warrant Shares, as applicable, are registered or an exemption from registration is available.

9. Registration of the Purchased Shares; Compliance with the Securities Act.

9.1 Registration Procedures and Other Matters. The Issuer shall:

(a)subject to receipt of necessary information from the Purchasers after prompt request from the Issuer to the Purchasers to provide such information, promptly following the Closing but no later than the 30th day following the Closing Date (the “Filing Date”), prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-3 or such other successor form (except that if the Issuer is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall

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be on Form S-1 or any successor form) (a “Registration Statement”) to enable the resale of the Registrable Securities, by the Purchasers or their transferees from time to time over the AMEX or any other national exchange on which the Issuer’s Common Stock is then traded, or in privately-negotiated transactions. No Purchaser may include any shares of Registrable Securities in the Registration Statement pursuant to this Agreement unless such Purchaser furnishes to the Issuer in writing within ten business days after receipt of request therefor, such requested information;

(b)use its commercially reasonable efforts, subject to receipt of necessary information from the Purchasers after prompt request from the Issuer to the Purchasers to provide such information, to cause the Registration Statement to become effective prior to the 90th day following the Closing Date (the “Effectiveness Date”);

(c)use its commercially reasonable efforts to cause such Registration Statement to remain continuously effective and prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith (the “Prospectus”) (and the applicable Exchange Act reports incorporated therein by reference, so filed on a timely basis) as may be necessary to keep the Registration Statement current, effective and free from any material misstatement or omission to state a material fact for a period ending on the date that is, with respect to each Purchaser’s Registrable Securities, the earlier of (i) the date on which the Purchaser may sell all Registrable Securities then held by the Purchaser without restriction under Rule 144(k) (or any similar provision then in force under the Securities Act), or (ii) such time as all Registrable Securities purchased by such Purchaser have been sold or otherwise transferred pursuant to a registration statement or otherwise;

(d)so long as a Purchaser holds Registrable Securities, provide copies to and permit a single legal counsel designated by the Purchasers to review the Registration Statement and all amendments and supplements thereto, no fewer than three business days prior to their filing with the SEC, and not file any Registration Statement, amendment or supplement thereto to which a holder of the Registrable Securities reasonably objects in writing within such three business day period;

(e)furnish to the Purchasers with respect to the Registrable Securities included in the Registration Statement such number of copies of the Registration Statement, Prospectuses and preliminary Prospectuses (“Preliminary Prospectuses” and individually, “Preliminary Prospectus”) in conformity with the requirements of the Securities Act and such other documents as the Purchasers may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Securities by the Purchasers; provided, however, that the obligation of the Issuer to deliver copies of Prospectuses or Preliminary Prospectuses to the Purchasers shall be subject to the receipt by the Issuer of reasonable assurances from the Purchasers that the Purchasers will comply with the applicable prospectus delivery requirements under the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses by the Purchasers;

(f)file documents required of the Issuer for customary blue sky clearance in states specified in writing by the Purchasers and use its commercially reasonable efforts to maintain such blue sky qualifications during the period the Issuer is required to maintain the

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effectiveness of the Registration Statement pursuant to Section 9.1(b); provided, however, that the Issuer shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented;

(g)promptly notify the Purchasers after it receives notice of the time when the Registration Statement has been declared effective by the SEC, or when a supplement or amendment to any Registration Statement has been filed with the SEC;

(h)advise the Purchasers, promptly: (i) after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and (ii) at any time when a Prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of an event as a result of which, the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(i)upon request and subject to appropriate confidentiality obligations, furnish to each Purchaser copies of any and all transmittal letters or other correspondence with the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of Registrable Securities;

(j)in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel for the Issuer dated the effective date of the applicable registration statement or the date of any amendment or supplement thereto, and a letter of like kind dated the date of the closing under the underwriting agreement, and (ii) a “cold comfort” letter, dated the date of the applicable registration statement or the date of any amendment or supplement thereto and a letter of like kind dated the date of the closing under the underwriting agreement, in each case, signed by the independent public accountants who have certified the Issuer’s financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the “cold comfort” letter shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus and any prospectus supplement included therein) as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to the underwriters in Underwritten Offerings of securities and such other matters as such underwriters or Purchasers may reasonably request;

(k)otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;

(l)make available to the appropriate representatives of the managing underwriter and the Purchasers access to such information and Issuer personnel as is reasonable

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and customary to enable such parties to establish a due diligence defense under the Securities Act; provided, however, that the Issuer need not disclose any such information to any such representative unless and until such representative has entered into or is otherwise subject to a confidentiality agreement with the Issuer satisfactory to the Issuer; and

(m)cause all such Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Issuer are then listed.

The Issuer agrees that, if any Purchaser could reasonably be deemed to be an “underwriter”, as defined in Section 2(a)(11) of the Securities Act, in connection with the registration statement in respect of Registrable Securities and any amendment or supplement thereof (any such registration statement or amendment or supplement a “Purchaser Underwriter Registration Statement”), then the Issuer will cooperate with such Purchaser in allowing such Purchaser to conduct customary “underwriter’s due diligence” with respect to the Issuer and satisfy its obligations in respect thereof. In addition, at any Purchaser’s request, the Issuer will furnish to such Purchaser, on the date of the effectiveness of any Purchaser Underwriter Registration Statement and thereafter from time to time on such dates as such Purchaser may reasonably request, (i) a letter, dated such date, from the Issuer’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to such Purchaser, and (ii) an opinion, dated as of such date, of counsel representing the Issuer for purposes of such Purchaser Underwriter Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, including standard “10b-5” assurances for such offering, addressed to such Purchaser. The Issuer will also permit legal counsel to such Purchaser to review and comment upon any such Purchaser Underwriter Registration Statement at least five business days prior to its filing with the SEC and all amendments and supplements to any such Purchaser Underwriter Registration Statement within a reasonable number of days prior to their filing with the SEC and not file any Purchaser Underwriter Registration Statement or amendment or supplement thereto in a form to which such Purchaser’s legal counsel reasonably objects.

9.2Failure of Registration Statement to Become Effective. The Issuer and the Purchasers agree that the Purchasers will suffer damages if the Registration Statement is not declared effective on or prior to the Effectiveness Date. The Issuer and the Purchasers further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the Registration Statement is not declared effective on or prior to the Effectiveness Date, the Issuer shall pay as liquidated damages, and not as a penalty, 1% of (i) the Purchase Price multiplied by (ii) the number of Registrable Securities then held by such Purchaser (such product being the “Liquidated Damages Amount”) per 30-day period (which shall be pro rated for such periods less than thirty (30) days) until the Registration Statement is declared effective. The Liquidated Damages Amount will be paid in cash, unless the Issuer certifies that such cash payment would result in a breach under its credit facility or other documents evidencing indebtedness, then the Issuer may pay the Liquidated Damages Amount in kind in the form of additional Common Stock. The determination of the number of shares of Common Stock to be issued as the Liquidated Damages Amount shall be equal to the Liquidated Damages Amount divided by the lesser of (i) the Purchase Price per share; and (ii) the closing

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price of the Issuer’s Common Stock on the AMEX on the date on which the Liquidated Damages payment is due. In no event shall the Issuer be required to issue fractional shares pursuant to the terms of this Section 9.2 and all fractional shares shall be rounded down to the next lowest number of whole shares. The parties agree that the amounts set forth in this Section 9.2 represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that will be incurred by the Purchasers if the Registration Statement is not declared effective on or prior to the Effectiveness Date. Notwithstanding anything to the contrary set forth in this Agreement, in no event shall the total number of shares of Common Stock that the Issuer shall be required to issue pursuant to this Agreement exceed the maximum number of shares of Common Stock that the Issuer can issue without stockholder approval pursuant to any rule of the American Stock Exchange, or any other national exchange on which the Issuer’s Common Stock is then traded including, without limitation, Section 713 of the American Stock Exchange Listing Standards, Policies and Requirements, subject to equitable adjustments from time to time for stock-splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date of this Agreement.

9.3 Transfer of Shares After Registration; Suspension.

(a)Each Purchaser agrees that it will not effect any disposition of the Registrable Securities that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 9.1 and as described below or as otherwise permitted by law, and that it will promptly notify the Issuer in writing of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution.

(b)Except in the event that paragraph (c) below applies, the Issuer shall if deemed necessary by the Issuer: (i) prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and so that, as thereafter delivered to purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) provide the Purchasers copies of any documents filed pursuant to Section 9.3(b)(i), and (iii) inform each Purchaser that the Issuer has complied with its obligations in Section 9.3(b)(i) (or that, if the Issuer has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Issuer will notify the Purchasers to that effect, will use its commercially reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Purchaser pursuant to Section 9.3(b)(i) hereof when the amendment has become effective).

(c)In the event of (i) any request by the SEC or any other federal or state Governmental Authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional

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information; (ii) the issuance by the SEC or any other federal or state Governmental Authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) the receipt by the Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) any event or circumstance which, upon the advice of its counsel, necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Issuer shall promptly deliver a notice in writing to the Purchasers (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Purchasers will refrain from selling any Registrable Securities pursuant to the Registration Statement (a “Suspension”) until the Purchasers’ receipt of copies of a supplemented or amended Prospectus prepared and filed by the Issuer, or until the Purchasers are advised in writing by the Issuer that the current Prospectus may be used, and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Issuer will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as promptly as practicable after the delivery of a Suspension Notice to the Purchasers. Notwithstanding the foregoing, the Issuer shall not be required to amend or supplement the Registration Statement, any related Prospectus or any document incorporated therein by reference in the event that, and for a period (a “Black Out Period”) not to exceed, for so long as this Agreement is in effect, 30 days consecutively in any 90 day period or a total of 90 days in any 12-month period if either (A) any action by the Issuer pursuant to this Section 9.3(c) would violate applicable law or (B) (x) an event occurs and is continuing as a result of which the Registration Statement, any related Prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Issuer’s good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (y) (1) the Issuer determines in good faith that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Issuer or (2) the disclosure otherwise relates to a material business transaction which has not yet been publicly disclosed in any relevant jurisdiction.

(d)Provided that a Suspension or a Black Out Period is not then in effect, the Purchasers may sell Registrable Securities under the Registration Statement in the manner set forth under the caption “Plan of Distribution” in the Prospectus, provided that each arranges for delivery of a current Prospectus to the transferee of such Registrable Securities. Upon receipt of a request therefor, the Issuer agrees to provide an adequate number of current Prospectuses to the Purchasers and to supply copies to any other parties requiring such Prospectuses.

9.4 Indemnification.

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(a) For the purpose of this Section 9.4:

(i) the term “Selling Stockholder” shall include the Purchasers and their respective Affiliates;

(ii) the term “Registration Statement” shall include the Prospectus in the form first filed with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, any exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 9.1; and

(iii) the term “untrue statement” shall include any untrue statement or alleged untrue statement of a material fact in the Registration Statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein not misleading.

(b)The Issuer agrees to indemnify and hold harmless each Selling Stockholder and its officers, directors, members and their respective successors and assigns and each Person, if any, who controls such Selling Stockholder within the meaning Section 15 of the Securities Act (collectively, the “Selling Stockholder Indemnified Parties”) from and against any losses, claims, damages, expenses or liabilities (including reasonable attorneys’ fees and expenses) to which such Selling Stockholder Indemnified Parties may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any breach of the representations or warranties of the Issuer contained herein, or failure to comply with the covenants and agreements of the Issuer contained herein, (ii) any untrue statement of a material fact contained in the Registration Statement as amended at the time of effectiveness or any omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (iii) any failure by the Issuer to fulfill any undertaking included in the Registration Statement as amended at the time of effectiveness, and the Issuer will reimburse such Selling Stockholder Indemnified Parties for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, provided, however, that the Issuer shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, (1) an untrue statement made in such Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading in reliance upon and in conformity with written information furnished to the Issuer by or on behalf of such Selling Stockholder Indemnified Parties specifically for use in preparation of the Registration Statement, (2) a breach of any representations or warranties made by such Selling Stockholder herein, or the failure of such Selling Stockholder Indemnified Parties to comply with its covenants and agreements contained in this Agreement hereof or (3) the use by the Selling Stockholder Indemnified Party of an outdated or defective Prospectus after the Issuer has notified such Selling Stockholder Indemnified Party in writing that the Prospectus is outdated or defective and prior to the receipt by such Selling Stockholder Indemnified Party of a supplemented Prospectus or written notice from the Issuer that the use of the applicable Prospectus may be resumed. The Issuer shall reimburse each Selling Stockholder Indemnified Party for the amounts provided for herein on demand as such expenses are incurred.

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(c)Each Purchaser agrees to indemnify and hold harmless the Issuer (and each person, if any, who controls the Issuer within the meaning of Section 15 of the Securities Act, each officer of the Issuer who signs the Registration Statement and each director of the Issuer) from and against any losses, claims, damages, expenses or liabilities (including reasonable attorney’s fees and expenses) to which the Issuer (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any breach of the representations and warranties of such Purchaser contained herein, (ii) any failure to comply with the covenants and agreements of such Purchaser contained herein, or (iii) any untrue statement of a material fact contained in the Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading if such untrue statement or omission was made in reliance upon and in conformity with written information furnished by or on behalf of such Purchaser specifically for use in preparation of the Registration Statement, and such Purchaser will reimburse the Issuer (or such officer, director or controlling person), as the case maybe, for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that such Purchaser’s obligation to indemnify the Issuer or any other persons hereunder shall be limited to the amount by which the net amount received by such Purchaser from the sale of the Registrable Securities to which such loss relates exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue statement or omission, provided further that, with respect to any indemnification obligation arising under clause (iii) of this paragraph (b), such obligation shall be limited to the net amount received by such Purchaser from the sale of the Registrable Securities included in the Registration Statement in question.

(d)Promptly after receipt by any indemnified person of a notice of a claim or the commencement of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 9.4, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying person will not relieve it from any liability which it may have to any indemnified person under this Section 9.4 (except to the extent that such omission materially and adversely affects the indemnifying person’s ability to defend such action or such failure results in the forfeiture by the indemnifying party of substantial rights or defenses) or from any liability otherwise than under this Section 9.4. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified person promptly after receiving the aforesaid notice from such indemnified person, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof. Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) only in the event that (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would, in the opinion of counsel for the

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indemnified party, present such counsel with a potential or actual conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.

(e)If the indemnification provided for in this Section 9.4 is unavailable to or insufficient to hold harmless an indemnified person under subsection (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying person, in lieu of indemnifying such indemnified person, shall contribute to the amount paid or payable by such indemnified person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Issuer, on the one hand, and the Purchaser(s), on the other, in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Issuer, on the one hand, or the Purchaser(s), on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Issuer and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified person as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), a Purchaser shall not be required to contribute any amount in excess of the amount by which the net amount received by such Purchaser from the sale of the Registrable Securities to which such loss relates exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each Purchaser’s obligations in this subsection to contribute shall be in proportion to its sale of Registrable Securities to which such loss relates and shall not be joint with any other Selling Stockholders.

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(f)The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 9.4, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 9.4 fairly allocate the risks in light of the ability of the parties to investigate the Issuer and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act. The parties are advised that federal or state public policy as interpreted by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section 9.4, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 9.4 and further agree not to attempt to assert any such defense.

9.5Registration Expenses. The Issuer will bear all expenses incident to or incurred in connection with the preparation and filing of the Registration Statement whether or not declared effective, including, without limitation, all registration and filing fees and expenses, fees and expenses of compliance with federal and state securities laws or with blue sky laws as provided in Section 9.1(f), any NASD filing fees required to be made in connection with an underwritten offering of the Registrable Securities, application and filing fees and expenses, duplicating and printing expenses, fees and disbursements of counsel to the Issuer (including expenses of legal opinions) and all independent accountants, and fees and expenses of one counsel to the Purchasers, but excluding fees and expenses of any accountants, engineers, consultants or any other advisers to the Purchasers, any underwriting discount or commission and any broker-dealer sales commission that the Purchasers may incur in disposing of their Registrable Securities.

9.6Termination of Conditions and Obligations. The conditions precedent imposed by this Agreement upon the transferability of the Registrable Securities, shall cease and terminate as to any particular Registrable Securities when the sale of such Registrable Securities shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering the sale of the Registrable Securities or at such time as an opinion of counsel reasonably satisfactory to the Issuer shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act.

10.Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within the United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed, (iv) if delivered by facsimile, upon electronic confirmation of receipt and shall be delivered as addressed as follows:

(a) if to the Issuer, to:

Abraxas Petroleum Corporation

500 North Loop 1604 East

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Suite 100

San Antonio, TX 78232

Attention: Robert L.G. Watson

Tel: (210) 490-4788

Fax: (210) 490-8816

(b) with a copy to:

Jackson Walker L.L.P.

112 E. Pecan St., Suite 2400

San Antonio, TX 78205

Attention: Steven R. Jacobs

Tel: (210) 978-7727

Fax: (210) 242-4650

(c) if to a Purchaser, at its address on Schedule 1 attached hereto, or at such other address or addresses as may have been furnished to the Issuer in writing

11.Reliance. Each Purchaser and the Issuer understand and agree that the other party and its respective officers, directors, employees and agents may, and will, rely on the accuracy of the other party’s respective representations and warranties in this Agreement to establish compliance with applicable securities laws. Each Purchaser and the Issuer agree to indemnify and hold harmless all such parties against all losses, claims, costs, expenses and damages or liabilities which they may suffer or incur caused or arising from their reliance on such representations and warranties.

12. Miscellaneous.

12.1Survival. The representations and warranties made in this Agreement shall survive the closing of the transactions contemplated by this Agreement.

12.2Assignment. This Agreement is not transferable or assignable, except that the rights of the Purchasers set forth in Section 9 hereof shall be transferable by a Purchaser to its Affiliates and except as permissible pursuant to Section 8.2.

12.3Execution and Delivery of Agreement. The Issuer shall be entitled to rely on delivery by facsimile transmission of an executed copy of this Agreement, and acceptance by the Issuer of such facsimile copy shall create a valid and binding agreement between the Purchaser and the Issuer.

12.4Titles. The titles of the sections and subsections of this Agreement are for the convenience of reference only and are not to be considered in construing this Agreement.

12.5Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement.

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12.6Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matters herein and supersedes and replaces any prior agreements and understandings, whether oral or written, between them with respect to such matters.

12.7Waiver and Amendment. Except as otherwise provided herein, the provisions of this Agreement may be waived, altered, amended, restated, supplemented or repealed, in whole or in part, only upon the mutual written agreement of the Issuer and Purchasers acquiring in the aggregate a majority of the Purchased Shares purchased pursuant to this Agreement and if any such amendment, modification, restatement or supplement would adversely affect the rights or increase the obligations of any Purchaser hereunder, the approval of such Purchaser will be required for such amendment, modification, restatement or supplement. This Section 12.7 shall not be amended, modified, restated or supplemented without the written approval of 100% of the Purchasers. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against who that waiver is sought to be enforced. No failure or delay on the part of any of the parties in exercising any right, power or privilege hereunder, and no course of dealing between or among any of the parties, shall operate as a waiver of any right, power or privilege hereunder. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. No notice to or demand on any of the parties in any case shall entitle such party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any party to any other or further action in any circumstances without notice or demand.

12.8Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. In the event that this Agreement is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format date file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

12.9Governing Law. This Agreement is governed by and shall be construed in accordance with the laws of the State of New York.

12.10Submission to Jurisdiction. Each of the parties to this Agreement hereby (a) irrevocably submits to the non-exclusive personal jurisdiction of any New York state or federal court, over any claim arising out of or relating to this Agreement and irrevocably agrees that all such claims may be heard and determined in such New York state or federal court, and (b) irrevocably waives, to the fullest extent permitted by applicable law, any objection it may now or hereafter have to the laying of venue in any proceeding brought in a New York state or federal court, and any claim that any such proceeding brought in a New York state or federal court, has been brought in an inconvenient forum; provided, however, that nothing in this paragraph is intended to waive the right of any of the parties to remove any such action or proceeding commenced in any a New York state court to an appropriate New York federal court to the extent the basis for such removal exists under applicable law. Each of the parties hereby irrevocably agrees that

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service of process may be made on him, her or it by mailing, by certified mail, a copy of such process to such party at his, her or its address for notices specified herein. Each of the parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this paragraph shall affect the right of any of the parties to serve legal process in any other manner permitted by law or affect the right of any of the parties to bring any action or proceeding in the courts of any other jurisdictions, domestic or foreign.

12.11Attorney’s Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorney’s fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy.

12.12Independent Nature of Purchaser’s Obligations and Rights. The obligations of each Purchaser under this Agreement are several and not joint with the obligations of any other present or subsequent purchaser of the Purchased Shares and the Warrants, and each Purchaser shall not be responsible in any way for the performance of the obligations of any other Purchaser under any agreement to purchase Purchased Shares and the Warrants. The decision of each Purchaser to purchase Purchased Shares and the Warrants pursuant to this Agreement has been made by such Purchaser independently of any other Purchaser of the Purchased Shares and the Warrants and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Issuer that may have been made or given by any other Purchaser of the Purchased Shares and the Warrants or by any agent or employee of any such Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other Purchaser (or any other Person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute such Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that such Purchaser is in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser acknowledges that no other Purchaser of the Purchased Shares and the Warrants has acted as agent for such Purchaser in connection with making its investment hereunder and that no other Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment hereunder. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement and it shall not be necessary for any other Purchaser of the Purchased Shares and the Warrants to be joined as an additional party in any proceeding for such purpose. Each Purchaser represents that it has been represented by its own separate legal counsel in its review and negotiations of this Agreement.

12.13Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Purchased Shares and Warrants from time to time.

12.14Remedies. The Parties agree that the covenants and obligations in this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms hereof would

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cause irreparable injury in an amount which would be impossible to estimate or determine and for which any remedy at law would be inadequate. As such, the parties agree that if any of the parties fails or refuses to fulfill any of its obligations under this Agreement or to make any payment or deliver any instrument required hereunder, then the other parties shall have the remedy of specific performance, which remedy shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies otherwise available under any other contract or at law or in equity and to which such party might be entitled.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above mentioned.

ISSUER:

ABRAXAS PETROLEUM CORPORATION

By: /s/ Chris E. Williford

Name: Chris E. Williford

Title: Executive Vice President, Chief Financial

Officer and Treasurer

[Signature Page to Purchase Agreement]

EX-10

Exhibit 10.5

EXECUTION VERSION

$150,000,000

CREDIT AGREEMENT

Among

ABRAXAS ENERGY PARTNERS, L.P.

as Borrower,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

and

SOCIÉTÉ GÉNÉRALE

as Administrative Agent and as Issuing Lender

May 25, 2007

SG Americas Securities, LLC as Sole Bookrunner and Arranger

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TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1

Section 1.01 Certain Defined Terms 1

Section 1.02 Computation of Time Periods 22

Section 1.03 Accounting Terms; Changes in GAAP 22

Section 1.04 Types of Advances 22

Section 1.05 Miscellaneous 23

ARTICLE II CREDIT FACILITIES 23

Section 2.01 Commitment for Advances 23

Section 2.02 Borrowing Base 24

Section 2.03 Method of Borrowing 27

Section 2.04 Reduction of the Commitments 30

Section 2.05 Prepayment of Advances 30

Section 2.06 Repayment of Advances 33

Section 2.07 Letters of Credit 33

Section 2.08 Fees 37

Section 2.09 Interest 37

Section 2.10 Payments and Computations 39

Section 2.11 Sharing of Payments, Etc 40

Section 2.12 Breakage Costs 40

Section 2.13 Increased Costs 40

Section 2.14 Taxes 42

ARTICLE III CONDITIONS OF LENDING 44

Section 3.01 Conditions Precedent to Initial Borrowings and

the Initial Letter of Credit 44

Section 3.02 Conditions Precedent to All Borrowings 47

ARTICLE IV REPRESENTATIONS AND WARRANTIES 48

Section 4.01 Existence; Subsidiaries 48

Section 4.02 Power 48

Section 4.03 Authorization and Approvals 49

Section 4.04 Enforceable Obligations 49

Section 4.05 Financial Statements 49

Section 4.06 True and Complete Disclosure 50

Section 4.07 Litigation; Compliance with Laws 50

Section 4.08 Use of Proceeds 50

Section 4.09 Investment Company Act 51

Section 4.10 Federal Power Act 51

Section 4.11 Taxes 51

Section 4.12 Pension Plans 51

Section 4.13 Condition of Property; Casualties 52

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Section 4.14 No Burdensome Restrictions; No Defaults 52

Section 4.15 Environmental Condition 52

Section 4.16 Permits, Licenses, Etc 53

Section 4.17 Gas Contracts 54

Section 4.18 Liens; Titles, Leases, Etc 54

Section 4.19 Solvency and Insurance 54

Section 4.20 Hedging Agreements 54

Section 4.21 Material Agreements 54

ARTICLE V AFFIRMATIVE COVENANTS 55

Section 5.01 Compliance with Laws, Etc 55

Section 5.02 Maintenance of Insurance 55

Section 5.03 Preservation of Existence, Etc 56

Section 5.04 Payment of Taxes, Etc 56

Section 5.05 Visitation Rights 57

Section 5.06 Reporting Requirements 57

Section 5.07 Maintenance of Property 61

Section 5.08 Agreement to Pledge 61

Section 5.09 Use of Proceeds 61

Section 5.10 Title Opinions 61

Section 5.11 Further Assurances; Cure of Title Defects 62

Section 5.12 Hedging Arrangements 62

Section 5.13 Deposit Accounts 62

ARTICLE VI NEGATIVE COVENANTS 63

Section 6.01 Liens, Etc 63

Section 6.02 Debts, Guaranties, and Other Obligations 65

Section 6.03 Agreements Restricting Liens and Distributions 66

Section 6.04 Merger or Consolidation; Asset Sales 66

Section 6.05 Restricted Payments 66

Section 6.06 Investments 67

Section 6.07 Affiliate Transactions 68

Section 6.08 Compliance with ERISA 68

Section 6.09 Sale-and-Leaseback 69

Section 6.10 Change of Business 69

Section 6.11 Organizational Documents, Name Change 69

Section 6.12 Use of Proceeds; Letters of Credit 69

Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments 69

Section 6.14 Limitation on Hedging 70

Section 6.15 Additional Subsidiaries 70

Section 6.16 Account Payables 70

Section 6.17 Current Ratio 70

Section 6.18 Interest Coverage Ratio 71

Section 6.19 Initial Acquisition Instruments/Private Placement Documents 71

ARTICLE VII EVENTS OF DEFAULT; REMEDIES 71

ii

Section 7.01 Events of Default 71

Section 7.02 Optional Acceleration of Maturity 73

Section 7.03 Automatic Acceleration of Maturity 74

Section 7.04 Right of Setoff 74

Section 7.05 Non-exclusivity of Remedies 75

Section 7.06 Application of Proceeds 75

ARTICLE VIII THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER 76

Section 8.01 Appointment and Authority 76

Section 8.02 Rights as a Lender 76

Section 8.03 Exculpatory Provisions 76

Section 8.04 Reliance by Administrative Agent 77

Section 8.05 Delegation of Duties 77

Section 8.06 Successor Administrative Agent and Issuing Lender 78

Section 8.07 Non-Reliance on Administrative Agent and Other Lenders 79

Section 8.08 No Other Duties, etc 79

Section 8.09 Collateral Matters 79

ARTICLE IX MISCELLANEOUS 80

Section 9.01 Amendments, Etc 80

Section 9.02 Notices, Etc 80

Section 9.03 No Waiver; Cumulative Remedies 82

Section 9.04 Costs and Expenses 82

Section 9.05 Indemnification 83

Section 9.06 Reimbursement by Lenders 83

Section 9.07 Waiver of Damages 84

Section 9.08 Successors and Assigns 84

Section 9.09 Confidentiality 87

Section 9.10 Counterparts; Effectiveness 87

Section 9.11 Survival of Representations, etc 87

Section 9.12 Severability 88

Section 9.13 Interest Rate Limitation 88

Section 9.14 Governing Law 88

Section 9.15 Submission to Jurisdiction; Waiver of Venue; Service of Process 88

Section 9.16 Waiver of Jury Trial 89

Section 9.17 USA Patriot Act 89

Section 9.18 Integration 89

iii

EXHIBITS:

Exhibit A - Form of Assignment and Acceptance

Exhibit B - Form of Compliance Certificate

Exhibit C - Form of Guaranty

Exhibit D - Form of Mortgage

Exhibit E - Form of Note

Exhibit F - Form of Notice of Borrowing

Exhibit G - Form of Notice of Conversion or Continuation

Exhibit H - Form of Pledge Agreement

Exhibit I - Form of Security Agreement

Exhibit J - Form of Transfer Letters

SCHEDULES:

Schedule I - Addresses and Commitments

Schedule 4.01 - Subsidiaries

Schedule 4.05 - Existing Debt

Schedule 4.07 - Litigation

Schedule 4.17 - Gas Imbalances

Schedule 4.20 - Hedging Agreements

Schedule 4.21 - Material Agreements

Schedule 6.07 - Affiliate Transactions

iv

CREDIT AGREEMENT

This Credit Agreement dated as of May 25, 2007 is among ABRAXAS ENERGY PARTNERS, L.P., a Delaware limited partnership (“Borrower”), the lenders party hereto from time to time as Lenders (as defined below), and SOCIÉTÉ GÉNÉRALE, as Administrative Agent (as defined below) and as Issuing Lender (as defined below).

The Borrower, the Lenders, the Administrative Agent and the Issuing Lender hereby agree to as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

Section 1.01Certain Defined Terms. As used in this Agreement, the term defined above shall have the meaning set forth therein and the following terms shall have the following meanings:

“APC” means Abraxas Petroleum Corporation, a Nevada corporation.

“Acceptable Security Interest” in any Property means a Lien which (a) exists in favor of the Administrative Agent for the benefit of the Secured Parties, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby other than Permitted Subject Liens, (c) secures the Obligations, and (d) is perfected and enforceable.

“Acquisition” means the purchase by the Borrower or any of its Subsidiaries of any business, including the purchase of associated assets or operations or of stock (or other ownership interests) of a Person.

“Act” is defined in Section 9.17.

“Adjusted Reference Rate” means, for any day, the fluctuating rate per annum of interest equal to the greater of (a) the Reference Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus ½ of 1%.

“Administrative Agent” means Société Générale, in its capacity as agent pursuant to Article VIII, and any successor agent pursuant to Section 8.06.

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

“Advance” means an advance by a Lender to the Borrower pursuant to Section 2.01(a) as part of a Borrowing and refers to a Reference Rate Advance or a Eurodollar Rate Advance.

“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.

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

“Applicable Lending Office” means (a) with respect to any Lender, the office, branch, subsidiary, affiliate or correspondent bank of such Lender specified in its Administrative Questionnaire or such other office, branch, subsidiary, affiliate or correspondent bank as such Lender may from time to time specify to the Borrower and the Administrative Agent from time to time and (b) with respect to the Administrative Agent, the address specified for such Person on Schedule I or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties.

“Applicable Margin” means, with respect to any Advance, (a) during such times as any Event of Default exists, 3% per annum plus the rate per annum set forth below for the relevant Type of such Advance based on the present Utilization applicable from time to time, and (b) at all other times, the rate per annum set forth below for the relevant Type of such Advance based on the relevant Utilization applicable from time to time. The Applicable Margin for any Advance shall change when and as the relevant Utilization changes and when and as any such Event of Default commences or terminates.

Utilization	Eurodollar Rate Advances	Base Rate Advances
Less than or equal to 25%	1.25%	0.25%
Greater than 25% but less than 50%	1.50%	0.50%
Equal to or greater than 50% but less than 75%.	1.75%	0.75%
Equal to or greater than 75% but less than or equal to 90%	2.00%	1.00%
Greater than 90%.	2.25%	1.25%

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit A or any other form approved by the Administrative Agent.

“Available Cash” means, with respect to any fiscal quarter:

(a)the sum of (i) all cash and cash equivalents of the Borrower on hand (other than Cash Security) at the end of such fiscal quarter and (ii) all additional cash and cash equivalents the Borrower has on hand (other than Cash Security) on the date of determination of Available Cash with respect to such fiscal quarter resulting from working capital borrowings made subsequent to the end of such fiscal quarter, less

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(b)the amount of all cash reserves established by the board of managers of, or the equivalent governing body of, the General Partner in their reasonable discretion to (i) provide for the proper conduct of the business of the Borrower and its Subsidiaries (including reserves for future maintenance and capital expenditures including drilling and for anticipated future credit needs of the Borrower and its Subsidiaries, if necessary), (ii) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Borrower or any Subsidiary is a party or bound by which it is bound or its assets are subject, (iii) provide payment for any accrued and unpaid tax liabilities, and (iv) provide funds for Restricted Payments with respect to any one or more of the next four fiscal quarters.

“Borrower” shall have the meaning set forth in the preamble hereof.

“Borrowing” means, subject to Section 2.03(c)(ii), a borrowing consisting of simultaneous Advances of the same Type made by each Lender pursuant to Section 2.03(a), continued by each Lender pursuant to Section 2.03(b), or Converted by each Lender to Advances of a different Type pursuant to Section 2.03(b).

“Borrowing Base” means at any particular time, the Dollar amount determined in accordance with Section 2.02 (and adjusted from time to time pursuant to Section 2.02 or Section 6.04(b) on account of Proven Reserves attributable to Oil and Gas Properties of the Borrower and its Subsidiaries subject to an Acceptable Security Interest and described in the most recent Independent Engineering Report or Internal Engineering Report, as applicable, delivered to the Administrative Agent and the Lenders pursuant to Section 2.02.

“Borrowing Base Deficiency” means the amount by which the aggregate outstanding amount of the Advances plus the Letter of Credit Exposure exceeds the lesser of (x) the Borrowing Base and (y) the aggregate Commitments.

“Business Day” means a day of the year on which banks are not required or authorized to close in Houston, Texas and New York, New York, and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on by banks in the London interbank market.

“Capital Leases” means, as applied to any Person, any lease of any Property by such Person as lessee which would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on the balance sheet of such Person.

“Cash Collateral Account” means a special interest bearing cash collateral account pledged by the Borrower to the Issuing Lender containing cash deposited pursuant to Sections 2.05(b), 7.02(b), or 7.03(b) to be maintained with the Issuing Lender in accordance with Section 2.07(g) and bear interest or be invested in the Issuing Lender’s reasonable discretion.

“Cash Security” means (a) all cash and cash equivalents securing obligations of Borrower or any Subsidiary, including obligations under Hedging Contracts and obligations with respect to letters of credit but excluding Obligations, and (b) all cash and cash equivalents held in the Cash Collateral Account.

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“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

“Change in Control” shall mean the occurrence of any of the following events:

(a) the occurrence of any transaction, the result of which is that (i) the General Partner is no longer the sole general partner of the Borrower, or (ii) the Borrower ceases to own, either directly or indirectly, 100% of the Equity Interest in any Subsidiary;

(b)any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 25% or more of the Equity Interest of the Borrower; provided, that a “group of persons” shall not include the underwriter in any firm underwriting undertaken in connection with any public offering of the Borrower; or

(c) during any period of 12 consecutive months, a majority of the members of the board of managers or other equivalent governing body of the General Partner cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body.

“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

“Closing Date” means the date of the consummation of the transactions contemplated by the Contribution Agreement, and including without limitation, the Initial Acquisition and the Private Placement.

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

“Collateral” means (a) all “Collateral”, “Pledged Collateral” and “Mortgaged Properties” (as defined in each of the Mortgages, the Security Agreements, and the Pledge Agreement, as applicable) or similar terms used in the Security Instruments, and (b) all amounts contained in the Borrower’s and its Subsidiaries’ bank accounts.

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“Commitment” means, for any Lender, the amount set opposite such Lender’s name on the Schedule I as its Commitment, or if such Lender has entered into any Assignment and Acceptance, as set forth for such Lender as its Commitment in the Register maintained by the Administrative Agent pursuant to Section 9.08(c), as such amount may be reduced or terminated pursuant to Section 2.04 or Article VII or otherwise under this Agreement. The initial amount of the aggregate Commitments is $150,000,000.

“Commitment Fee Rate” means the per annum commitment fee rate set forth below and applicable from time to time. The Commitment Fee Rate shall change when and as the relevant Utilization changes.

Utilization	Rate
Less than or equal to 25%	0.375%
Greater than 25% but less than 50%	0.375%
Equal to or greater than 50% but less than 75%.	0.375%
Equal to or greater than 75% but less than or equal to 90%	0.375%
Greater than 90%.	0.500%

“Commitment Termination Date” means the earlier of (a) the Maturity Date and (b) the earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII.

“Company Group” shall mean Borrower, General Partner and each of their respective Subsidiaries.

“Compliance Certificate” means a compliance certificate in the form of the attached Exhibit B signed by a Responsible Officer of the Borrower.

“Contribution Agreement” means that certain Contribution, Conveyance and Assumption Agreement, dated as of May 25, 2007, entered into by and among APC, the General Partner, the Borrower, Abraxas Energy Investments, LLC, a Texas limited liability company, and the Operating Company, as amended in accordance with the terms hereof.

“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. “Controls”, “Controlled by”, “Controlling” and “Controlled” have meanings correlative thereto. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, the power to vote 10% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

“Controlled Group” means all members of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

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“Convert,” “Conversion,” and “Converted” each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.03(b).

“Credit Extensions” means (a) an Advance made by any Lender, and (b) the issuance, increase or extension of any Letter of Credit by the Issuing Lender.

“Debt,” for any Person, means without duplication: (a) indebtedness of such Person for borrowed money; (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) obligations of such Person to pay the deferred purchase price of Property or services (including obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding trade accounts payable); (d) obligations of such Person as lessee under Capital Leases; (e) obligations of such Person under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing; (f) obligations of such Person under any Hedge Contract; (g) obligations of such Person owing in respect of redeemable preferred stock or other preferred equity interest of such Person; (h) any obligations of such Person owing in connection with any volumetric or production prepayments; (i) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above; (j) indebtedness or obligations of others of the kinds referred to in clauses (a) through (i) secured by any Lien on or in respect of any Property of such Person; and (k) all liabilities of such Person in respect of unfunded vested benefits under any Plan.

“Default” means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would become an Event of Default.

“Disposition” means a sale, lease, transfer, assignment, Farmout, conveyance, release, surrender, or other disposition of Property (including any working interest, overriding royalty interest, production payments, net profits interest, royalty interest, or mineral fee interest) in any transaction or series of transactions.

“Dollars” and “$” means lawful money of the United States of America.

“EBITDA” means, for any period, without duplication, (a) consolidated Net Income for such period plus (b) to the extent deducted in determining consolidated Net Income, Interest Expense, taxes, depreciation, amortization, depletion, and other non-cash charges for such period (including any provision for the reduction in the carrying value of assets recorded in accordance with GAAP and including non-cash charges resulting from the requirements of SFAS 133 or 143 and any non-cash expenses incurred pursuant to SFAS 123R) for such period minus (c) all non-cash items of income which were included in determining such consolidated Net Income (including non-cash income resulting from the requirements of SFAS 133 or 143).

“Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, (d) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $250,000,000 and approved by the Administrative Agent and the Issuing Lender in their sole discretion, (e) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and

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Development or a political subdivision of any such country and which has total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States and such bank is approved by the Administrative Agent and the Issuing Lender in their sole discretion, (f) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans or securities in the ordinary course of its business and having (together with its Affiliates) total assets in excess of  $250,000,000 and approved by the Administrative Agent and the Issuing Lender in their sole discretion, (g) any other Person (other than a natural person) approved by (i) the Administrative Agent and the Issuing Lender in their sole discretion and (ii) unless a Default has occurred and is continuing at the time any assignment is effected pursuant to this Agreement, the Borrower; provided that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any Affiliate or Subsidiary of a Loan Party.

“Engineering Report” means either an Independent Engineering Report or an Internal Engineering Report and includes the Initial Engineering Report where applicable.

“Environment” or “Environmental” shall have the meanings set forth in 42 U.S.C. 9601(8) (1988).

“Environmental Claim” means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law.

“Environmental Law” means, as to the Borrower or its Subsidiaries, all Legal Requirements or common law theories applicable to the Borrower or its Subsidiaries arising from, relating to, or in connection with the Environment, health, or safety, including CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, medical infections, or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous, medical infections, or toxic substances, materials or wastes.

“Environmental Liability” shall mean all liabilities, obligations, damages, losses, claims, actions, suits, judgments, orders, fines, penalties, fees, expenses and costs (including administrative oversight costs, natural resource damages and remediation costs), whether contingent or otherwise, arising out of or relating to (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

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“Environmental Permit” means any permit, license, order, approval, registration or other authorization under Environmental Law.

“Equity Interest” means, with respect to any Person, any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests or partnership interests (or any other ownership interests) of such Person.

“Equity Issuance Proceeds” means, with respect to the Private Placement, all cash and cash equivalent investments received by the Borrower from such Private Placement after payment of, or provision for, all underwriter and replacement agent fees and expenses, printing costs, fees and expenses of accountants, lawyers and other professional advisors, brokerage commissions and other out-of-pocket fees and expenses actually incurred in connection with such Private Placement.

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

“ERISA Affiliate” means each member of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

“Eurodollar Rate” means, for the Interest Period for each Eurodollar Rate Advance comprising the same Borrowing, the interest rate per annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum) set forth on Reuters Reference LIBOR01 as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period and for a period equal to such Interest Period; provided, that, if no such quotation appears on the Reuters Reference LIBOR01, the Eurodollar Rate shall be an interest rate per annum equal to the rate per annum at which deposits in Dollars are offered by the principal office of Société Générale in London, England to prime banks in the London interbank market at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Advance to be maintained by the Lender that is the Administrative Agent in respect of such Borrowing and for a period equal to such Interest Period.

“Eurodollar Rate Advance” means an Advance which bears interest as provided in Section 2.09(b).

“Eurodollar Rate Reserve Percentage” of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental, or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

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“Event of Default” has the meaning specified in Section 7.01.

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

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the Issuing Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise or “margin” or similar taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Borrower is located and (c) in the case of a Foreign Lender (other than an assignee request by the Borrower and any Lender party to this Agreement on the Closing Date), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 2.14(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from any Borrower with respect to such withholding tax pursuant to Section 2.14(a). Notwithstanding anything to the contrary contained in this definition, “Excluded Taxes” shall not include any withholding tax imposed at any time on payments made by or on behalf of a Borrower that is not a resident of the United States for tax purposes to any Lender, Administrative Agent or Issuing Lender hereunder or under any other Credit Document, provided that such Lender, such Administrative Agent and such Issuing Lender shall have complied with Section 2.14(e).

“Existing Indebtedness” means the indebtedness of Borrower under (a) that certain Loan Agreement by and among APC, as borrower, the subsidiaries thereof that are parties thereto, as guarantors, the lenders that are signatory thereto, as lenders, and Wells Fargo Foothill, Inc., as the Arranger and Administrative Agent, dated as of October 28, 2004, and (b) that certain Indenture, dated as of October 28, 2004, among APC, each subsidiary guarantor named therein, and U.S. Bank National Association, as trustee, as subject to the Existing Intercreditor Agreement, as assumed by Borrower on the date hereof.

“Existing Intercreditor Agreement” means that certain Intercreditor, Security and Collateral Agency Agreement dated as of October 28, 2004, among APC, as borrower, the subsidiaries thereof listed on Schedule I thereto, as guarantors, Wells Fargo Foothill, Inc., as revolving credit facility administrator agent, Guggenheim Corporate Funding, LLC, as bridge loan administrative agent, and U.S. Bank National Association, as trustee and collateral agent, as assumed by Borrower on the date hereof.

“Expiration Date” means, with respect to any Letter of Credit, the date on which such Letter of Credit will expire or terminate in accordance with its terms.

“Farmout” means an arrangement pursuant to agreement whereby the owner(s) of one or more oil, gas and/or mineral lease or other oil and natural gas working interest with respect to a property from which production of Hydrocarbons is sought agrees to transfer or assign an

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interest in such property to one or more Persons in exchange for (a) drilling, or participating in the cost of the drilling of (or agreeing to do so) one or more wells, or undertaking other exploration or development activity or participating in the cost of such activity, to attempt to obtain production of Hydrocarbons from such property, or (b) obtaining production of Hydrocarbons from such property, or participating in the costs of such production.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any of its successors.

“Fee Letter” means that certain fee letter dated April 6, 2007 among APC, Société Générale, and SG Americas Securities, LLC, as assigned by APC to the Borrower pursuant to that certain letter agreement of even date herewith.

“Financial Statements” means the pro forma unaudited consolidated balance sheet of the Borrower as of the Closing Date after giving effect to the initial Borrowings made hereunder, and including the certification of a Responsible Officer of the Borrower, all prepared in accordance with GAAP (except for the absence of footnotes and adjustments typically made at year-end), the copies of which have been delivered to the Administrative Agent and the Lenders.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“GAAP” means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

“Gas Imbalance” means (a) a sale or utilization by Borrower or other members of the Company Group of volumes of natural gas in excess of its gross working interest, (b) receipt of volumes of natural gas into a gathering system and redelivery by Borrower or other members of the Company Group of a larger or smaller volume of natural gas under the terms of the applicable Transportation Agreement, or (c) delivery to a gathering system of a volume of natural gas produced by Borrower or a member of the Company Group that is larger or smaller than the volume of natural gas such gathering system redelivers for the account of Borrower or such member of the Company Group, as applicable.

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“General Partner” means Abraxas General Partner, LLC, a Delaware limited liability company.

“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Guarantor” means each entity, which may from time to time, execute a Guaranty or a supplement to a Guaranty, including each Subsidiary of the Borrower and the General Partner.

“Guaranty” means a Guaranty in substantially the form of the attached Exhibit C and executed by a Guarantor.

“Hazardous Substance” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

“Hazardous Waste” means the substances regulated as such pursuant to any Environmental Law.

“Hedge Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Hydrocarbon Hedge Agreement” means a Hedge Contract between the Borrower or one of its Subsidiaries and any financial institution or other counterparty which is intended to reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.

“Hydrocarbons” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith from a well bore and all products, by-products, and other substances derived therefrom or the processing thereof, and all other minerals and substances

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produced in conjunction with such substances, including sulfur, geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and the products and proceeds therefrom.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Independent Engineer” means DeGolyer and MacNaughton or any other third party engineering firm acceptable to the Administrative Agent in its sole discretion.

“Independent Engineering Report” means a report, in form and substance satisfactory to the Administrative Agent and each of the Lenders, prepared by an Independent Engineer, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any of its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are, or are to be, included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders which are consistent with the Administrative Agent’s and the Lenders’ customary internal standards and practices for valuing and redetermining the value of Oil and Gas Properties in connection with reserve based oil and gas loan transactions, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

“Information “ is defined in Section 9.09.

“Initial Acquisition” means the acquisition of certain Oil and Gas Properties by the Borrower and its Subsidiaries pursuant to the Contribution Agreement.

“Initial Acquisition Instruments” means, collectively, the Contribution Agreement, the Omnibus Agreement and all other documents, instruments, and agreements executed and delivered by the sellers and other parties named in the Contribution Agreement or the Borrower or any Guarantor in connection with the Initial Acquisition.

“Initial Engineering Report” means an Independent Engineering Report dated as of January 1, 2007 and covering the Proven Reserves of the Loan Parties (after giving pro forma effect to the Initial Acquisition) and otherwise in form acceptable to the Administrative Agent.

“Initial Funding Date” means the earlier of (a) the date on which the initial Advances are made, and (b) the date the initial Letter of Credit is issued.

“Intercompany Debt” means Debt incurred by one or more Loan Parties and owing to any other Loan Party or Loan Parties.

“Interest Expense” means, for the Borrower and its consolidated Subsidiaries for any period, total interest, letter of credit fees, and other fees and expenses incurred in connection with any Debt for such period, whether paid or accrued, including, without limitation, all

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commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing, imputed interest under Capital Leases, and net costs under Interest Hedge Agreements, all as determined in conformity with GAAP.

“Interest Hedge Agreement” means a Hedge Contract between the Borrower or one of its Subsidiaries and one or more financial institutions providing for the exchange of nominal interest obligations between the Borrower and such financial institution or the cap of the interest rate on any Debt of the Borrower.

“Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Reference Rate Advance into a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03. The duration of each such Interest Period shall be one, two, three, or six months, in each case as the Borrower may, upon notice received by the Administrative Agent not later than 11:00 a.m. (New York time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

(a)the Borrower may not select any Interest Period which ends after the Commitment Termination Date;

(b)Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration;

(c)whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the immediately preceding Business Day; and

(d)any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month.

“Internal Engineering Report” means a report, in form and substance satisfactory to the Administrative Agent and each Lender, prepared by the Borrower and certified by a Responsible Officer of the Borrower, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any of its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are, or are to be, included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent

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and the Lenders which are consistent with the Administrative Agent’s and the Lenders’ customary internal standards and practices for valuing and redetermining the value of Oil and Gas Properties in connection with reserve based oil and gas loan transactions, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

“Issuing Lender” means Société Générale in its capacity as issuer of Letters of Credit hereunder, and any successor Issuing Lender pursuant to Section 8.06.

“Leases” means all oil and gas leases, oil, gas and mineral leases, oil, gas and casinghead gas leases, wellbore assignments or any other instruments, agreements, or conveyances under and pursuant to which the owner thereof has or obtains the right to enter upon lands and explore for, drill, and develop such lands for the production of Hydrocarbons.

“Legal Requirement” means, as to any Person, any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, including Regulations D, T, U, and X, which is applicable to such Person.

“Lenders” means the lenders listed on the signature pages of this Agreement and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 9.08.

“Lender Hedging Obligations” means all obligations arising from time to time under Hedge Contracts entered into from time to time between any Loan Party and a counterparty that is a Lender or an Affiliate of a Lender; provided that if such counterparty ceases to be a Lender hereunder or an Affiliate of a Lender hereunder, Lender Hedging Obligations shall only include such obligations to the extent arising from transactions entered into at the time such counterparty was a Lender hereunder or an Affiliate of a Lender hereunder.

“Letter of Credit” means, individually, any standby letter of credit issued by the Issuing Lender for the account of the Borrower in connection with the Commitments and which is subject to this Agreement, and “Letters of Credit” means all such letters of credit collectively.

“Letter of Credit Application” means the Issuing Lender’s standard form letter of credit application for standby letters of credit that has been executed by the Borrower and accepted by the Issuing Lender in connection with the issuance of a Letter of Credit.

“Letter of Credit Documents” means all Letters of Credit, Letter of Credit Applications, and agreements, documents, and instruments entered into in connection with or relating thereto.

“Letter of Credit Exposure” means, at any time, the sum of (a) the aggregate undrawn maximum face amount of each Letter of Credit at such time plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such time.

“Letter of Credit Obligations” means any obligations of the Borrower under this Agreement in connection with the Letters of Credit, including the Reimbursement Obligations.

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“Lien” means any mortgage, lien, pledge, assignment, charge, deed of trust, security interest, hypothecation, preference, deposit arrangement or encumbrance (or other type of arrangement having the practical effect of the foregoing) to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including the interest of a vendor or lessor under any conditional sale agreement, synthetic lease, Capital Lease, or other title retention agreement).

“Liquid Investments” means:

(a)direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States maturing within 270 days from the date of any acquisition thereof;

(b)(i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar banking arrangements maturing within 270 days from the date of acquisition thereof or which may be liquidated for the full amount thereof without penalty or premium (“bank debt securities”), issued by (A) any Lender (or any Affiliate of any Lender), or (B) any other bank or trust company so long as either (i) such certificate of deposit is pledged to secure the Borrower’s or any Subsidiaries’ ordinary course of business bonding requirements, or (ii) the amount thereof is less than or equal to $100,000, or any other bank or trust company, if at the time of deposit or purchase, such bank debt securities are rated A or A2 or better by either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., and (ii) commercial paper issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other Person if at the time of purchase such commercial paper is rated at the highest or the second highest credit rating given by either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., or upon the discontinuance of both of such services, such other nationally recognized rating service or services, as the case may be, as shall be selected by the Borrower with the consent of the Required Lenders;

(c)deposits in money market funds investing exclusively in investments described in clauses (a) and (b) above;

(d)repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital and surplus and undivided profit of not less than $500,000,000.00, if at the time of entering into such agreement the debt securities of such Person are rated at the highest or the second highest credit rating given by either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and

(e)such other instruments (within the meaning of Article 9 of the Uniform Commercial Code in effect in New York) or investment property as the Borrower may request and the Administrative Agent may approve in writing.

“Loan Documents” means this Agreement, the Notes, the Letter of Credit Documents, the Guaranties, the Security Instruments, any Hedge Contract with a Swap Counterparty, and each other agreement, instrument, or document executed by the Borrower, any Guarantor, or any of

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the Borrower’s or a Guarantor’s Subsidiaries or any of their officers at any time in connection with this Agreement.

“Loan Party” means the Borrower, the General Partner, or any Guarantor.

“Material Adverse Change” means (a) a material adverse change in the business, assets (including the Oil and Gas Properties), condition (financial or otherwise), results of operations or prospects of the Borrower individually, or the Company Group, taken as a whole, since the Closing Date (but after giving pro forma effect to the Initial Acquisition and the Private Placement) or (b) a material adverse effect on the Borrower’s, individually, or the Company Group’s, taken as a whole, ability to perform its obligations under this Agreement, any Note, any Guaranty, or any other Loan Document.

“Maturity Date” means May 25, 2011.

“Maximum Rate” means the maximum nonusurious interest rate under applicable law (determined under such laws after giving effect to any items which are required by such laws to be construed as interest in making such determination, including if required by such laws, certain fees and other costs).

“Mortgage” means the mortgage or deed of trust executed by any one or more of the Loan Parties in favor of the Administrative Agent for the ratable benefit of the Secured Parties in substantially the form of the attached Exhibit D or such other form as may be requested by the Administrative Agent, together with any assumptions or assignments of the obligations thereunder by the Borrower, any Guarantor or any of their respective Subsidiaries.

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.

“Net Income” means, with respect to the Borrower and its consolidated Subsidiaries, for any period, the net income for such period after taxes, as determined in accordance with GAAP, excluding, however, (a) extraordinary items, including (i) any net non-cash gain or loss during such period arising from the sale, exchange, retirement or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business, and (ii) any write-up or write-down of assets and (b) the cumulative effect of any change in GAAP.

“Note” means a promissory note of the Borrower payable to the order of any Lender in an amount not to exceed the Commitment of such Lender, in substantially the form of the attached Exhibit E, evidencing indebtedness of the Borrower to such Lender resulting from Advances owing to such Lender.

“Notice of Borrowing” means a notice of borrowing in the form of the attached Exhibit F signed by a Responsible Officer of the Borrower.

“Notice of Conversion or Continuation” means a notice of conversion or continuation in the form of the attached Exhibit G signed by a Responsible Officer of the Borrower.

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“Obligations” means (a) all principal, interest, fees, reimbursements, indemnifications, and other amounts payable by the Borrower, any Guarantor or any of their respective Subsidiaries to the Administrative Agent, the Issuing Lender or the Lenders under the Loan Documents (other than the Hedge Contracts with a Swap Counterparty), including the Letter of Credit Obligations, and (b) all Lender Hedging Obligations.

“Oil and Gas Business” means (a) the acquisition, exploration, exploitation, development, operation and disposition of interests in Oil and Gas Properties and Hydrocarbons, (b) the gathering, marketing, treating, processing, storage, selling and transporting of any production from such interests or properties, including the marketing of Hydrocarbons obtained from unrelated Persons, (c) any business relating to or arising from exploration for or development, production, treatment, processing, storage, transportation or marketing of oil, gas and other minerals and products produced in association therewith, (d) any business relating to oilfield sales and service, and (e) any activity that is ancillary or necessary or desirable to facilitate the activities described in clauses (a) through (d) of this definition.

“Oil and Gas Properties” means fee mineral interests, term mineral interests, Leases, subleases, Farmouts, royalties, overriding royalties, net profit interests, carried interests, production payments, back-in interests and reversionary interests and similar mineral interests, and all unsevered and unextracted Hydrocarbons in, under, or attributable to such oil and gas Properties and interests.

“Omnibus Agreement” means the Omnibus Agreement dated May 25, 2007, among APC, the General Partner, the Operating Company and the Borrower, as amended in accordance with the terms hereof.

“Operating Company” means Abraxas Operating, LLC, a Delaware limited liability company.

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Participant” has the meaning assigned to such term in paragraph (d) of Section 9.08.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permit” means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority, including an Environmental Permit.

“Permitted Holder” means any holder of Equity Interest in the Borrower on the Closing Date.

“Permitted Liens” is defined in Section 6.01.

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“Permitted Subject Liens” means the Liens permitted under paragraphs (b), (c), (d), (e), (f), and (h) of Section 6.01.

“Person” (whether or not capitalized) means an individual, partnership, corporation (including a business trust), joint stock company, limited liability company, limited liability partnership, trust, unincorporated association, joint venture or other entity, Governmental Authority or other entity.

“Plan” means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

“Pledge Agreement” means a Pledge Agreement in substantially the form of the attached Exhibit H, executed by the Borrower or any of its Subsidiaries or any of the Guarantors (other than the General Partner), if applicable, covering the Equity Interests in the Operating Company and each direct or indirect Subsidiary of Borrower or General Partner.

“Private Placement” means the private placement of the general and limited partnership Equity Interests of the Borrower to APC and such other third parties pursuant to the terms of Private Placement Agreement.

“Private Placement Agreement” means the Purchase Agreement among the Borrower, the General Partner, APC, the Operating Company and the purchasers named therein dated as of May 25, 2007 pursuant to which such purchasers will purchase or have purchased the Common Units (as described therein) of the Borrower for an aggregate purchase price of $100,000,117.28, as amended in accordance with the terms hereof.

“Private Placement Documents” means, collectively, the Private Placement Agreement and all other documents, instruments, and agreements executed and delivered by the General Partner, APC and the purchasers named in the Private Placement Agreement in connection with the Private Placement.

“Projections” means, for each of the fiscal years 2007, 2008 and 2009 during the term of this Agreement, Borrower’s and the Company Group’s forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, based on good faith estimates and assumptions made by the management of the General Partner on behalf of the Borrower.

“Projected Oil and Gas Production” means the projected production of oil or gas (measured by volume unit or BTU equivalent, not sales price) for the term of the contracts or a particular month, as applicable, from the Loan Parties’ Oil and Gas Properties which are located in or offshore of the United States and which have attributable to them proved developed producing oil or gas reserves, as such proved developed producing production is projected in the Initial Engineering Report or most recent Independent Engineering Report delivered pursuant to Section 5.06(c) below, as applicable, after deducting projected production from any properties or interests sold or under contract for sale that had been included in such report and, other than as to the Initial Engineering Report, after adding projected production from any properties or interests that had not been reflected in such report but that are reflected in a separate or supplemental

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Independent Engineering Reports meeting the requirements of such Section 5.06(c) and that is otherwise satisfactory to Administrative Agent.

“Property” of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person.

“Proven Reserves” means, at any particular time, the estimated quantities of Hydrocarbons which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs attributable to Oil and Gas Properties included or to be included in the Borrowing Base under then existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).

“Pro Rata Share” means, with respect to any Lender, (a) with respect to amounts owing under the Commitments, (i) if such Commitments have not been canceled, the ratio (expressed as a percentage) of such Lender’s uncancelled Commitment at such time to the aggregate uncancelled Commitments at such time, or (ii) if the aggregate Commitments have been terminated, the ratio as determined pursuant to the preceding clause (i) immediately prior to such termination or (b) with respect to amounts owing generally under this Agreement and the other Loan Documents, the ratio (expressed as a percentage) of aggregate Commitments of such Lender to the aggregate Commitments of all the Lenders (or if such Commitments have been terminated, the ratio (expressed as a percentage) of Credit Extensions owing to such Lender to the aggregate Credit Extensions owing to all such Lenders.

“Reference Rate” means a fluctuating interest rate per annum as shall be in effect from time to time equal to the rate of interest publicly announced by Société Générale as its reference rate, whether or not the Borrower has notice thereof.

“Reference Rate Advance” means an Advance which bears interest as provided in Section 2.09(a).

“Register” has the meaning set forth in paragraph (c) of Section 9.08.

“Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.

“Reimbursement Obligations” means all of the obligations of the Borrower to reimburse the Issuing Lender for amounts paid by the Issuing Lender under Letters of Credit as established by the Letter of Credit Applications and Section 2.07(d).

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

“Release” shall have the meaning set forth in CERCLA or under any other Environmental Law.

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“Reportable Event” means a “reportable event” described in Section 4043 of ERISA and the regulations issued thereunder.

“Required Lenders” means, at any time, Lenders holding at least 66 2/3 % of the Commitments or, if the Commitments have been terminated or expired, the outstanding principal amount of the Advances and Letter of Credit Exposure with the aggregate amount of each Lender’s risk participation and funded participation in Letter of Credit Obligations being deemed to be “held” by such Lender for purposes of this definition).

“Response” shall have the meaning set forth in CERCLA or under any other Environmental Law.

“Responsible Officer” means (a) with respect to any Person that is a corporation, such Person’s Chief Executive Officer, President, Chief Financial Officer, or Vice President, (b) with respect to any Person that is a limited liability company, if such Person has officers, then such Person’s Chief Executive Officer, President, Chief Financial Officer, or Vice President, and if such Person is managed by members, then a Responsible Officer of such Person’s managing member, and if such Person is managed by managers, then a manager (if such manager is an individual) or a Responsible Officer of such manager (if such manager is an entity), and (c) with respect to any Person that is a general partnership or a limited liability partnership, the Responsible Officer of such Person’s general partner or partners.

“Restricted Payment” means, with respect to any Person, (a) any direct or indirect dividend or distribution (whether in cash, securities or other Property) with respect to any Equity Interests, including any payment of any kind or character (whether in cash, securities or other Property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any such Equity Interest of such Person or (b) principal or interest payments (in cash, Property or otherwise) on, or redemptions of, subordinated debt of such Person; provided, that, the term “Restricted Payment” shall not include any dividend or distribution payable solely in Equity Interests of such Person or warrants, options or other rights to purchase such Equity Interests.

“SEC” means the United States Securities and Exchange Commission.

“Secured Parties” means the Administrative Agent, the Issuing Lender, the Lenders, and the Persons that are owed Lender Hedging Obligations.

“Security Agreements” means the Security Agreements, each in substantially the form of the attached Exhibit I, executed by the Borrower, any of its Subsidiaries, or any of the Guarantors.

“Security Instruments” means, collectively: (a) the Mortgages, (b) the Transfer Letters, (c) the Pledge Agreement, (d) the Security Agreements, (e) each other agreement, instrument or document executed at any time in connection with the Pledge Agreement, the Security Agreements, or the Mortgages, (f) each agreement, instrument or document executed in connection with the Cash Collateral Account, and (g) each other agreement, instrument or document executed at any time in connection with securing the Obligations.

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“Solvent” means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations, and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s Property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Subsidiary” means, with respect to any Person (the “parent”) at any date, any other Person the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any Person, a majority of whose outstanding Voting Securities (other than directors’ qualifying shares) shall at any time be owned by such parent or one or more Subsidiaries of such parent. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Swap Counterparty” means any Lender (or Affiliate of a Lender) that is party to any Hedge Contract with the Borrower or any of its Subsidiaries.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Termination Event” means (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

“Transfer Letters” means, collectively, the letters in lieu of transfer orders in substantially the form of the attached Exhibit J and executed by the Borrower, any Guarantor or any of their respective Subsidiaries executing a Mortgage.

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“Type” has the meaning set forth in Section 1.04.

“Unused Commitment Amount” means, with respect to a Lender at any time, the lesser of (a) such Lender’s Commitment at such time and (b) such Lender’s Pro Rata Share of the Borrowing Base then in effect at such time minus, in each case the sum of (i) the aggregate outstanding principal amount of all Advances owed to such Lender at such time plus (ii) such Lender’s Pro Rata Share of the aggregate Letter of Credit Exposure at such time.

“Utilization” means the percentage obtained by dividing (a) the outstanding principal amount of the Advances and the Letter of Credit Exposure at such time by (b) the lesser of (i) the Commitments and (ii) the Borrowing Base in effect at such time.

“Voting Securities” means (a) with respect to any corporation (including any unlimited liability company), capital stock of such corporation having general voting power under ordinary circumstances to elect directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have special voting power or rights by reason of the happening of any contingency), (b) with respect to any partnership, any partnership interest or other ownership interest having general voting power to elect the general partner or other management of the partnership or other Person, and (c) with respect to any limited liability company, membership certificates or interests having general voting power under ordinary circumstances to elect managers of such limited liability company.

Section 1.02Computation of Time Periods. In this Agreement, with respect to the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

Section 1.03Accounting Terms; Changes in GAAP. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder (which prior to the delivery of the first financial statements under Section 5.06, shall mean the Financial Statements). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with that used in the preparation of the annual or quarterly financial statements furnished to the Lenders pursuant to Section 5.06 most recently delivered prior to or concurrently with such calculations (or, prior to the delivery of the first financial statements under Section 5.06, used in the preparation of the Financial Statements). In addition, all calculations and defined accounting terms used herein shall, unless expressly provided otherwise, when referring to any Person, where applicable, refer to such Person on a consolidated basis and mean such Person and its consolidated Subsidiaries.

Section 1.04Types of Advances. Advances are distinguished by “Type.” The “Type” of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Reference Rate Advance.

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Section 1.05Miscellaneous. 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 Person shall be construed to include such Person’s successors and assigns, (c) the 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, (d) all references herein to Articles, Sections, paragraphs, Exhibits and Schedules shall be construed to refer to Articles, Sections and paragraphs,of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

ARTICLE II

CREDIT FACILITIES

Section 2.01 Commitment for Advances.

(a)Advances. Each Lender severally agrees, on the terms and conditions set forth in this Agreement (including without limitation, the terms set forth in Section 3.01), to make Advances to the Borrower from time to time on any Business Day during the period from the date of this Agreement until the Commitment Termination Date in an amount for each Lender not to exceed such Lender’s Unused Commitment Amount. Each Borrowing shall, in the case of Borrowings consisting of Reference Rate Advances, be in an aggregate amount not less than $250,000 and in integral multiples of $100,000 in excess thereof, and in the case of Borrowings consisting of Eurodollar Rate Advances, be in an aggregate amount not less than $500,000 and in integral multiples of $100,000 in excess thereof, and in each case shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender’s Commitment, and subject to the terms of this Agreement, the Borrower may from time to time borrow, prepay, and reborrow Advances.

 

(b) Evidence of Debt.

(i) The Advances made by each Lender shall be evidenced by the records maintained by the Administrative Agent in the ordinary course of business. The records maintained by the Administrative Agent shall be conclusive absent manifest error of the amount of the Advances made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts

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and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender to Borrower made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence the obligation to the Borrower to repay to such Lender’s Advances to such Borrower in addition to such records of maintained by the Administrative Agent. Each Lender may attach schedules to a Note and endorse thereon the date, Type (if applicable), amount, currency and maturity of its Loans and payments with respect thereto, but such action or the failure to do so shall not control over the records thereof maintained by the Administrative Agent.

(ii)In addition to the accounts and records referred to in subsection (i), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

Section 2.02 Borrowing Base.

(a)Borrowing Base. The initial Borrowing Base in effect as of the date of this Agreement has been set by the Administrative Agent and the Lenders and acknowledged by the Borrower as $65,000,000. Such initial Borrowing Base shall remain in effect until the next redetermination made pursuant to this Section 2.02 or Section 6.04(b). The Borrowing Base shall be determined in accordance with the standards set forth in Section 2.02(d) and is subject to periodic redetermination pursuant to Sections 2.02(b), 2.02(c) and 6.04(b).

(b) Calculation of Borrowing Base.

(i)The Borrower shall deliver to the Administrative Agent and each of the Lenders on or before each February 28 or February 29, as applicable (beginning February 29, 2008) an Independent Engineering Report dated effective as of the immediately preceding December 31, and such other information as may be reasonably requested by any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. Within thirty (30) days after receipt of all such Engineering Report and information, the Administrative Agent shall make an initial determination of the new Borrowing Base and upon such initial determination shall promptly notify the Lenders in writing of its initial determination of the proposed Borrowing Base. Subject to the last sentence of this Section 2.02(b)(i), the Required Lenders shall approve or reject the Administrative Agent’s initial determinations of the proposed Borrowing Base by written notice to the Administrative Agent within fifteen (15) days of the Administrative Agent’s notification of its initial determinations; provided, however that, the failure by any Lender to confirm in writing the Administrative Agent’s determination of the proposed Borrowing Base within such fifteen (15) day period shall be deemed an approval of such proposed Borrowing Base by such Lender. If the Required Lenders fail to approve any such proposed Borrowing Base determined by the Administrative Agent hereunder in such fifteen (15)

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day period, then the Administrative Agent shall poll the Lenders to ascertain the highest proposed Borrowing Base then acceptable to the Required Lenders for purposes of this Section 2.02(b)(i) and, subject to the last sentence of this Section 2.02(b)(i), such amounts shall become the new Borrowing Base, effective on the date specified in this Section 2.02(b)(i). Until such approval or deemed approval, the Borrowing Base in effect before the proposed Borrowing Base shall remain in effect. Upon agreement by the Administrative Agent and the Required Lenders of the new Borrowing Base, the Administrative Agent shall, by written notice to the Borrower and the Lenders, designate the new Borrowing Base available to the Borrower. Such designation shall be effective as of the Business Day specified in such written notice (or, if no effective date is specified in such written notice, the next Business Day following delivery of such written notice) and such new Borrowing Base shall remain in effect until the next determination or redetermination of the Borrowing Base in accordance with this Agreement. Notwithstanding anything contained herein to the contrary, (A) any determination or redetermination of the Borrowing Base resulting in any increase of the Borrowing Base in effect immediately prior to such determination or redetermination shall require the written approval (and not deemed approval) of all the Lenders in their sole discretion but subject to paragraph (d) of this Section 2.02, and (B) in no event shall the determined or redetermined Borrowing Base exceed the aggregate Commitments of the Lenders.

(ii)The Borrower shall deliver to the Administrative Agent and each Lender on or before each August 31, beginning August 31, 2007, an Internal Engineering Report dated effective as of the immediately preceding June 30, and such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. Within thirty (30) days after receipt of all such Engineering Report and information, the Administrative Agent shall make an initial determination of the new Borrowing Base and upon such initial determination shall promptly notify the Lenders in writing of its initial determination of the proposed Borrowing Base. Subject to the last sentence of this Section 2.02(b)(ii), the Required Lenders shall approve or reject the Administrative Agent’s initial determinations of the proposed Borrowing Base by written notice to the Administrative Agent within fifteen (15) days of the Administrative Agent’s notification of its initial determinations; provided, however that, the failure by any Lender to confirm in writing the Administrative Agent’s determination of the proposed Borrowing Base within such fifteen (15) day period shall be deemed an approval of the such proposed Borrowing Base by such Lender. If the Required Lenders fail to approve any such proposed Borrowing Base determined by the Administrative Agent hereunder in such fifteen (15) day period, then the Administrative Agent shall poll the Lenders to ascertain the highest proposed Borrowing Base then acceptable to the Required Lenders for purposes of this Section 2.02(b)(ii) and, subject to the last sentence of this Section 2.02(b)(ii), such amounts shall become the new Borrowing Base, effective on the date specified in this Section 2.02(b)(ii). Until such approval or deemed approval, the Borrowing Base in effect before the proposed Borrowing Base shall remain in effect. Upon agreement by the Administrative Agent and the Required Lenders of the new Borrowing Base, the Administrative Agent shall, by written notice to the Borrower and the Lenders, designate the new Borrowing Base available to the Borrower. Such designation shall be effective as of the Business Day specified in such written notice (or, if no effective date is specified in such written notice, the next Business Day following delivery of such written notice) and such new Borrowing Base shall remain in effect until the next determination or redetermination of the Borrowing Base in accordance with this Agreement. Notwithstanding

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anything contained herein to the contrary, (A) any determination or redetermination of the Borrowing Base resulting in any increase of the Borrowing Base in effect immediately prior to such determination or redetermination shall require the written approval (and not deemed approval) of all the Lenders in their sole discretion but subject to paragraph (d) of this Section 2.02, and (B) in no event shall the determined or redetermined Borrowing Base exceed the aggregate Commitments of the Lenders.

(iii)In the event that the Borrower does not furnish to the Administrative Agent and the Lenders the Independent Engineering Report, Internal Engineering Report or other information specified in clauses (i) and (ii) above by the date specified therein, the Administrative Agent and the Lenders may nonetheless redetermine the Borrowing Base and redesignate the Borrowing Base from time-to-time thereafter in their sole discretion until the Administrative Agent and the Lenders receive the relevant Independent Engineering Report, Internal Engineering Report, or other information, as applicable, whereupon the Administrative Agent and the Lenders shall redetermine the Borrowing Base as otherwise specified in this Section 2.02.

(iv)Each delivery of an Engineering Report by the Borrower to the Administrative Agent and the Lenders shall constitute a representation and warranty by the Borrower to the Administrative Agent and the Lenders that (A) the Borrower and its Subsidiaries, as applicable, own the Oil and Gas Properties specified therein subject to an Acceptable Security Interest and free and clear of any Liens (except Permitted Liens), and (B) on and as of the date of such Engineering Report each Oil and Gas Property described as “proved developed” therein was developed for oil and/or gas, and the wells pertaining to such Oil and Gas Properties that are described therein as producing wells (“Wells”), were each producing oil and/or gas in paying quantities, except for Wells that were utilized as water or gas injection wells or as water disposal wells. Additionally, the Borrower shall deliver with each such Engineering Report a list of any Proven Reserves that have been sold or acquired by the Borrower and its Subsidiaries since the date of the last Engineering Report delivered to the Administrative Agent; provided that, such requirement shall not constitute nor be construed as a consent to any sale or proposed sale that would not be permitted under the terms of this Agreement.

(c)Interim Redetermination. In addition to the Borrowing Base redeterminations provided for in Section 2.02(b), the Administrative Agent and the Lenders may (i) in their sole discretion make one additional redetermination of the Borrowing Base during any six-month period between scheduled redeterminations and (ii) at the request of the Borrower make one additional redetermination of the Borrowing Base during any six-month period between scheduled redeterminations, and in any case, based on such information as the Administrative Agent and the Lenders deem relevant (but in accordance with Section 2.02(d)). Additionally, the Administrative Agent and the Lenders may request (A) an additional redetermination in connection with any sale or proposed sale of Oil and Gas Properties of the Borrower or any of its Subsidiaries having a market value that would, when aggregated with all other such sales that have been consummated since the date of the last redetermination, equal or exceed an amount equal to 5% of the Borrowing Base then in effect; provided that, such request shall not constitute nor be construed as a consent to any sale or proposed sale that would not be permitted under the terms of this Agreement, and (B) an additional redetermination if the net aggregate amount of Gas Imbalances with respect to the Oil and Gas Properties of the Borrower and its Subsidiaries

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exceeds at any time an amount equal to 1% of the Proven Reserves that are categorized as “proved, developed and producing” on the most recently delivered Engineering Report; provided that, such request shall not constitute nor be construed as a consent to or a waiver of any Default or Event of Default occurring as a result of any such Gas Imbalance. The party requesting the redetermination shall give the other parties at least 10 days’ prior written notice that a redetermination of the Borrowing Base pursuant to this paragraph (c) is to be performed. In connection with any redetermination of the Borrowing Base under this Section 2.02(c), the Borrower shall provide the Administrative Agent and the Lenders with such information regarding the Borrower and its Subsidiaries’ business (including its Oil and Gas Properties, the Proven Reserves, and production relating thereto) as the Administrative Agent or any Lender may request, including, without limitation, an updated Independent Engineering Report. The Administrative Agent shall promptly notify the Borrower in writing of each redetermination of the Borrowing Base pursuant to this Section 2.02(c) and the amount of the Borrowing Base as so redetermined.

(d)Standards for Redetermination. Each redetermination of the Borrowing Base by the Administrative Agent and the Lenders pursuant to this Section 2.02 shall be made (i) in the sole discretion of the Administrative Agent and the Lenders (but in accordance with the other provisions of this Section 2.02(d)), (ii) in accordance with the Administrative Agent’s and the Lenders’ customary internal standards and practices for valuing and redetermining the value of Oil and Gas Properties in connection with reserve based oil and gas loan transactions, (iii) in conjunction with the most recent Independent Engineering Report or Internal Engineering Report, as applicable, or other information received by the Administrative Agent and the Lenders relating to the Proven Reserves of the Borrower and its Subsidiaries, and (iv) based upon the estimated value of the Proven Reserves owned by the Borrower and its Subsidiaries as determined by the Administrative Agent and the Lenders. In valuing and redetermining the Borrowing Base, the Administrative Agent and the Lenders may also consider the business, financial condition, and Debt obligations of the Borrower and its Subsidiaries and such other factors as the Administrative Agent and the Lenders customarily deem appropriate. In that regard, the Borrower acknowledges that the determination of the Borrowing Base reflects a loan amount to market value percentage differential which is essential for the adequate protection of the Administrative Agent and the Lenders. No Proven Reserves shall be included or considered for inclusion in the Borrowing Base unless the Administrative Agent and the Lenders shall have received, at the Borrower’s expense, evidence of title satisfactory in form and substance to the Administrative Agent that the Administrative Agent has an Acceptable Security Interest in the Oil and Gas Properties relating thereto pursuant to the Security Instruments. At all times after the Administrative Agent has given the Borrower notification of a redetermination of the Borrowing Base under this Section 2.02, the Borrowing Base shall be equal to the redetermined amount or such lesser amount designated by the Borrower and disclosed in writing to the Administrative Agent and the Lenders until the Borrowing Base is subsequently redetermined in accordance with this Section 2.02.

Section 2.03 Method of Borrowing.

(a)Notice. Each Borrowing shall be made pursuant to a Notice of Borrowing (or by telephone notice promptly confirmed in writing by a Notice of Borrowing), given not later than 11:00 a.m. (New York time) (i) on the third Business Day before the date of the proposed

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Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances or (ii) on the Business Day of the proposed Borrowing, in the case of a Borrowing comprised of Reference Rate Advances, by the Borrower to the Administrative Agent, which shall in turn give to each Lender prompt notice of such proposed Borrowing by facsimile. Each Notice of Borrowing shall be in writing (by facsimile or otherwise) specifying the information required therein. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.09(b). Each Lender shall, before 12:00 noon (New York time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 9.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent shall make such funds available to the Borrower at its account with the Administrative Agent.

(b)Conversions and Continuations. The Borrower may elect to Convert or continue any Borrowing under this Section 2.03 by delivering an irrevocable Notice of Conversion or Continuation to the Administrative Agent at the Administrative Agent’s office no later than 11:00 a.m. (New York time) (i) on the date which is at least three Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day of the proposed Conversion, in the case of a Conversion to a Borrowing comprised of Reference Rate Advances. Each such Notice of Conversion or Continuation shall be in writing (by facsimile or otherwise) specifying the information required therein. Promptly after receipt of a Notice of Conversion or Continuation under this Section, the Administrative Agent shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the applicable interest rate under Section 2.09(b).

(c)Certain Limitations. Notwithstanding anything to the contrary contained in paragraphs (a) and (b) above:

(i)at no time shall there be more than six Interest Periods applicable to outstanding Eurodollar Rate Advances and the Borrower may not select Eurodollar Rate Advances for any Borrowing at any time that a Default has occurred and is continuing;

(ii)if any Lender shall, at least one Business Day before the date of any requested Borrowing, Conversion, or continuation, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful, for such Lender or its Applicable Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the right of the Borrower to select Eurodollar Rate Advances from such Lender shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and the Advance made by such Lender in respect of such Borrowing, Conversion, or continuation shall be a Reference Rate Advance;

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(iii)if the Administrative Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Reference Rate Advance;

(iv)if the Required Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Reference Rate Advance; and

(v)if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01 and paragraph (b) of this Section 2.03, the Administrative Agent shall forthwith so notify the Borrower and the Lenders and such Advances shall be made available to the Borrower on the date of such Borrowing as Reference Rate Advances or, if an existing Advance, Convert into Reference Rate Advances.

(d)Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower. In the case of any Borrowing for which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, out-of-pocket cost, or expense incurred by such Lender as a result of any failure by the Borrower to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III including any loss (including any loss of anticipated profits), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

(e)           Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any 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 paragraph (a) of this Section 2.03 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the

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Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Advances. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Advance included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(f)Lender Obligations Several. The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

Section 2.04 Reduction of the Commitments.

(a)The Borrower shall have the right, upon at least three Business Days’ irrevocable notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portion of the Commitments; provided, that, each partial reduction shall be in the aggregate amount of $5,000,000 or in integral multiples of $1,000,000 in excess thereof.

(b)Any reduction and termination of the Commitments pursuant to this Section 2.04 shall be applied ratably to each Lender’s Commitment and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.

Section 2.05 Prepayment of Advances.

(a)Optional. The Borrower may prepay the Advances, after giving by 11:00 a.m. (New York time): (i) in the case of Eurodollar Rate Advances, at least three Business Days’ or (ii) in the case of Reference Rate Advances, same Business Day’s, irrevocable prior written notice to the Administrative Agent stating the proposed date and aggregate principal amount of such prepayment. If any such notice is given, the Borrower shall prepay the Advances in whole or ratably in part in an aggregate principal amount equal to the amount specified in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date; provided, however, that each partial prepayment with respect to: (A) any amounts prepaid in respect of Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances comprising part of the same Borrowing; (B) any prepayments made in respect of Reference Rate Advances shall be made in minimum amounts of $250,000 and in integral multiples of $100,000 in excess thereof, and (C) any prepayments made in respect of any Borrowing comprised of Eurodollar Rate Advances shall be made in an aggregate principal amount of at least $500,000 and in integral multiples of $100,000 in excess thereof and in an aggregate principal amount such that after giving effect thereto such Borrowing shall have a remaining principal amount outstanding with respect to such Borrowing of at least $100,000. Full prepayments of any Borrowing are permitted without restriction of amounts.

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(b) Mandatory.

(i)Borrowing Base Deficiency. Subject to Section 2.05(b)(ii), if a Borrowing Base Deficiency exists, then after receipt of written notice from the Administrative Agent regarding such deficiency, the Borrower shall,

(A) (1) within 3 days after the date such deficiency notice is received by the Borrower, deliver a written notice to the Administrative Agent indicating its intent to prepay Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, such that the Borrowing Base Deficiency is cured, and (2) make such payments and deposits within 10 days after the date such deficiency notice is received by the Borrower;

(B) (1) within 3 days after the date such deficiency notice is received by the Borrower, deliver a written notice to the Administrative Agent indicating its intent to pledge as Collateral for the Obligations additional Oil and Gas Properties acceptable to the Required Lenders in their sole discretion such that the Borrowing Base Deficiency is cured, and (2) deliver such additional Collateral within 30 days after the date such deficiency notice is received by the Borrower;

(C) (1) within 3 days after the date such deficiency notice is received by the Borrower, deliver a written notice to the Administrative Agent indicating the Borrower’s election to repay the Advances and make deposits into the Cash Collateral Account to provide cash collateral for the Letters of Credit, each in six equal consecutive monthly installments equal to one-sixth of such Borrowing Base Deficiency with the first such installment due 30 days after the date such deficiency notice is received by the Borrower from the Administrative Agent and each following installment due 30 days after the preceding installment due date, and (2) make such payments and deposits within such time periods; or

(D) (1) within 3 days after the date such deficiency notice is received by the Borrower to the Administrative Agent, deliver a written notice to the Administrative Agent indicating the Borrower’s election to combine the options provided in clause (B) and clause (C) above, and also indicating the amount to be prepaid in installments and the amount to be provided as additional Collateral, and (2) make such six equal consecutive monthly installments and deliver such additional Collateral within the time required under clause (B) and clause (C) above.

The failure of the Borrower to deliver any such election notice or to perform the actions chosen to remedy a Borrowing Base Deficiency under this Section 2.05(b)(i) shall constitute an Event of Default.

(ii)Asset Disposition. Upon any adjustments to the Borrowing Base pursuant to Section 6.04(b) in connection with a Disposition, if a Borrowing Base Deficiency exists, then the Borrower shall prepay Advances or, if the Advances have been repaid in full, make deposits

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into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, such that the Borrowing Base Deficiency is cured. The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral on the date it or any Subsidiary receives cash proceeds as a result of such Disposition; provided that all payments required to be made pursuant to this Section 2.05(b)(ii) must be made on or prior to the Commitment Termination Date.

(iii)Reduction of Commitments. On the date of each reduction of the aggregate Commitments pursuant to Section 2.04, the Borrower agrees to make a prepayment in respect of the outstanding amount of the Advances to the extent, if any, that the aggregate unpaid principal amount of all Advances plus the Letter of Credit Exposure exceeds the lesser of (A) the aggregate Commitments, as so reduced, and (B) the Borrowing Base. Each prepayment pursuant to this Section 2.05(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(c) shall be applied to the Advances as determined by the Administrative Agent and agreed to by the Lenders in their sole discretion.

(iv)Illegality. If any Lender shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Applicable Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no later than 11:00 a.m. (New York time) (A) if not prohibited by law, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance made by such Lender or (B) if required by such notice, on the second Business Day following its receipt of such notice, prepay all of the Eurodollar Rate Advances made by such Lender then outstanding, together with accrued interest on the principal amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (ii) such Lender shall simultaneously make a Reference Rate Advance to the Borrower on such date in an amount equal to the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, and (iii) the right of the Borrower to select Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist.

(c)Interests, Costs and Application of Payments. Each prepayment pursuant to any provision of this Section 2.05 shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(b) (other than paragraph (iv) above) shall be applied to the Advances as determined by the Administrative Agent and agreed to by the Lenders in their sole discretion.

(d)No Additional Right; Ratable Prepayment. The Borrower shall have no right to prepay any principal amount of any Advance except as provided in this Section 2.05, and all notices given pursuant to this Section 2.05 shall be irrevocable and binding upon the Borrower. Each payment of any Advance pursuant to this Section 2.05 shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part.

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Section 2.06Repayment of Advances. The Borrower shall repay to the Administrative Agent for the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with any accrued interest thereon, on the Maturity Date or such earlier date pursuant to Section 7.02 or Section 7.03.

Section 2.07 Letters of Credit.

(a)Commitment. From time to time from the date of this Agreement until 30 days prior to the Maturity Date, at the request of the Borrower, the Issuing Lender shall, on the terms and conditions set forth in this Agreement (including without limitation, the terms of Section 3.01), issue, increase, or extend the Expiration Date of, Letters of Credit for the account of the Borrower on any Business Day. No Letter of Credit will be issued, increased, or extended:

(i)if such issuance, increase, or extension would cause the Letter of Credit Exposure to exceed the lesser of (A) $5,000,000 and (B) the Unused Commitment Amount;

(ii)if such Letter of Credit has an Expiration Date later than the earlier of (A) one year after the date of issuance thereof and (B) 30 days prior to the Maturity Date;

(iii)unless such Letter of Credit Documents are in form and substance acceptable to the Issuing Lender in its sole discretion;

(iv)unless such Letter of Credit is a standby letter of credit not supporting the repayment of indebtedness for borrowed money of any Person;

(v)unless the Borrower has delivered to the Issuing Lender a completed and executed Letter of Credit Application; and

(vi)unless such Letter of Credit is governed by (1) the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, or (2) the International Standby Practices (ISP98), International Chamber of Commerce Publication No. 590, in either case, including any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Lender.

If the terms of any Letter of Credit Application referred to in the foregoing clause (v) conflicts with the terms of this Agreement, the terms of this Agreement shall control.

(b)Participations. Upon the date of the issuance or increase of a Letter of Credit, the Issuing Lender shall be deemed to have sold to each other Lender having a Commitment and each other Lender having a Commitment shall have been deemed to have purchased from the Issuing Lender a participation in the related Letter of Credit Obligations equal to such Lender’s Pro Rata Share at such date and such sale and purchase shall otherwise be in accordance with the terms of this Agreement. The Issuing Lender shall promptly notify each such participant Lender having a Commitment by telephone, or telecopy of each Letter of Credit issued, increased, or extended or converted and the actual dollar amount of such Lender’s participation in such Letter of Credit.

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(c)Issuing. Each Letter of Credit shall be issued, increased, or extended pursuant to a Letter of Credit Application (or by telephone notice promptly confirmed in writing by a Letter of Credit Application), given not later than 11:00 a.m. (New York time) on the third Business Day before the date of the proposed issuance, increase, or extension of the Letter of Credit, and the Issuing Lender shall give to each other Lender prompt notice thereof by telephone, or telecopy. Each Letter of Credit Application shall be delivered by facsimile or by mail specifying the information required therein; provided, that, if such Letter of Credit Application is delivered by facsimile, the Borrower shall follow such facsimile with an original by mail. After the Issuing Lender’s receipt of such Letter of Credit Application (by facsimile or by mail) and upon fulfillment of the applicable conditions set forth in Article III, the Issuing Lender shall issue, increase, or extend such Letter of Credit for the account of the Borrower. Each Letter of Credit Application shall be irrevocable and binding on the Borrower.

(d) Reimbursement.

(i)Obligation. The Borrower hereby agrees to pay on demand to the Issuing Lender an amount equal to any amount paid by the Issuing Lender under any Letter of Credit. In the event the Issuing Lender makes a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not promptly reimbursed by the Borrower upon demand, the Issuing Lender shall give the Administrative Agent notice of the Borrower’s failure to make such reimbursement and the Administrative Agent shall promptly notify each Lender having a Commitment of the amount necessary to reimburse the Issuing Lender. Upon such notice from the Administrative Agent, each Lender shall promptly reimburse the Issuing Lender for such Lender’s Pro Rata Share of such amount, and such reimbursement shall be deemed for all purposes of this Agreement to be an Advance to the Borrower transferred at the Borrower’s request to the Issuing Lender. If such reimbursement is not made by any Lender to the Issuing Lender on the same day on which the Administrative Agent notifies such Lender to make reimbursement to the Issuing Lender hereunder, such Lender shall pay interest on its Pro Rata Share thereof to the Issuing Lender at a rate per annum equal to the Federal Funds Rate. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Administrative Agent and the Lenders to record and otherwise treat such reimbursements to the Issuing Lender as Reference Rate Advances under a Borrowing requested by the Borrower to reimburse the Issuing Lender which have been transferred to the Issuing Lender at the Borrower’s request.

(ii)Lenders’ Obligations. Each Lender’s obligation to make Advances or to purchase and fund risk participations in Letters of Credit pursuant to this Section 2.07(d) shall be absolute and unconditional and shall not be affected by any circumstance, including (a) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender, any Loan Party, or any other Person for any reason whatsoever, (b) the occurrence or continuance of a Default, or (c) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to pay the Reimbursement Obligations together with interest as provided herein. Nothing herein is intended to release the Borrower’s obligations under any Letter of Credit Application, but only to provide an additional method of payment therefor. The making of any Borrowing under Section 2.07(d)(i) shall not constitute a cure or waiver of any Default or Event of Default, other than the payment Default or Event of Default

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which is satisfied by the application of the amounts deemed advanced hereunder, caused by a Borrower’s failure to comply with the provisions of this Agreement or the Letter of Credit Application.

(e)Obligations Unconditional. The obligations of the Borrower under this Agreement in respect of each Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following circumstances:

(i)any lack of validity or enforceability of any Letter of Credit Documents;

(ii)any amendment or waiver of, or any consent to or departure from, any Letter of Credit Documents;

(iii)the existence of any claim, set-off, defense, or other right which the Borrower may have at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender, or any other Person, whether in connection with this Agreement, the transactions contemplated in this Agreement or in any Letter of Credit Documents, or any unrelated transaction;

(iv)any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(v)payment by the Issuing Lender under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or

(vi)any other circumstance or happening whatsoever, whether or not similar to any of the foregoing;

provided, however, that nothing contained in this paragraph (e) shall be deemed to constitute a waiver of any remedies of the Borrower in connection with the Letters of Credit or the Borrower’s rights under Section 2.07(f).

(f)Liability of Issuing Lender. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Lender nor any of its officers or directors shall be liable or responsible for:

(i)the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith;

(ii)the validity, sufficiency, or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent, or forged;

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(iii)payment by the Issuing Lender against presentation of documents which do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or

(iv)any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (INCLUDING THE ISSUING LENDER’S OWN NEGLIGENCE),

except that, notwithstanding the provisions in paragraphs (e) or (f) of this Section 2.07, the Borrower shall have a claim against the Issuing Lender, and the Issuing Lender shall be liable to the Borrower, to the extent of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by the Issuing Lender’s willful misconduct or gross negligence. In furtherance and not in limitation of the foregoing, the Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.

(g) Cash Collateral Account.

(i)If the Borrower is required to deposit funds in the Cash Collateral Account pursuant to Section 2.05(b), 7.02(b), or 7.03(b), then the Borrower and the Issuing Lender shall establish the Cash Collateral Account and the Borrower shall execute any documents and agreements, including the Administrative Agent’s standard form assignment of deposit accounts, that the Administrative Agent requests in connection therewith to establish the Cash Collateral Account and grant the Administrative Agent a first priority security interest in such account and the funds therein. The Borrower hereby pledges to the Administrative Agent and grants the Administrative Agent a security interest in the Cash Collateral Account, whenever established, all funds held in the Cash Collateral Account from time to time, and all proceeds thereof as security for the payment of the Obligations.

(ii)So long as no Default or Event of Default exists, (A) the Administrative Agent may apply the funds held in the Cash Collateral Account only to the reimbursement of any Letter of Credit Obligations, and (B) the Administrative Agent shall release to the Borrower at the Borrower’s written request any funds held in the Cash Collateral Account in an amount up to but not exceeding the excess, if any (immediately prior to the release of any such funds), of the total amount of funds held in the Cash Collateral Account over the Letter of Credit Exposure. During the existence of any Event of Default, the Administrative Agent may apply any funds held in the Cash Collateral Account to the Obligations in any order determined by the Administrative Agent, regardless of any Letter of Credit Exposure that may remain outstanding. The Administrative Agent may in its sole discretion at any time release to the Borrower any funds held in the Cash Collateral Account.

(iii)The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords its own Property, it being understood that the Administrative Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds.

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(h)Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary of a Loan Party, the Borrower shall be obligated to reimburse the Issuing Lender hereunder for any and all drawings under such Letter of Credit issued hereunder by the Issuing Lender. Borrower hereby acknowledges that the issuance of Letters of Credit for the account of any of Subsidiary of a Loan Party inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.

Section 2.08 Fees.

(a)Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender having a Commitment a commitment fee at a per annum rate equal to the Commitment Fee Rate on the average daily Unused Commitment Amount of such Lender, from the date of this Agreement until the Commitment Termination Date. The commitment fees shall be due and payable quarterly in arrears on the last day of each March, June, September, and December commencing on June 30, 2007, and continuing thereafter through and including the Commitment Termination Date.

(b) Letter of Credit Fees.

(i)The Borrower agrees to pay (A) to the Administrative Agent for the pro rata benefit of the Lenders having a Commitment a per annum letter of credit fee for each Letter of Credit issued hereunder in an amount equal to the greater of (y) a per annum rate equal to the Applicable Margin then in effect for Eurodollar Rate Advances on the face amount of such Letter of Credit for the period such Letter of Credit is to be outstanding and (z) $500.00, and (B) to the Issuing Lender, a fronting fee for each Letter of Credit equal to .125% per annum on the face amount of such Letter of Credit. Each such fee shall be payable annually in advance on the date of the issuance of the Letter of Credit, and, in the case of an increase or extension only, on the date of such increase or such extension.

(ii)The Borrower also agrees to pay to the Issuing Lender such other usual and customary fees associated with any transfers, amendments, drawings, negotiations or reissuances of any Letters of Credit.

(c)Upfront Fee. The Borrower agrees to pay to the Administrative Agent the fees described in the Fee Letter.

(d)Borrowing Base Increase Fees. The Borrower agrees to pay to the Administrative Agent for the account of the Lenders having a Commitment in connection with any increase of the Borrowing Base, a borrowing base increase fee on the amount of such increase. The borrowing base increase fee shall be in an amount equal to .20% multiplied by the amount of the increase and shall be due and payable on the date that the increase to the Borrowing Base becomes effective.

Section 2.09Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

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(a)Reference Rate Advances. If such Advance is a Reference Rate Advance, a rate per annum equal at all times to the Adjusted Reference Rate in effect from time to time plus the Applicable Margin in effect from time to time, payable quarterly in arrears on the last day of each March, June, September, and December and on the date such Reference Rate Advance shall be paid in full.

(b)Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time, payable on the last day of such Interest Period and, in the case of any Interest Period longer than three months in duration, on the third monthly anniversary of the beginning of such Interest Period as well as the last day of such Interest Period.

(c)Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to each Lender, so long as any such Lender shall be required under regulations of the Federal Reserve Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the effective date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest payable to any Lender shall be determined by such Lender and notified to the Borrower through the Administrative Agent (such notice to include the calculation of such additional interest, which calculation shall be conclusive in the absence of manifest error).

(d) Usury Recapture.

(i)If, with respect to any Lender or the Issuing Lender, the effective rate of interest contracted for under the Loan Documents, including the stated rates of interest and fees contracted for hereunder and any other amounts contracted for under the Loan Documents which are deemed to be interest, at any time exceeds the Maximum Rate, then the outstanding principal amount of the loans made by such Lender or Issuing Lender, as applicable, hereunder shall bear interest at a rate which would make the effective rate of interest for such Lender or Issuing Lender, as applicable, under the Loan Documents equal the Maximum Rate until the difference between the amounts which would have been due at the stated rates and the amounts which were due at the Maximum Rate (the “Lost Interest”) has been recaptured by such Lender or Issuing Lender, as applicable.

(ii)If, when the loans and reimbursement obligations made hereunder are repaid in full, the Lost Interest has not been fully recaptured by such Lender or Issuing Lender, as applicable, pursuant to the preceding paragraph, then, to the extent permitted by law, for the loans and other credit extensions made hereunder by such Lender or Issuing Lender, as applicable, the interest rates charged under Section 2.09 hereunder shall be retroactively increased such that the effective rate of interest under the Loan Documents was at the Maximum Rate since the effectiveness of this Agreement to the extent necessary to recapture the Lost

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Interest not recaptured pursuant to the preceding sentence and, to the extent allowed by law, the Borrower shall pay to such Lender or Issuing Lender, as applicable, the amount of the Lost Interest remaining to be recaptured by such Lender or Issuing Lender, as applicable.

Section 2.10 Payments and Computations.

(a)Payment Procedures. The Borrower shall make each payment under this Agreement not later than 11:00 a.m. (New York time) on the day when due in Dollars to the Administrative Agent at 1221 Avenue of the Americas, New York, New York 10020 (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without deduction, setoff, or counterclaim of any kind. The Administrative Agent shall promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable solely to the Administrative Agent, the Issuing Lender, or a specific Lender pursuant to Section 2.08(c), 2.09(c), 2.12, 2.13, 2.14, 9.04, 9.05, or 9.06, but after taking into account payments effected pursuant to Section 7.04) in accordance with each Lender’s Pro Rata Share to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender or the Issuing Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

(b)Computations. All computations of interest based on the Reference Rate and of fees (other than Letter of Credit fees) shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate and the Federal Funds Rate and Letter of Credit fees shall be made by the Administrative Agent, on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error.

(c)Non-Business Day Payments. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the immediately preceding Business Day.

(d)Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Lender hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Lender, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Lender, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the Issuing Lender, 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

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of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

Section 2.11Sharing of Payments, Etc. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Advances or other obligations hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of its Advances and accrued interest thereon or other such obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Advances and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Advances and other amounts owing them, 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 shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Advances or participations in the Letter of Credit Obligations to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable Legal Requirement, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

Section 2.12Breakage Costs. If (a) any payment of principal of any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance, whether as a result of any payment pursuant to Section 2.05, the acceleration of the maturity of the Obligations pursuant to Article VII, or otherwise, or (b) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.

Section 2.13 Increased Costs.

(a) Increased Costs Generally. If any Change in Law shall:

(i)impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for

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the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the Eurodollar Rate Reserve Percentage) or the Issuing Lender;

(ii)subject any Lender or the Issuing Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Rate Advance made by it, or change the basis of taxation of payments to such Lender or the Issuing Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 2.14 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the Issuing Lender); or

(iii)impose on any Lender or the Issuing Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Advances made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Advance (or of maintaining its obligation to make any such Advance), or to increase the cost to such Lender or the Issuing Lender of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the Issuing Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the Issuing Lender, the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered.

(b)Capital Requirements. If any Lender or the Issuing Lender determines that any Change in Law affecting such Lender or the Issuing Lender or any lending office of such Lender or such Lender’s or the Issuing Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Lender’s capital or on the capital of such Lender’s or the Issuing Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Advances made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Lender’s policies and the policies of such Lender’s or the Issuing Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company for any such reduction suffered.

(c)Certificates for Reimbursement. A certificate of a Lender or the Issuing Lender setting forth the amount or amounts necessary to compensate such Lender or the Issuing Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

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(d)Delay in Requests. Failure or delay on the part of any Lender or the Issuing Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or the Issuing Lender’s right to demand such compensation.

Section 2.14 Taxes.

(a)Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by applicable Legal Requirement to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Legal Requirement.

(b)Payment of Other Taxes by the Borrower. Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Legal Requirement.

(c)Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the Issuing Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Lender, shall be conclusive absent manifest error.

(d)Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e)Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed

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documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States of America, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

(i)duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,

(ii) duly completed copies of Internal Revenue Service Form W-8ECI,

(iii)in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

(iv)any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

(f)Treatment of Certain Refunds. If the Administrative Agent, a Lender or the Issuing Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses of the Administrative Agent, such Lender or the Issuing Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent, such Lender or the Issuing Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the Issuing Lender in the event the Administrative Agent, such Lender or the Issuing Lender is required to repay such refund to such Governmental Authority. This paragraph

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shall not be construed to require the Administrative Agent, any Lender or the Issuing Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

ARTICLE III

CONDITIONS OF LENDING

Section 3.01Conditions Precedent to Initial Borrowings and the Initial Letter of Credit. The obligations of each Lender to make its initial Advance and the Issuing Lender to issue any initial Letter of Credit shall be subject to the conditions precedent that:

(a)Documentation. The Administrative Agent shall have received the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent, the Issuing Lender and the Lenders, and, where applicable, in sufficient copies for each Lender:

(i)this Agreement, a Note payable to the order of each requesting Lender in the amount of its Commitment, the Security Agreements, the Guaranties, the Pledge Agreements, and Mortgages encumbering substantially all of the Borrower’s and its Subsidiaries’ personal property and encumbering at least 90% of all of the Loan Parties’ Proven Reserves (as set forth in the Initial Engineering Report) and Oil and Gas Properties in connection therewith (including the Oil and Gas Properties to be acquired under the Initial Acquisition), and each of the other Loan Documents, and all attached exhibits and schedules;

(ii)a favorable opinion of the Borrower’s and the Guarantors’ primary counsel dated as of the date of this Agreement in form and covering such matters as the Administrative Agent may reasonably request;

(iii)copies, certified as of the date of this Agreement by a Responsible Officer of the General Partner of (A) the resolutions of the board of managers of the General Partner approving the Loan Documents to which the Borrower or the General Partner is a party, (B) the articles or certificate of formation of the General Partner and the company agreement of the General Partner, (C) the certificate of limited partnership of the Borrower, (D) the partnership agreement of the Borrower, and (E) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes, and the other Loan Documents;

(iv)certificates of the secretary or assistant secretary of the General Partner certifying the names and true signatures of the officers of the General Partner authorized to sign this Agreement, the Notes, Notices of Borrowing, Notices of Conversion or Continuation, and the other Loan Documents to which the Borrower or the General Partner is a party;

(v)other than as otherwise required under clause (iii) above, copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of each Guarantor of (A) the resolutions of the Board of Directors (or other applicable governing body) of such Guarantor approving the Loan Documents to which it is a party, (B) the articles or certificate (as applicable) of incorporation (or organization) and bylaws of such Guarantor, and (C) all other documents evidencing other necessary corporate action and

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governmental approvals, if any, with respect to the Guaranty, the Security Instruments, and the other Loan Documents to which such Guarantor is a party;

(vi)a certificate of the secretary or an assistant secretary of each Guarantor certifying the names and true signatures of officers of such Guarantor authorized to sign the Guaranty, Security Instruments and the other Loan Documents to which such Guarantor is a party;

(vii)a certificate dated as of the Initial Funding Date from a Responsible Officer of the Borrower stating that (A) all representations and warranties of the Borrower set forth in this Agreement are true and correct in all material respects; (B) no Default has occurred and is continuing; and (C) the conditions in this Section 3.01 have been met;

(viii)appropriate UCC-1 and UCC-3, as applicable, Financing Statements covering the Collateral for filing with the appropriate authorities and any other documents, agreements or instruments necessary to create an Acceptable Security Interest in such Collateral;

(ix)property insurance certificates naming the Administrative Agent loss payee and liability insurance certificates naming the Administrative Agent as additional insured, as applicable, and evidencing insurance which meets the requirements of this Agreement and the Security Instruments (including business interruption insurance), and which is otherwise satisfactory to the Administrative Agent;

(x) the Initial Engineering Report;

(xi)stock, membership or partnership certificates required in connection with the Pledge Agreements and stock powers executed in blank for each such stock certificate;

(xii)copies, certified by a Responsible Officer of the Borrower, of all of the Initial Acquisition Instruments and the Private Placement Documents, together with all amendments, modifications or waivers thereto in effect on the effective date of this Agreement;

(xiii)a Compliance Certificate completed and executed by a Responsible Officer of the General Partner showing the calculation of, and Borrower’s pro forma compliance with Section 6.17 as of the Initial Funding Date after giving effect to the Initial Acquisition, the Private Placement and the Borrowings requested and made on the Initial Funding Date;

(xiv)certificates of good standing and existence for each Loan Party in (a) the state, province or territory in which each such Person is organized and (b) each state, province or territory in which such good standing is necessary, which certificates shall be dated a date not earlier than 30 days prior to the date hereof; and

(xv)such other documents, governmental certificates, agreements and lien searches as the Administrative Agent or any Lender may reasonably request.

(b)Payment of Fees. On the date of this Agreement, the Borrower shall have paid the fees required by Section 2.08(c) and all costs and expenses that have been invoiced and are payable pursuant to Section 9.04.

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(c)Delivery of Financial Information. The Administrative Agent and the Lenders shall have received true and correct copies of (i) the Financial Statements, (ii) the Projections, and (iii) such other financial information as the Lenders may reasonably request.

(d)Security Instruments. The Administrative Agent shall have received all appropriate evidence required by the Administrative Agent and the Lenders in their sole discretion necessary to determine that the Administrative Agent (for its benefit and the benefit of the Lenders) shall have an Acceptable Security Interest in the Collateral and that all actions or filings necessary to protect, preserve and validly perfect such Liens have been made, taken or obtained, as the case may be, and are in full force and effect.

(e)Title. The Administrative Agent shall be satisfied in its sole discretion with the title to the Oil and Gas Properties included in the Borrowing Base and that such Oil and Gas Properties constitute a percentage of such Collateral reasonably satisfactory to the Administrative Agent, including mortgagee’s title opinions in favor of the Administrative Agent and the Lenders in form and substance satisfactory to the Administrative Agent and issued by title counsel satisfactory to the Administrative Agent covering such percentage of the present value of Proven Reserves set forth on the Independent Engineering Report delivered to the Administrative Agent prior to the effective date of this Agreement acceptable to the Administrative Agent.

(f)Environmental. The Administrative Agent shall have received reports as it may reasonably require and shall be satisfied with the condition of the Oil and Gas Properties with respect to the Borrower’s compliance with Environmental Laws.

(g) No Default. No Default shall have occurred and be continuing.

(h)Representations and Warranties. The representations and warranties contained in Article IV and in each other Loan Document shall be true and correct in all material respects.

(i)Material Adverse Change. No event or circumstance that could cause a Material Adverse Change shall have occurred.

(j)No Proceeding or Litigation; No Injunctive Relief. No action, suit, investigation or other proceeding (including the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with this Agreement or any transaction contemplated hereby or (ii) which, in any case, in the judgment of the Administrative Agent, could reasonably be expected to result in a Material Adverse Change.

(k)Consents, Licenses, Approvals, etc. The Administrative Agent shall have received true copies (certified to be such by the Borrower or other appropriate party) of all consents, licenses and approvals required in accordance with applicable Legal Requirement, or in accordance with any document, agreement, instrument or arrangement to which the Borrower, any Guarantor or any of their respective Subsidiaries is a party, in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the other Loan Documents, the Initial Acquisition Instruments and the Private Placement Documents. In addition, the

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Borrower, the Guarantors and their respective Subsidiaries shall have all such material consents, licenses and approvals required in connection with the continued operation of the Borrower, such Guarantors and such Subsidiaries and such approvals shall be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the actions contemplated hereby. The Administrative Agent shall be satisfied that the consummation of the Initial Acquisition does not contravene any law or any contractual restriction binding on or affecting the Borrower or any Subsidiary, APC or any other party to the Initial Acquisition Instruments.

(l)Material Contracts. The Borrower shall have delivered to the Administrative Agent copies of all material contracts, agreements or instruments listed on the attached Schedule 4.21.

(m)Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing from the Borrower in the form of Exhibit F, with appropriate insertions and executed by a duly authorized Responsible Officer of the Borrower.

(n)Initial Acquisition. All conditions to the consummation and effectiveness of the Initial Acquisition (other than the payment of the purchase price) shall have been met. Furthermore, the Administrative Agent shall have received payoff letters in form and substance reasonably satisfactory to the Administrative Agent covering all Debt secured by liens which encumber any of the Properties being purchased by the Borrower or any of its Subsidiaries under the Initial Acquisition.

(o)Capitalization of Borrower. The Borrower shall have completed the Private Placement and received Equity Issuance Proceeds resulting therefrom equal to or greater than $90,000,000.

(p)Existing Credit Documents. The Administrative Agent shall have received sufficient evidence satisfactory to it indicating that simultaneously with the making of the initial Advances hereunder, (i) the Existing Indebtedness (including, without limitation, any obligations of any Loan Party in respect of guaranties and security agreements executed in connection with such Existing Indebtedness) shall have been terminated, and (ii) acceptable provisions have been made for the termination of the Liens securing the same.

(q)USA Patriot Act. The Borrower has delivered to each Lender that is subject to the Act such information requested by such Lender in order to comply with the Act.

(r)Hedging Contracts. The Borrower shall have entered into the Hydrocarbon Hedge Agreements required under Section 5.12 below.

Section 3.02Conditions Precedent to All Borrowings. The obligation of each Lender to make an Advance on the occasion of each Borrowing and of the Issuing Lender to issue, increase, or extend any Letter of Credit shall be subject to the further conditions precedent that on the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit:

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(a)the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Conversion or Continuation, or Letter of Credit Application and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance, increase, or extension of such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or on the date of such issuance, increase, or extension of such Letter of Credit, as applicable, such statements are true):

(i)the representations and warranties contained in Article IV of this Agreement and the representations and warranties contained in the Security Instruments, the Guaranties, and each of the other Loan Documents are true and correct in all material respects on and as of the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit, before and after giving effect to such Borrowing or to the issuance, increase, or extension of such Letter of Credit and to the application of the proceeds from such Borrowing, as though made on and as of such date; and

(ii)no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, or would result from the issuance, increase, or extension of such Letter of Credit; and

(b)the Administrative Agent shall have received such other approvals, opinions, or documents reasonably deemed necessary or desirable by any Lender as a result of circumstances occurring after the date of this Agreement, as any Lender through the Administrative Agent may reasonably request.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants as follows:

Section 4.01Existence; Subsidiaries. The Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of Delaware and in good standing and qualified to do business in each other jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification. Each Subsidiary of the Borrower is duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation and in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification. The General Partner is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification. As of the date of this Agreement, Schedule 4.01 sets forth the capital structure of the Borrower and the Subsidiaries of the Borrower.

Section 4.02Power. The execution, delivery, and performance by the Borrower of this Agreement, the Notes, and the other Loan Documents to which it is a party and by the Guarantors of the Guaranties and the other Loan Documents to which they are a party and the consummation of the transactions contemplated hereby and thereby (a) are within the Borrower’s and such Guarantors’ governing powers, (b) have been duly authorized by all necessary

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governing action, (c) do not contravene (i) the Borrower’s or any Guarantor’s certificate or articles of incorporation, bylaws, limited liability company agreement, or other similar governance documents or (ii) any law or any contractual restriction binding on or affecting the Borrower or any Guarantor, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement. At the time of each Advance and the issuance, extension or increase of a Letter of Credit, such Advance and such Letter of Credit, and the use of the proceeds of such Advance and such Letter of Credit, will be within the Borrower’s governing powers, will have been duly authorized by all necessary governing action, will not contravene (i) the Borrower’s articles or certificate of incorporation or other organizational documents or (ii) any law or any contractual restriction binding on or affecting the Borrower and will not result in or require the creation or imposition of any Lien prohibited by this Agreement.

Section 4.03Authorization and Approvals. No consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery, and performance by the Borrower of this Agreement, the Notes, or the other Loan Documents to which the Borrower is a party or by each Guarantor of its Guaranty or the other Loan Documents to which it is a party or the consummation of the transactions contemplated thereby. At the time of each Borrowing and each issuance, increase or extension of a Letter of Credit, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or such issuance, increase or extension of such Letter of Credit or the use of the proceeds of such Borrowing or such Letter of Credit.

Section 4.04Enforceable Obligations. This Agreement, the Notes, and the other Loan Documents to which the Borrower is a party have been duly executed and delivered by the Borrower and the Guaranties and the other Loan Documents to which each Guarantor is a party have been duly executed and delivered by such Guarantors. Each Loan Document is the legal, valid, and binding obligation of the Borrower and any Guarantor which is a party to it enforceable against the Borrower and each such Guarantor in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity.

Section 4.05 Financial Statements.

(a)The Borrower has delivered to the Administrative Agent and the Lenders copies of the Financial Statements, and the Financial Statements present fairly the financial condition of Borrower and its Subsidiaries as of their respective dates and for their respective periods in accordance with GAAP. As of the date of the Financial Statements, there were no material contingent obligations, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses of the Borrower, except as disclosed therein in accordance with GAAP and adequate reserves for such items have been made in accordance with GAAP.

(b)All projections, estimates, and pro forma financial information furnished by the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished.

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(c)Since the date of the Financial Statements, no event or circumstance that could reasonably be expected to cause a Material Adverse Change has occurred.

(d)As of the date of this Agreement, neither the Borrower nor any of its Subsidiaries has any Debt other than the Debt listed on Schedule 4.05.

Section 4.06True and Complete Disclosure. All factual information (excluding estimates) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of the Guarantors in writing to any Lender or the Administrative Agent for purposes of or in connection with this Agreement, any other Loan Document or any transaction contemplated hereby or thereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower and the Guarantors in writing to the Administrative Agent or any of the Lenders shall be, true and accurate in all material respects on the date as of which such information is dated or certified and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not misleading at such time. All projections, estimates, and pro forma financial information furnished by the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished.

Section 4.07 Litigation; Compliance with Laws.

(a)Other than as set forth in Schedule 4.07, there is no pending or, to the best knowledge of the Borrower, threatened action or proceeding affecting the Borrower or any of the Guarantors before any court, Governmental Authority or arbitrator which could reasonably be expected to cause a Material Adverse Change or which purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, or any other Loan Document. Additionally, there is no pending or, to the best knowledge of the Borrower, threatened action or proceeding instituted against the Borrower or any of the Guarantors which seeks to adjudicate the Borrower or any of the Guarantors as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property.

(b)The Borrower and its Subsidiaries have complied in all material respects with all material statutes, rules, regulations, orders and restrictions of any Governmental Authority having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property.

Section 4.08Use of Proceeds. The proceeds of the Advances will be used by the Borrower for the purposes described in Section 5.09. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No proceeds of any Advance will be used to purchase or carry any margin stock in violation of Regulation T, U or X.

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Section 4.09Investment Company Act. Neither the Borrower nor any of the Guarantors is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

Section 4.10Federal Power Act. No Credit Party and no Subsidiary of a Credit Party is subject to regulation under the Federal Power Act, as amended or any other Legal Requirement which regulates the incurring by such Person of Debt, including Legal Requirements relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services.

Section 4.11 Taxes.

(a)Reports and Payments. All Returns (as defined below in clause (c) of this Section 4.11) required to be filed by or on behalf of the Borrower, the Guarantors, or any member of the Controlled Group (hereafter collectively called the “Tax Group”) have been duly filed on a timely basis or appropriate extensions have been obtained and such Returns are and will be true, complete and correct, except where the failure to so file would not be reasonably expected to cause a Material Adverse Change; and all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto will have been paid in full on a timely basis, and no other Taxes will be payable by the Tax Group with respect to items or periods covered by such Returns, except in each case to the extent of (i) reserves reflected in the Financial Statements or subsequent financial statements delivered under Section 5.06 or (ii) taxes that are being contested in good faith. The reserves for accrued Taxes reflected in the financial statements delivered to the Lenders under this Agreement are adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the period ended as of the date thereof and for any period prior thereto, and for which the Tax Group may be liable in its own right, as withholding agent or as a transferee of the assets of, or successor to, any Person, except for such Taxes or reserves therefor, the failure to pay or provide for which does not and would not reasonably be expected to cause a Material Adverse Change.

(b)Taxes Definition. “Taxes” in this Section 4.11 shall mean all taxes, charges, fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing authority, including income, gross receipts, excise, real or personal property, sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and franchise taxes (and including any interest, penalties, or additions to tax attributable to or imposed on or with respect to any such assessment).

(c)Returns Definition. “Returns” in this Section 4.11 shall mean any federal, state, local, or foreign report, estimate, declaration of estimated Tax, information statement or return relating to, or required to be filed in connection with, any Taxes, including any information return or report with respect to backup withholding or other payments of third parties.

Section 4.12Pension Plans. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No “accumulated funding deficiency” (as defined in Section 302 of ERISA) has occurred, and for plan years after December 31, 2007, no

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unpaid minimum required contribution exists, and there has been no excise tax imposed under Section 4971 of the Code. No Reportable Event has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits by more than $1,000,000. Neither the Borrower nor any member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any withdrawal liability in excess of $1,000,000. As of the most recent valuation date applicable thereto, neither the Borrower nor any member of the Controlled Group would become subject to any liability under ERISA in excess of $1,000,000 if the Borrower or any member of the Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing as of the date of this Agreement and current factual circumstances, the Borrower has no reason to believe that the annual cost during the term of this Agreement to the Borrower or any member of the Controlled Group for post-retirement benefits to be provided to the current and former employees of the Borrower or any member of the Controlled Group under Plans that are welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a Material Adverse Change.

Section 4.13Condition of Property; Casualties. Each of the Borrower and the Guarantors has good and defensible title to all of its Properties free and clear of all Liens except for Permitted Liens. The material Properties used or to be used in the continuing operations of the Borrower and each of the Guarantors are in good repair, working order and condition, ordinary wear and tear excepted. Since the date of the Financial Statements, neither the business nor the material Properties of the Borrower and each of the Guarantors, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy.

Section 4.14 No Burdensome Restrictions; No Defaults.

(a)Neither the Borrower nor any Guarantor is a party to any indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable Legal Requirement that could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any contract, agreement, lease, or other instrument to which the Borrower or any Subsidiary is a party and which could reasonably be expected to cause a Material Adverse Change or under any agreement in connection with any Debt. Neither the Borrower nor any of its Subsidiaries has received any notice of default under any material contract, agreement, lease, or other instrument to which the Borrower or such Subsidiary is a party.

(b) No Default has occurred and is continuing.

Section 4.15 Environmental Condition.

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(a)Permits, Etc. The Borrower and the Guarantors, or to the extent that the right of operation is vested in others, such operators on behalf of the Borrower and the Guarantors, (i) have obtained all Environmental Permits necessary for the ownership and operation of their respective Properties and the conduct of their respective businesses except where the failure to obtain such Environmental Permit could not reasonably be expected to cause a Material Adverse Change; (ii) have at all times been and are in compliance with all terms and conditions of such Permits and with all other requirements of applicable Environmental Laws except where the failure to be in compliance could not reasonably be expected to cause a Material Adverse Change; (iii) have not received notice of any material violation or alleged violation of any Environmental Law or Permit; and (iv) are not subject to any actual or contingent Environmental Claim, which could reasonably be expected to cause a Material Adverse Change.

(b)Certain Liabilities. To the Borrower’s actual knowledge, none of the present or previously owned or operated Property of the Borrower or any Guarantor or of any of their former Subsidiaries, wherever located: (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned or operated by the Borrower or any of the Guarantors, wherever located, which could reasonably be expected to cause a Material Adverse Change; or (iii) has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations which has caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response that would cause a Material Adverse Change.

(c)Certain Actions. Without limiting the foregoing: (i) all necessary notices have been properly filed, and no further action is required under current Environmental Law as to each Response or other restoration or remedial project undertaken by the Borrower or the Guarantors (or to the extent that the right of operation is vested in others, undertaken by such operators on behalf of the Borrower or the Guarantors), or any of their former Subsidiaries on any of their presently or formerly owned or operated Property and (ii) the present and, to the Borrower’s knowledge, future liability, if any, of the Borrower and the Guarantors which could reasonably be expected to arise in connection with requirements under Environmental Laws will not result in a Material Adverse Change.

Section 4.16Permits, Licenses, Etc. The Borrower and the Guarantors, or to the extent that the right of operation is vested in others, such operators on behalf of the Borrower and the Guarantors, possess all authorizations, Permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade name rights and copyrights which are material to the conduct of their business. The Borrower and the Guarantors, or to the extent that the right of operation is vested in others, such operators on behalf of the Borrower and the Guarantors, manage and operate their business in all material respects in accordance with all applicable Legal Requirements and good industry practices.

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Section 4.17Gas Contracts. Other than as set forth in Schedule 4.17, neither the Borrower nor any of the Guarantors, as of the date hereof and as of the Initial Funding Date: (a) is obligated in any material respect by virtue of any prepayment made under any contract containing a “take-or-pay” or “prepayment” provision or under any similar agreement to deliver hydrocarbons produced from or allocated to any of the Borrower’s and its Subsidiaries’ Oil and Gas Properties at some future date without receiving full payment therefor at the time of delivery, or (b) has produced gas, in any material amount, subject to, and none of the Borrower’s and the Guarantors’ Oil and Gas Properties is subject to, balancing rights of third parties or subject to balancing duties under governmental requirements, in each case other than in the ordinary course of business and which prepayments and balancing rights, in the aggregate, do not result in the Borrower or any Guarantor having net aggregate liability at any time in excess of an amount equal to 1% of the Proven Reserves categorized as “proved, developed and producing” on the most recently delivered Engineering Report.

Section 4.18Liens; Titles, Leases, Etc. None of the Property of the Borrower or any of the Guarantors is subject to any Lien other than Permitted Liens. On the date of this Agreement, all governmental actions and all other filings, recordings, registrations, third party consents and other actions which are necessary to create and perfect the Liens provided for in the Security Instruments will have been made, obtained and taken in all relevant jurisdictions. All Leases and agreements for the conduct of business of the Borrower and the Guarantors are valid and subsisting, in full force and effect and there exists no default or event of default or circumstance which with the giving of notice or lapse of time or both would give rise to a default under any such Leases or agreements which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any of the Guarantors is a party to any agreement or arrangement (other than this Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to secure the Obligations against their respective assets or Properties.

Section 4.19Solvency and Insurance. Before and after giving effect to the making of the initial Advances and before and after giving effect to the Initial Acquisition and the Private Placement, each of the Borrower and its Subsidiaries is Solvent. Additionally, each of the Borrower and its Subsidiaries carry insurance required under Section 5.02.

Section 4.20Hedging Agreements. Schedule 4.20 sets forth, as of the date hereof and as of the Initial Funding Date, a true and complete list of all Interest Hedge Agreements, Hydrocarbon Hedge Agreements, and any other Hedge Contract of the Borrower and each Guarantor, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counterparty to each such agreement.

Section 4.21Material Agreements. Schedule 4.21 sets forth a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the date hereof and as of the Initial Funding Date (other than the agreements set forth in Schedule 4.20) providing for, evidencing, securing or otherwise relating to any Debt of the Borrower or any of the Guarantors, and all obligations of the Borrower or any of the Guarantors

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to issuers of surety or appeal bonds issued for account of the Borrower or any such Guarantor, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation. Also set forth on Schedule 4.21 is a complete and correct list of all material agreements and other instruments of the Borrower and the Guarantors relating to the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons. Except as detailed otherwise in Schedule 4.21, the Borrower has heretofore delivered to the Administrative Agent and the Lenders a complete and correct copy of all such material credit agreements, indentures, purchase agreements, contracts, letters of credit, guarantees, joint venture agreements, or other instruments, including any modifications or supplements thereto, as in effect on the date hereof and as of the Initial Funding Date.

ARTICLE V

AFFIRMATIVE COVENANTS

So long as any Obligation or any Letter of Credit shall remain outstanding, any Letter of Credit Exposure shall exist, or any Lender shall have any Commitment hereunder, the Borrower agrees, unless the Required Lenders shall otherwise consent in writing, to comply with the following covenants:

Section 5.01Compliance with Laws, Etc. The Borrower shall comply, and cause each of its Subsidiaries to comply, in all material respects with all Legal Requirements. Without limiting the generality and coverage of the foregoing, the Borrower shall comply, and shall cause each of its Subsidiaries to comply, in all material respects, with all Environmental Laws and all laws, regulations, or directives with respect to equal employment opportunity and employee safety in all jurisdictions in which the Borrower, or any of its Subsidiaries do business; provided, however, that this Section 5.01 shall not prevent the Borrower or any of its Subsidiaries from, in good faith and with reasonable diligence, contesting the validity or application of any such laws or regulations by appropriate legal proceedings. Without limitation of the foregoing, the Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain and possess all authorizations, Permits, licenses, trademarks, trade names, rights and copyrights which are material to the conduct of its business and (b) obtain, as soon as practicable, all consents or approvals required from the United States or any states of the United States (or other Governmental Authorities) necessary to grant the Administrative Agent an Acceptable Security Interest in the Borrower’s and its Subsidiaries’ Oil and Gas Properties.

Section 5.02 Maintenance of Insurance.

(a)The Borrower shall, and shall cause each of its Subsidiaries to, procure and maintain or shall cause to be procured and maintained continuously in effect policies of insurance in form and amounts and issued by companies, associations or organizations reasonably satisfactory to the Administrative Agent covering such casualties, risks, perils, liabilities and other hazards reasonably required by the Administrative Agent, including business interruption insurance. In addition, the Borrower shall, and shall cause each of its Subsidiaries to, comply with all requirements regarding insurance contained in the Security Instruments.

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(b)All certified copies of policies or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Administrative Agent. All policies of insurance shall either have attached thereto a Lender’s loss payable endorsement for the benefit of the Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative Agent or shall name the Administrative Agent as an additional insured, as applicable. The Borrower shall furnish the Administrative Agent with a certificate of insurance or a certified copy of all policies of insurance required. All policies or certificates of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage. In addition, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of negligence of the Borrower, or a Subsidiary or any party holding under the Borrower or a Subsidiary which might otherwise result in a forfeiture of the insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower and its Subsidiaries. Without limiting the generality of the foregoing provisions, Administrative Agent will be named as an additional insured and will be provided a waiver of subrogation on the Borrower’s general liability and umbrella policies. All such policies shall contain a provision that notwithstanding any contrary agreements between the Borrower, its Subsidiaries, and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include any reduction in the scope or limits of coverage) without at least 30 days’ prior written notice to the Administrative Agent unless such is cancelled for non-payment of premium and then the Administrative Agent will be given 10 days notice of cancellation. In the event that, notwithstanding the “lender’s loss payable endorsement” requirement of this Section 5.02, the proceeds of any insurance policy described above are paid to the Borrower or a Subsidiary and any Obligations are outstanding, the Borrower shall deliver such proceeds to the Administrative Agent immediately upon receipt.

Section 5.03Preservation of Existence, Etc. The Borrower shall preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its partnership, corporate or limited liability company, as applicable, existence, rights, franchises, and privileges in the jurisdiction of its formation, and qualify and remain qualified, and cause each such Subsidiary to qualify and remain qualified, as a foreign entity in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its Properties, and, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change.

Section 5.04Payment of Taxes, Etc. The Borrower shall pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by law become a Lien upon its Property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in good faith and by appropriate proceedings, and with respect to which reserves in conformity with GAAP have been provided.

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Section 5.05Visitation Rights. At any reasonable time and from time to time, upon reasonable notice, the Borrower shall, and shall cause its Subsidiaries to, permit the Administrative Agent and any Lender or any of their respective agents or representatives thereof, to (a) examine and make copies of and abstracts from the records and books of account of, and visit and inspect at their reasonable discretion the Properties of, the Borrower and any such Subsidiary, and (b) discuss the affairs, finances and accounts of the Borrower and any such Subsidiary with any of their respective officers or directors.

Section 5.06Reporting Requirements. The Borrower shall furnish to the Administrative Agent and each Lender (unless otherwise provided below):

(a)Annual Financials. As soon as available and in any event not later than 120 days after the end of each fiscal year (commencing with fiscal year ending December 31, 2007) of the Borrower and its consolidated Subsidiaries (or such later date authorized by the SEC; provided that, the Borrower shall have delivered proper and timely notices of late filings filed with the SEC and also delivered such to the Administrative Agent and such later date may not be a date later than 120 days after the end of such fiscal year): (i) the Form 10-K filed with the SEC for such fiscal year end, (ii) to the extent not otherwise provided in such Form 10-K, a copy of the annual audit report for such year for the Borrower and such consolidated Subsidiaries, including therein the Borrower’s and such consolidated Subsidiaries’ balance sheets as of the end of such fiscal year and the Borrower’s and such consolidated Subsidiaries’ statements of income, cash flows, and retained earnings, in each case certified by independent certified public accountants of national standing reasonably acceptable to the Administrative Agent and including any management letters delivered by such accountants to the Borrower or any Subsidiary in connection with such audit, (iii) a certificate of such accounting firm to the Administrative Agent and the Lenders stating that, in the course of the regular audit of the business of the Borrower and its consolidated Subsidiaries, if any, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, and (iv) a Compliance Certificate executed by a Responsible Officer of the Borrower;

(b)Quarterly Financials. As soon as available and in any event not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with fiscal quarter ending June 30, 2007) of the Borrower and its consolidated Subsidiaries (or such later date authorized by the SEC; provided that, the Borrower shall have delivered proper and timely notices of late filings filed with the SEC and also delivered such to the Administrative Agent and such later date may not be a date later than 90 days after the end of such fiscal quarter): (i) the Form 10-Q filed with the SEC for such fiscal quarter end, (ii) the extent not otherwise provided in such Form 10-Q, unaudited balance sheet and the unaudited statements of income, cash flows, and retained earnings of each such Person for the period commencing at the end of the previous year and ending with the end of such fiscal quarter, all in reasonable detail and duly certified with respect to such consolidated statements (subject to the absence of footnotes and to year-end audit adjustments) by a Responsible Officer of the Borrower as having been prepared in accordance with GAAP; and (iii) a Compliance Certificate executed by a Responsible Officer of the Borrower;

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(c) Oil and Gas Reserve Reports.

(i)As soon as available but in any event on or before February 28^th (or 29^th, as applicable) of each year, an Independent Engineering Report dated effective as of December 31 for the immediately preceding year;

(ii)As soon as available but in any event on or before August 31^st of each year an Internal Engineering Report dated effective as of the immediately preceding June 30;

(iii)Such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base;

(iv)With the delivery of each Engineering Report, a certificate from a Responsible Officer of the Borrower certifying that, to the best of his knowledge and in all material respects: (a) the information contained in the Engineering Report and any other information delivered in connection therewith is true and correct in all material respects, (b) the Borrower or its Subsidiary, as applicable, owns good and defensible title to the Oil and Gas Properties evaluated in such Engineering Report, and such Properties are subject to an Acceptable Security Interest and are free of all Liens except for Permitted Liens, (c) 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 with respect to its Oil and Gas Properties evaluated in such Engineering Report which would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (d) none of its 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 Oil and Gas Properties sold and in such detail as reasonably required by the Required Lenders, (e) attached to the certificate is a list of its Oil and Gas Properties added to and deleted from the immediately prior Engineering Report and a list showing any change in working interest or net revenue interest in its Oil and Gas Properties occurring and the reason for such change, (f) attached to the certificate is a list of all Persons disbursing proceeds to the Borrower or to its Subsidiary, as applicable, from its Oil and Gas Properties, (g) except as set forth on a schedule attached to the certificate, 90% of the present value of the Proven Reserves evaluated by such Engineering Report are pledged as Collateral for the Obligations and attached to the certificate is a schedule detailing compliance with Section 5.08, and (h) attached to the certificate is a monthly cash flow budget for the 12 months following the delivery of such certificate setting forth the Borrower’s projections for production volumes, revenues, expenses, taxes and budgeted capital expenditures during such period;

(d)Production Reports. As soon as available and in any event within 60 days after the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2007, a report certified by a Responsible Officer of the Borrower in form and substance satisfactory to the Administrative Agent prepared by the Borrower (i) covering each of the Oil and Gas Properties of the Borrower and its Subsidiaries and detailing on a quarterly basis (A) the production, revenue, and price information and associated operating expenses for each such quarter, (B) any changes to any producing reservoir, production equipment, or producing well during each such quarter, which changes could cause a Material Adverse Change, and (C) any sales of the

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Borrower’s or any Subsidiaries’ Oil and Gas Properties during each such, (ii) setting forth a true and complete list of all Hedge Contracts of the Borrower and its Subsidiaries and detailing 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, and (iii) demonstrating the Borrower’s compliance with Section 5.12 hereof.

(e)Defaults. As soon as practicable and in any event within five days after (i) the occurrence of any Default or (ii) the occurrence of any default under any instrument or document evidencing Debt of the Borrower or any Subsidiary, in each case known to any officer of the Borrower or any of its Subsidiaries which is continuing on the date of such statement, a statement of a Responsible Officer of the Borrower setting forth the details of such Default or default, as applicable, and the actions which the Borrower or such Subsidiary has taken and proposes to take with respect thereto;

(f)Termination Events. As soon as practicable and in any event (i) within 30 days after (A) the Borrower knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, or (B) the Borrower acquires knowledge that any member of the Controlled Group knows that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, and (ii) within 10 days after (A) the Borrower knows or has reason to know that any other Termination Event with respect to any Plan has occurred, or (B) the Borrower acquires knowledge that any of its Affiliates knows that any other Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such Affiliate proposes to take with respect thereto;

(g)Termination of Plans. Promptly and in any event within two Business Days after (i) receipt thereof by the Borrower from the PBGC, or (ii) the Borrower acquires knowledge of any Controlled Group member’s receipt thereof from the PBGC, copies of each notice received by the Borrower or any such member of the Controlled Group of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan;

(h)Other ERISA Notices. Promptly and in any event within five Business Days after (i) receipt thereof by the Borrower from a Multiemployer Plan sponsor, or (ii) the Borrower acquires knowledge of any Controlled Group member’s receipt thereof from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any member of the Controlled Group concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA;

(i)Environmental Notices. Promptly upon the receipt thereof by the Borrower or any of its Subsidiaries, a copy of any form of request, notice, summons or citation received from the Environmental Protection Agency, or any other Governmental Authority, concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefor and could cause a Material Adverse Change, (ii) any action or omission on the part of the Borrower or any Subsidiary or any of their former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which could reasonably result in the imposition of liability

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therefor that could cause a Material Adverse Change, including any information request related to, or notice of, potential responsibility under CERCLA, or (iii) concerning the filing of a Lien upon, against or in connection with the Borrower or any Subsidiary or their former Subsidiaries, or any of their leased or owned Property, wherever located;

(j)Other Governmental Notices. Promptly and in any event within five Business Days after receipt thereof by the Borrower or any Subsidiary, a copy of any notice, summons, citation, or proceeding seeking to modify in any material respect, revoke, or suspend any material contract, license, permit or agreement with any Governmental Authority;

(k)Material Changes. Prompt written notice of any condition or event of which the Borrower has knowledge, which condition or event has resulted or may reasonably be expected to result in (i) a Material Adverse Change (other than global changes in the Oil and Gas Business or the world economy generally) or (ii) a breach of or noncompliance with any material term, condition, or covenant of any material contract to which the Borrower or any of its Subsidiaries is a party or by which they or their Properties may be bound;

(l)Disputes, Etc. Prompt written notice of (i) any claims, legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes, or to the knowledge of the Borrower threatened, or affecting the Borrower, or any of its Subsidiaries which, if adversely determined, could reasonably be expected to cause a Material Adverse Change, or any material labor controversy of which the Borrower or any of its Subsidiaries has knowledge resulting in or reasonably considered to be likely to result in a strike against the Borrower or any of its Subsidiaries and (ii) any claim, judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any Property of the Borrower or any Subsidiary if the value of the claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $1,000,000;

(m)Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower and its Subsidiaries, and a copy of any response by the Borrower or any Subsidiary of the Borrower, or the Board of Managers (or other applicable governing body) of the Borrower or any Subsidiary of the Borrower, to such letter or report;

(n)Notices Under Other Loan Agreements. Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 5.06;

(o)SEC Filings. Promptly after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower or any of its Subsidiaries sends to or files with the SEC or sends to the limited partners of the Borrower or the holders of Equity Interests in any of its Subsidiaries;

(p)Dividends. Within five (5) Business Days prior to making any Restricted Payment permitted pursuant to Section 6.05, Borrower shall provide the Administrative Agent with written notice of its intent to make such Restricted Payment, the amount thereof, and the

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anticipated date of such Restricted Payment, together with the certificate of a Responsible Officer of the General Partner certifying as to the calculation of Available Cash, including a detailed calculation of the amount of each of the cash and cash equivalents and amount of each of the cash reserves required to derive the amount of Available Cash; and

(q)Other Information. Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries, as any Lender through the Administrative Agent may from time to time reasonably request.

The Administrative Agent agrees to provide the Lenders with copies of any material notices and information delivered solely to the Administrative Agent pursuant to the terms of this Agreement.

Section 5.07Maintenance of Property. Subject to Section 6.04, the Borrower shall, and shall cause each of its Subsidiaries to, maintain their owned, leased, or operated Property in good condition and repair, ordinary wear and tear excepted; and shall abstain, and cause each of its Subsidiaries to abstain from, knowingly or willfully permitting the commission of waste or other injury, destruction, or loss of natural resources, or the occurrence of pollution, contamination, or any other condition in, on or about the owned or operated Property involving the Environment that could reasonably be expected to result in Response activities and that could reasonably be expected to cause a Material Adverse Change.

Section 5.08Agreement to Pledge. The Borrower shall, and shall cause each Subsidiary to, grant to the Administrative Agent an Acceptable Security Interest in all personal Property of the Borrower or any Subsidiary now owned or hereafter acquired, and shall, and shall cause each Subsidiary to, grant to the Administrative Agent an Acceptable Security Interest in at least 90% of the present value of the Proven Reserves of the Borrower and its Subsidiaries based on its most recently delivered Engineering Report.

Section 5.09Use of Proceeds. The Borrower shall use the proceeds of the Advances to (a) refinance the Existing Indebtedness, (b) fund the acquisition, exploration, development, maintenance and production of Oil and Gas Properties, (c) refinance matured Letter of Credit Obligations, (d) fund Restricted Payments which are permitted hereunder and (e) other working capital and general corporate purposes; provided that, if Utilization is equal to or greater than 90% before or after giving effect to the requested Advance, then no proceeds of any Advance may be used to fund Restricted Payments. The Letters of Credit shall be used solely for the support of: (i) hedging obligations incurred by Borrower and its Subsidiaries in the ordinary course of business, and (ii) other obligations incurred by Borrower and its Subsidiaries in the ordinary course of business.

Section 5.10Title Opinions. The Borrower shall from time to time upon the reasonable request of the Administrative Agent, take such actions and execute and deliver such documents and instruments as the Administrative Agent shall require to ensure that the Administrative Agent shall, at all times, have received satisfactory title evidence (including, if requested, supplemental or new title opinions addressed to it) covering at least 90% of the present value of the Proven Reserves of the Borrower and its Subsidiaries as reasonably determined by the Administrative Agent and at least 90% of the present value of the Proven Reserves which are

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categorized as “proved, developed and producing”, which title opinions shall be in form and substance acceptable to the Administrative Agent in its sole discretion and shall include opinions regarding the before payout and after payout ownership interests held by the Borrower and the Borrower’s Subsidiaries, for all wells located on the Oil and Gas Properties covered thereby as to the ownership of Oil and Gas Properties of the Borrower and its Subsidiaries, and reflecting that the Administrative Agent has an Acceptable Security Interest in such Oil and Gas Properties of the Borrower and its Subsidiaries.

Section 5.11Further Assurances; Cure of Title Defects. The Borrower shall, and shall cause each Subsidiary to, cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the Security Instruments and this Agreement. The Borrower hereby authorizes the Lenders or the Administrative Agent to file any financing statements without the signature of the Borrower to the extent permitted by applicable Legal Requirement in order to perfect or maintain the perfection of any security interest granted under any of the Loan Documents. The Borrower at its expense will, and will cause each Subsidiary to, promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Subsidiary, as the case may be, in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Obligations, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith or to enable the Administrative Agent to exercise and enforce its rights and remedies with respect to any Collateral. Within 30 days after (a) a request by the Administrative Agent or the Lenders to cure any title defects or exceptions which are not Permitted Liens raised by such information or (b) a notice by the Administrative Agent that the Borrower has failed to comply with Section 5.10, the Borrower shall (i) cure such title defects or exceptions which are not Permitted Liens or substitute acceptable Oil and Gas Properties with no title defects or exceptions except for Permitted Liens covering Collateral of an equivalent value and (ii) deliver to the Administrative Agent satisfactory title evidence (including supplemental or new title opinions meeting the foregoing requirements) in form and substance acceptable to the Administrative Agent in its reasonable business judgment as to the Borrower’s and its Subsidiaries’ ownership of such Oil and Gas Properties and the Administrative Agent’s Liens and security interests therein as are required to maintain compliance with Section 5.10.

Section 5.12Hedging Arrangements. The Borrower shall, on or before the date of this Agreement enter into, and from and after the date hereof maintain, Hydrocarbon Hedge Agreements (a) covering, in the aggregate, notional volumes equal to at least 75% of the Projected Oil and Gas Production (as set forth in the Initial Engineering Report) for the term of such Hydrocarbon Hedge Agreements which are categorized as “proved, developed and producing”, (b) covering the period commencing on October 1, 2007 and ending on December 31, 2010, (c) with such minimum floor prices as are acceptable to the Administrative Agent and (d) otherwise in form and substance satisfactory to the Administrative Agent.

Section 5.13Deposit Accounts. The Borrower shall, and shall cause each of its Subsidiaries to, (i) maintain their principal operating accounts and other deposit accounts with

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the Administrative Agent or any Lender or any other bank that has executed an account control agreement reasonably acceptable in form and substance to the Administrative Agent, or (ii) within 60 days from the date hereof, provide an account control agreement reasonably acceptable in form and substance to the Administrative Agent and executed by each depository bank that holds any operating accounts or deposit accounts of the Borrower or any Guarantor and in existence on the date hereof.

ARTICLE VI

NEGATIVE COVENANTS

So long as any Obligation or any Letter of Credit shall remain outstanding, any Letter of Credit Exposure shall exist, or any Lender shall have any Commitment hereunder, the Borrower agrees, unless the Required Lenders shall otherwise consent in writing, to comply with the following covenants:

Section 6.01Liens, Etc. The Borrower shall not create, assume, incur, or suffer to exist, or permit any of its Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Subsidiaries may create, incur, assume, or suffer to exist (all of which shall be referred to as “Permitted Liens”):

(a) Liens securing the Obligations;

(b)purchase money Liens or purchase money security interests upon or in any equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business prior to or at the time of the Borrower’s or such Subsidiary’s acquisition of such equipment; provided, that, the Debt secured by such Liens (i) was incurred solely for the purpose of financing the acquisition of such equipment, and does not exceed the aggregate purchase price of such equipment, (ii) is secured only by such equipment and not by any other assets of the Borrower and its Subsidiaries, and (iii) is not increased in amount;

(c)Liens for taxes, assessments, or other governmental charges or levies not yet due or that (provided foreclosure, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor;

(d)Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, suppliers, laborers, construction, or similar Liens arising by operation of law in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings, provided, that, such reserve as may be required by GAAP shall have been made therefor;

(e)Liens to operators and non-operators under joint operating agreements arising in the ordinary course of the business of the Borrower or the relevant Subsidiary to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

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(f)royalties, overriding royalties, net profits interests, production payments, reversionary interests, calls on production, preferential purchase rights and other burdens on or deductions from the proceeds of production, that do not secure Debt for borrowed money and that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted in the Security Instruments;

(g)Liens arising in the ordinary course of business out of pledges or deposits under workers’ compensation laws, unemployment insurance, old age pensions or other social security or retirement benefits, or similar legislation or to secure public or statutory obligations of the Borrower;

(h)Liens arising under operating agreements, unitization and pooling agreements and orders, Farmout agreements, gas balancing agreements and other similar agreements, in each case that are customary in the Oil and Gas Business and that are entered into in the ordinary course of business that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted in the Security Instruments, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto;

(i)easements, rights-of-way, and other similar encumbrances, and minor defects in the chain of title that are customarily accepted in the oil and gas financing industry, none of which interfere with the ordinary conduct of the business of Borrower or any Subsidiary or materially detract from the value or use of the Property to which they apply;

(j)Liens in favor of landlords or lessors under operating leases or Capital Leases of a Loan Party; provided that (i) any such Lien shall secure only the obligations of such Loan Party arising under the applicable operating lease or Capital Lease, and (ii) the Debt under such Capital Leases is permitted under Section 6.02 below;

(k)Liens on cash or securities pledged to secure performance of bids, tenders, performance bonds, surety and appeals bonds, or regulatory compliance or other obligations of a like nature incurred in the ordinary course of business and not in connection with the borrowing of money;

(l)Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of any of the Company Group on deposit with or in possession of such bank;

(m)Liens on cash and Liquid Investments securing the performance obligations of Borrower under any Hedge Contract (subject to the limitations set forth in Section 6.14);

(n)Liens in favor of Persons financing unpaid insurance premiums so long as (i) such Liens are limited to insurance policies with respect to which such premiums are financed, and (ii) the obligations secured by such Liens do not exceed $500,000 in the aggregate;

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(o)Subject to paragraphs  (c) and (d) of this Section 6.01, non-consensual statutory Liens on pipeline or pipeline facilities, Hydrocarbons or Properties of the Company Group which arise out of operation of law and are not in connection with the borrowing of money;

(p) Liens described in Schedule 4.05; and

(q)Liens not otherwise permitted under this Agreement incurred in the ordinary course of business securing Debt in an aggregate principal amount at any time outstanding not to exceed $250,000.

Section 6.02Debts, Guaranties, and Other Obligations. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, assume, suffer to exist, or in any manner become or be liable in respect of, any Debt except:

(a) Debt of the Borrower and its Subsidiaries under the Loan Documents;

(b)Debt listed on Schedule 4.05; provided, that, the amount of such Debt may not be increased;

(c)Debt in the form of obligations for the deferred purchase price of Property or services incurred in the ordinary course of business which are not yet due and payable or are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established;

(d)Debt secured by the Liens permitted under paragraph (b) of Section 6.01; provided that, the sum of such Debt and other unsecured Debt permitted under paragraph  6.02(g) does not exceed $250,000 at any time;

(e)Debt under Hydrocarbon Hedge Agreements or Interest Hedge Agreements which are not prohibited by the terms of Section 6.14;

(f)Debt consisting of sureties or bonds provided to any Governmental Authority or other Person and assuring payment of contingent liabilities of the Borrower in connection with the operation of the Oil and Gas Properties, including with respect to plugging, facility removal and abandonment of its Oil and Gas Properties;

(g) Intercompany Debt;

(h)Debt constituting letters of credit for the account of any member of the Company Group provided as security (i) for any matter which is a Lien permitted under paragraphs (d), (k), (m) or (n) or Section 6.01; provided that the amount of such Debt shall not exceed the obligations secured by such Lien, and (ii) to secure payment obligations in connection with self-insurance or similar requirements in the ordinary course of business;

(i)Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business if extinguished within two (2) Business Days of incurrence and does not exceed $50,000; and

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(j)Debt not otherwise permitted under this Section 6.02, provided, that (i) such Debt is not secured by any Lien, and (ii) the aggregate of amount of such Debt plus the aggregate amount of Debt permitted under Section 6.02(d) shall not to exceed $250,000 at any time.

Section 6.03Agreements Restricting Liens and Distributions. The Borrower shall not, nor shall it permit any of its Subsidiaries to, create, incur, assume or permit to exist any contract, agreement or understanding (other than this Agreement and the Security Instruments) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property, whether now owned or hereafter acquired, to secure the Obligations or restricts any Subsidiary from paying dividends to the Borrower, or which requires the consent of or notice to other Persons in connection therewith.

Section 6.04 Merger or Consolidation; Asset Sales.

(a)The Borrower shall not, nor shall it permit any of its Subsidiaries to merge or consolidate with or into any other Person other than the merger of a Loan Party with and into the Borrower or another Loan Party.

(b)The Borrower shall not, nor shall it permit any of its Subsidiaries to enter into or effect a Disposition of any of its Properties other than: (i) the sale of Hydrocarbons in the ordinary course of business, (ii) the Disposition of equipment that is (A) obsolete, worn out, depleted or uneconomic and disposed of in the ordinary course of business, (B) no longer necessary for the business of such Person or (C) contemporaneously replaced by equipment of at least comparable use, (iii) Farmouts of undeveloped acreage and assignments in connection with such Farmouts, (iv) Dispositions of Oil and Gas Properties or any interest therein or Subsidiaries owning Oil and Gas Properties provided that (A) 100% of the consideration received in respect of such Disposition shall be cash, (B) the consideration received in respect of such Disposition shall be equal to or greater than the fair market value of the Oil and Gas Property, interest therein or Subsidiary subject of such Disposition (as reasonably determined by the board of managers or the equivalent governing body of the General Partner and, if requested by the Administrative Agent, the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to that effect), (C) if such Disposition of Oil and Gas Property or Subsidiary owning Oil and Gas Properties included in the most recently delivered Engineering Report during any period between two successive scheduled redeterminations of the Borrowing Base has a fair market value (as determined by the Administrative Agent), individually or in the aggregate, in excess of 5% of the Borrowing Base in effect at the time such Disposition is effected, the Borrowing Base shall be reduced, effective immediately upon such Disposition, by an amount equal to the value, if any, assigned such Property as determined by the Required Lenders in the most recently delivered Engineering Report and (D) if any such Disposition is of a Subsidiary owning Oil and Gas Properties, such Disposition shall include all the Equity Interests of such Subsidiary; and (v) any Disposition of Properties not otherwise regulated by Section 6.04(b) and having a fair market value not to exceed $250,000 during any 12-month period.

Section 6.05Restricted Payments. The Borrower shall not, nor shall it permit any of its Subsidiaries to, make any Restricted Payments except that

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(a)any Subsidiary may declare and make Restricted Payments to the Borrower or any other Loan Party, and

(b)the Borrower may declare and pay quarterly cash distributions to its equity interest holders of Available Cash so long as before and after giving effect to such distribution and any redetermination of the Borrowing Base as a result of such distribution (i) no Default exists, (ii) no Borrowing Base Deficiency exists, and (iii) the Unused Commitment Amount, as it may have been redetermined, is greater than or equal to 10% of the lesser of (A) the then effective Borrowing Base or (B) the aggregate Commitments.

Section 6.06Investments. The Borrower shall not, nor shall it permit any of its Subsidiaries to, make or permit to exist any loans, advances, or capital contributions to, or make any investment in (including the making of any Acquisition), or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in any Person, except:

(a) Liquid Investments;

(b)trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms;

(c) creation of any additional Subsidiaries in compliance with Section 6.15;

(d)investments in negotiable instruments for collection in the ordinary course of business;

(e)investments made in the ordinary course of business and of a nature that is customary in the Oil and Gas Business as a means of actively exploiting, exploring for, acquiring, developing, processing, gathering, marketing or transporting oil and gas through agreements, transactions, interests or arrangements which provide for the sharing of risks or costs or satisfy other objectives of the Oil and Gas Business, jointly with third parties, including entering into operating agreements, working interests, royalty interests, mineral leases, processing agreements, Farmouts, farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements and area of mutual interest agreements, production sharing agreements or other similar or customary agreement, transactions, properties, interest and investments and expenditures in connection therewith; provided that (i) no such investments includes an investment in any Equity Interest in a Person, (ii) any Debt incurred or Lien granted or permitted to exist pursuant to such Investments is otherwise permitted under Section 6.01 and Section 6.02, respectively, and (iii) such investments are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted in the Security Instruments;

(f) Investments in Intercompany Debt; and

(g)Investments not otherwise permitted under this Section 6.06 in an aggregate amount not to exceed $500,000.

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Section 6.07Affiliate Transactions. Other than as set forth on Schedule 6.07, the Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of transactions (including the purchase, sale, lease or exchange of Property, the making of any investment, the giving of any guaranty, the assumption of any obligation or the rendering of any service) with any of their Affiliates unless such transaction or series of transactions is on terms no less favorable to the Borrower or the Subsidiary, as applicable, than those that could be obtained in a comparable arm’s length transaction with a Person that is not such an Affiliate.

Section 6.08Compliance with ERISA. The Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, (a) engage in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction in connection with which the Borrower, any Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code, in either case, in excess of $1,000,000; (b) terminate, or permit any Subsidiary or ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower, any Subsidiary or any ERISA Affiliate to the PBGC in excess of $1,000,000; (c) fail to make, or permit any Subsidiary or 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 Legal Requirement, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto; (d) permit to exist, or allow any Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding deficiency (or unpaid minimum required contribution for plan years after December 31, 2007) within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any Subsidiary or ERISA Affiliate to permit, the actuarial present value of the benefit liabilities (as “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA) under any Plan maintained by the Borrower, any Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by more than $1,000,000; (f) contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan in excess of $1,000,000; (g) acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan under which any Subsidiary or ERISA Affiliate would have an obligation to contribute more than $1,000,000, or (2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by more than $1,000,000; (h) incur, or permit any Subsidiary or ERISA Affiliate to incur, a liability to or on account of a Plan under section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without

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any material liability; (j) amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, any Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code; or (k) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in the opinion of the Required Lenders) risk of such a termination by the PBGC of any Plan.

Section 6.09Sale-and-Leaseback. The Borrower shall not, nor shall it permit any of its Subsidiaries to, sell or transfer to a Person any Property, whether now owned or hereafter acquired, if at the time or thereafter the Borrower or a Subsidiary shall lease as lessee such Property or any part thereof or other Property which the Borrower or a Subsidiary intends to use for substantially the same purpose as the Property sold or transferred.

Section 6.10Change of Business. The Borrower shall not, nor shall it permit any of its Subsidiaries to, make any material change in the character of its business as an independent oil and gas exploration and production company, nor will the Borrower or any Subsidiary operate or carry on business in any jurisdiction other than the United States or Canada.

Section 6.11Organizational Documents, Name Change. The Borrower shall not, nor shall it permit any of its Subsidiaries to, amend, supplement, modify or restate their articles or certificate of incorporation, bylaws, limited liability company agreements, or other equivalent organizational documents or amend its name or change its jurisdiction of incorporation, organization or formation, in any case, without prior written notice to, and prior consent of, the Administrative Agent.

Section 6.12Use of Proceeds; Letters of Credit. The Borrower will not permit the proceeds of any Advance or Letters of Credit to be used for any purpose other than those permitted by Section 5.09. The Borrower will not engage in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). Neither the Borrower nor any Person acting on behalf of the Borrower has taken or shall take, nor permit any of the Borrower’s Subsidiaries to take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect, including the use of the proceeds of any Advance or Letters of Credit to purchase or carry any margin stock in violation of Regulation T, U or X.

Section 6.13Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower shall not, nor shall it permit any of its Subsidiaries to, allow Gas Imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Subsidiary which would require the Borrower or any Subsidiary to deliver their respective Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor other than Gas Imbalances, take-or-pay or other prepayments incurred in the ordinary course of business and which Gas Imbalances, take-or-pay, or other prepayments and balancing rights, in the aggregate, do not result in the Borrower or any Guarantor having net aggregate liability at any time in excess of an amount equal to 1% of the

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Proven Reserves that are categorized as “proved , developed and producing” on the most recently delivered Engineering Report.

Section 6.14Limitation on Hedging. The Borrower shall not, nor shall it permit any of its Subsidiaries to:

(a)purchase, assume, or hold a speculative position in any commodities market or futures market or enter into any Hedge Contract for speculative purposes, or

(b)other than Hedge Contracts entered into with a Lender or an Affiliate of a Lender, be party to or otherwise enter into any Hydrocarbon Hedge Agreement, Interest Hedge Agreement or any other Hedge Contract which (i) is entered into for reasons other than as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower’s operations, (ii) fixes a price for a term of more than 4 years, (iii) covers an aggregate monthly production (determined, in the case of contracts that are not settled on a monthly basis, by a monthly proration acceptable to Administrative Agent) for any single month which exceeds 90% of such Loan Party’s aggregate Projected Oil and Gas Production for such month, (iii) except for the Collateral under the Security Documents with respect to Lender Hedging Obligations and letters of credit up to $500,000 in the aggregate with respect to Hedge Contracts entered into from time to time with a counterparty that is not a Lender or an Affiliate of a Lender, requires such Loan Party to put up money, assets, or other security against the event of its nonperformance prior to actual default by such Loan Party in performing its obligations thereunder, or (iv) is with a counterparty or has a guarantor of the obligation of the counterparty who (unless such counterparty is a Lender or one of its Affiliates) at the time the contract is made has long-term obligations rated less than A- or A3, respectively, by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.

Section 6.15Additional Subsidiaries. The Borrower shall not, nor shall it permit any of its Subsidiaries to, create or acquire any additional Subsidiaries without (a) prior written notice to the Administrative Agent and the Required Lenders, (b) such new Subsidiary executing and delivering to the Administrative Agent, at its request, a Guaranty, a Pledge Agreement (if applicable), a Security Agreement and a Mortgage (if applicable), and such other Security Instruments as the Administrative Agent or the Required Lenders may reasonably request, (c) the equity holder of such Subsidiary executing and delivering to the Administrative Agent a Pledge Agreement pledging 100% of the Equity Interest owned by such equity holder of such Subsidiary along with the certificates pledged thereby, if any, and appropriately executed stock powers in blank, if applicable, and (d) the delivery by the Borrower and such Subsidiary of any certificates, opinions of counsel, title opinions or other documents as the Administrative Agent may reasonably request relating to such Subsidiary.

Section 6.16Account Payables. The Borrower shall not, nor shall it permit any of its Subsidiaries to, allow any of its trade payables or other accounts payable to be outstanding for more than 90 days beyond the date when due (except in cases where any such trade payable is being disputed in good faith and adequate reserves under GAAP have been established).

Section 6.17Current Ratio. The Borrower shall not permit, as of the end of any fiscal quarter, the ratio of (a) its consolidated current assets to (b) its consolidated current liabilities, to

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be less than 1.00 to 1.00. For purposes of this calculation, (i) “current assets” shall include, as of the date of calculation, the aggregate Unused Commitment Amounts but shall exclude, as of the date of calculation (A) any cash deposited with or at the request of a counterparty to any Hedge Contract and (B) any assets representing a valuation account arising from the application of SFAS 133 and 143, and (ii) “current liabilities” shall exclude, as of the date of calculation, (A) the current portion of long-term Debt and (B) any liabilities representing a valuation account arising from the application of SFAS 133 and 143.

Section 6.18Interest Coverage Ratio. The Borrower (a) shall not permit, as of the fiscal quarter ending June 30, 2007, the ratio of (i) the consolidated EBITDA of the Borrower for the fiscal quarter period then ended multiplied by four, to (ii) the consolidated Interest Expense of the Borrower for the fiscal quarter period then ended multiplied by four, to be less than 2.50 to 1.00; (b) shall not permit, as of the fiscal quarter ending September 30, 2007, the ratio of (i) the consolidated EBITDA of the Borrower for the two fiscal quarter period then ended multiplied by two, to (ii) the consolidated Interest Expense of the Borrower for the two fiscal quarter period then ended multiplied by two, to be less than 2.50 to 1.00; (c) shall not permit, as of the fiscal quarter ending December 31, 2007, the ratio of (i) the consolidated EBITDA of the Borrower for the three fiscal quarter period then ended multiplied by 4/3, to (ii) the consolidated Interest Expense of the Borrower for the three fiscal quarter period then ended multiplied by 4/3, to be less than 2.50 to 1.00; and (d) shall not, as of the end of each fiscal quarter ending on or after March 31, 2008, the ratio of (i) the consolidated EBITDA of the Borrower calculated for the four fiscal quarters then ended, to (ii) the consolidated Interest Expense of the Borrower for the four fiscal quarters then ended, to be less than 2.50 to 1.00.

Section 6.19Initial Acquisition Instruments/Private Placement Documents. The Borrower shall not, nor shall it permit any of its Subsidiaries to, modify, amend, supplement or replace, any of the Initial Acquisition Instruments or the Private Placement Documents, in any respect that would adversely affect the Lenders or the Borrower’s ability to perform the Obligations, without the prior written consent of the Administrative Agent and the Required Lenders.

ARTICLE VII

EVENTS OF DEFAULT; REMEDIES

Section 7.01Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” under any Loan Document:

(a)Payment. Any Loan Party (i) fails to pay any principal when due under this Agreement or (ii) fails to pay, within three (3) Business Days of the date when due, any other amount due under this Agreement or any other Loan Document, including payments of interest, fees, reimbursements, and indemnifications.

(b)Representation and Warranties. Any representation or warranty made or deemed to be made (i) by the Borrower, any Guarantor or any of their respective Subsidiaries (or any of their respective officers) in this Agreement or in any other Loan Document, or (ii) by the Borrower, any Guarantor or any of their respective Subsidiaries (or any of their respective

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officers) in connection with this Agreement or any other Loan Document, shall prove to have been incorrect in any material respect when made or deemed to be made;

(c)Covenant Breaches. The Borrower, any Guarantor or any of their respective Subsidiaries shall fail to (i) perform or observe any covenant contained in Section 5.02(a), Section 5.06(e), Section 5.12, Section 5.13 or Article VI or (ii) fail to perform or observe any other term or covenant set forth in this Agreement or in any other Loan Document which is not covered by clause (i) above or any other provision of this Section 7.01, if such failure shall remain unremedied for 30 days after the occurrence of such breach or failure;

(d)Cross-Defaults. (i) The Borrower, any Guarantor or any of their respective Subsidiaries shall fail to pay any principal of or premium or interest on its Debt which is outstanding in a principal amount of at least $1,000,000 individually or when aggregated with all such Debt of the Borrower, any Guarantor or any of their respective Subsidiaries so in default (but excluding the Obligations) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace or cure period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to Debt which is outstanding in a principal amount of at least $1,000,000 individually or when aggregated with all such Debt of the Borrower, such Subsidiary, or such Guarantor so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt which is outstanding in a principal amount of at least $1,000,000 individually or when aggregated all such Debt of the Borrower, such Subsidiary, or such Guarantor so in default, shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; provided that, for purposes of this paragraph (d), the “principal amount” of the obligations in respect of Hedging Contracts at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that would be required to be paid if such Hedging Contracts were terminated at such time;

(e)Insolvency. The Borrower, any Guarantor or any of their respective Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, any of its Subsidiaries, or any Guarantor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property and, in the case of any such proceeding instituted against the Borrower, any such Subsidiary or any such Guarantor either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or the Borrower, any of its Subsidiaries, or any Guarantor shall take any company action to authorize any of the actions set forth above in this paragraph (e);

(f)Judgments. Any judgment or order for the payment of money in excess of $1,000,000 shall be rendered against the Borrower, any Guarantor or any of their respective

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Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 45 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

(g)Termination Events. Any Termination Event with respect to a Plan shall have occurred, and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent, (i) such Termination Event shall not have been corrected and (ii) the then present value of such Plan’s vested benefits exceeds the then current value of assets accumulated in such Plan by more than the amount of $1,000,000 (or in the case of a Termination Event involving the withdrawal of a “substantial employer” (as defined in Section 4001(a)(2) of ERISA), the withdrawing employer’s proportionate share of such excess shall exceed such amount);

(h)Plan Withdrawals. The Borrower or any member of the Controlled Group as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $1,000,000;

(i) Change in Control. A Change in Control shall have occurred;

(j)Borrowing Base. Any failure to cure any Borrowing Base deficiency in accordance with Section 2.05;

(k)Loan Documents. Any material provision of any Loan Document shall for any reason cease to be valid and binding on the Borrower or a Guarantor or any of their respective Subsidiaries or any such Person shall so state in writing;

(l)Security Instruments. (i) The Administrative Agent shall fail to have an Acceptable Security Interest in any portion of the Collateral or (ii) any Security Instrument shall at any time and for any reason cease to create the Lien on the Property purported to be subject to such agreement in accordance with the terms of such agreement, or cease to be in full force and effect, or shall be contested by the Borrower, any Guarantor or any of their respective Subsidiaries;

(m)Material Adverse Change. An event resulting in a Material Adverse Change shall have occurred; or

(n)Casualty. Loss, theft, substantial damage or destruction of a material portion of the Collateral the subject of any Security Instrument not fully covered by insurance (except for deductibles and allowing for the depreciated value of such Collateral) shall have occurred.

Section 7.02Optional Acceleration of Maturity. If any Event of Default (other than an Event of Default pursuant to paragraph (e) of Section 7.01) shall have occurred and be continuing, then, and in any such event,

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(a)the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing, increasing or extending Letters of Credit, to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

(b)the Borrower shall, on demand of the Administrative Agent at the request or with the consent of the Required Lenders, deposit with the Administrative Agent into the Cash Collateral Account an amount of cash equal to the Letter of Credit Exposure as security for the Obligations; and

(c)the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of Secured Parties by appropriate proceedings.

Section 7.03Automatic Acceleration of Maturity. If any Event of Default pursuant to paragraph (e) of Section 7.01 shall occur,

(a)(i) the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing, increasing or extending Letters of Credit, shall terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

(b)the Borrower shall deposit with the Administrative Agent into the Cash Collateral Account an amount of cash equal to the outstanding Letter of Credit Exposure as security for the Obligations; and

(c)the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of Secured Parties by appropriate proceedings.

Section 7.04Right of Setoff. If an Event of Default shall have occurred and be continuing, the Administrative Agent, each Lender, the Issuing Lender, and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent

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permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Administrative Agent, such Lender, the Issuing Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to the Administrative Agent, such Lender or the Issuing Lender, irrespective of whether or not the Administrative Agent, such Lender or the Issuing Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a branch or office of the Administrative Agent, such Lender or the Issuing Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of the Administrative Agent, each Lender, the Issuing Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that the Administrative Agent, such Lender, the Issuing Lender or their respective Affiliates may have. The Administrative Agent, each Lender and the Issuing Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

Section 7.05Non-exclusivity of Remedies. No remedy conferred upon the Administrative Agent, the Issuing Lender and the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

Section 7.06Application of Proceeds. From and during the continuance of any Event of Default, any monies or Property actually received by the Administrative Agent pursuant to this Agreement or any other Loan Document, the exercise of any rights or remedies under any Security Instrument or any other agreement with the Borrower, any Guarantor or any of their respective Subsidiaries which secures any of the Obligations, shall be applied in the following order:

(a)First, to the payment of all amounts, including costs and expenses incurred in connection with the collection of such proceeds and the payment of any part of the Obligations, due to the Administrative Agent under any of the expense reimbursement or indemnity provisions of this Agreement or any other Loan Document, any Security Instrument or other collateral documents, and any applicable Legal Requirement;

(b)Second, ratably, according to the then unpaid amounts thereof, without preference or priority of any kind among them, to the payment of the Obligations then due and payable, including Obligations with respect to Letters of Credit, including any Lender Hedging Obligations of any Loan Party; and

(c)Third, the remainder, if any, to the Borrower or its Subsidiaries, or its respective successors or assigns, or such other Person as may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

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Administrative Agent shall have no responsibility to determine the existence or amount of Lender Hedging Obligations and may reserve from the application of amounts under this Section amounts distributable in respect of Lender Hedging Obligations until it has received evidence satisfactory to it of the existence and amount of such Lender Hedging Obligations. Subject to paragraph (a) of the first sentence of this Section, Administrative Agent and Lenders hereby acknowledge and confirm that the Liens in the Collateral secure the Obligations and the Lender Hedging Obligations on a ratable basis.

ARTICLE VIII

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

Section 8.01Appointment and Authority. Each of the Lenders and the Issuing Lender hereby irrevocably appoints Société Générale to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Lender, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.

Section 8.02Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

Section 8.03Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

(a)shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(b)shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

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(c)shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 9.01 and 7.02, and 7.03 or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or the Issuing Lender. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article III or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

Section 8.04Reliance 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 (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of an Advance, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the Issuing Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender or the Issuing Lender unless the Administrative Agent shall have received notice to the contrary from such Lender or the Issuing Lender prior to the making of such Advance or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

Section 8.05Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with

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the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

Section 8.06Successor Administrative Agent and Issuing Lender. The Administrative Agent and the Issuing Lender may at any time give notice of its resignation to the Lenders, the Issuing Lender and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in New York City or Houston, Texas or an Affiliate of any such bank with an office in New York City or Houston, Texas. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 60 days after the retiring Administrative Agent or Issuing Lender gives notice of its resignation, then the retiring Administrative Agent or Issuing Lender, as applicable, may on behalf of the Lenders, appoint a successor Administrative Agent or Issuing Lender, as applicable, meeting the qualifications set forth above provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent or Issuing Lender, as applicable, shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that (A) in the case of any Collateral held by the Administrative Agent on behalf of the Lenders or the Issuing Lender under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such Collateral until such time as a successor Administrative Agent is appointed, and (B) the retiring Issuing Lender shall remain the Issuing Lender with respect to any Letters of Credit outstanding on the effective date of its resignation and the provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Lender until the termination of all such Letters of Credit) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent or Issuing Lender, as applicable, shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent or Issuing Lender, as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent or Issuing Lender hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent or Issuing Lender, and the retiring Administrative Agent or Issuing Lender shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section and except that the retiring Issuing Lender shall remain the Issuing Lender with respect to any Letters of Credit outstanding on the effective date of its resignation and the provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Lender until the termination of all such Letters of Credit). The fees payable by the Borrower to a successor Administrative Agent or Issuing Lender shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s or Issuing Lender’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Sections 9.04 and 9.05 shall continue in effect for the benefit of such retiring Administrative Agent or Issuing Lender, as applicable, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent or Issuing Lender, as applicable was acting as Administrative Agent or Issuing Lender, as applicable.

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Section 8.07Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the Issuing Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the Issuing Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

Section 8.08No Other Duties, etc. Anything herein to the contrary notwithstanding, none of the Bookrunners or Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or the Issuing Lender hereunder.

Section 8.09 Collateral Matters.

(a)The Administrative Agent is authorized on behalf of the Secured Parties, without the necessity of any notice to or further consent from such Secured Parties, from time to time, to take any actions with respect to any Collateral or Security Documents which may be necessary to perfect and maintain the Liens upon the Collateral granted pursuant to the Security Documents. The Administrative Agent is further authorized (but not obligated) on behalf of the Secured Parties, without the necessity of any notice to or further consent from the Secured Parties, from time to time, to take any action in exigent circumstances as may be reasonably necessary to preserve any rights or privileges of the Secured Parties under the Loan Documents or applicable Legal Requirements. Persons that are owed any Lender Hedging Obligations by accepting the benefit of the Liens granted pursuant to the Security Documents hereby agrees to the terms of this paragraph (a).

(b)The Lenders hereby, and Persons that are owed any Lender Hedging Obligations by accepting the benefit of the Liens granted pursuant to the Security Documents, irrevocably authorize the Administrative Agent to (i) release any Lien granted to or held by the Administrative Agent upon any Collateral (a) upon termination of this Agreement, termination of all Hedge Contracts with such Persons, termination of all Letters of Credit, and the payment in full of all outstanding Advances, Letter of Credit Obligations and all other Obligations payable under this Agreement and under any other Loan Document; (b) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted under this Agreement or any other Loan Document; (c) constituting property in which the Borrower or any Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; or (d) constituting property leased to the Borrower or any Subsidiary under a lease which has expired or has been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Borrower or such Subsidiary to be, renewed or extended; and (ii) release a Guarantor from its obligations under a Guaranty and any other applicable Loan Document if such Person ceases to be a Subsidiary as a result of a transaction permitted under this Agreement. Upon the request of the Administrative Agent at any

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time, the Secured Parties will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant to this Section 8.09.

ARTICLE IX

MISCELLANEOUS

Section 9.01Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes, or any other Loan Document, nor consent to any departure by the Borrower or any Subsidiary therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver, or consent shall:

(a)without the consent of each Lender: (i) waive any of the conditions specified in Article III; (ii) increase the Borrowing Base; (iii) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder; (iv) amend Section 2.11 or any other provision of this Agreement in a manner that would alter the pro rata sharing of payments or the pro rata allocation of disbursements required thereby; (v) release any Guarantor from its obligations under any Guaranty unless such Guarantor ceases to be a Subsidiary of the Borrower under a transaction permitted by the terms hereof; (vi) permit the Borrower or any Subsidiary to enter into any merger or consolidation with or into any other Person or amend Section 6.04(a); (vii) release any Collateral securing the Obligations, except as provided in Section 8.09 above; (viii) change Section 7.06 or any other provision of this Agreement in a manner that would alter the order of application of proceeds set forth in Section 7.06; or (ix) increase the aggregate Commitments;

(b)without the written consent of each Lender directly affected thereby, (i) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 7.02), (ii) reduce the principal of, or interest on, the Obligations or any fees or other amounts payable hereunder or under any other Loan Document, or (iii) postpone any date fixed for any payment of principal of, or interest on, the Obligations or any fees or other amounts payable hereunder or extend the Maturity Date or the Commitment Termination Date;

and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Lender in addition to the Lenders required above, affect the rights or duties of the Issuing Lender under this Agreement or any Letter of Credit Application relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (iii) the Administrative Agent’s Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.

Section 9.02 Notices, Etc.

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(a)General. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (c) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail, sent by facsimile or (subject to subsection (c) below) electronic mail address as follows:

(i)if to any Borrower or any other Loan Party, the Administrative Agent, or the Issuing Lender, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule I or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and

(ii)if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Administrative Agent.

(b)Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (c) below, shall be effective as provided in said paragraph (c). In no event shall a voicemail message be effective as a notice, communication or confirmation hereunder.

(c)Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Legal Requirements, have the same force and effect as manually-signed originals and shall be binding on all Loan Parties, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.

(d)Limited Use of Electronic Mail. Unless expressly provided otherwise herein, notices and other communications to the Lenders and the Issuing Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the Issuing Lender pursuant to Article II, except that, until the Administrative Agent gives notice to the Borrower to the contrary, Notices of Borrowing and Notices of Conversion or Continuation may be delivered to the Administrative Agent by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended

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recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(e)Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Notices of Borrowing) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ISSUING LENDER, EACH LENDER AND THEIR RELATED PARTIES FROM ALL LOSSES, COSTS, EXPENSES AND LIABILITIES RESULTING FROM THE RELIANCE BY SUCH PERSON ON EACH NOTICE PURPORTEDLY GIVEN BY OR ON BEHALF OF THE BORROWER. All telephonic notices to and other communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

Section 9.03No Waiver; Cumulative Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided in this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

Section 9.04Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the Issuing Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the Issuing Lender), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Advances made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Advances or Letters of Credit. The foregoing costs and expenses shall include all search, filing, recording, appraisal charges and fees and taxes

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related thereto, and other out-of-pocket expenses incurred by the Administrative Agent or any Lender and the cost of independent public accountants and other outside experts retained by the Administrative Agent or any Lender. All amounts due under this Section 9.04 shall be payable within thirty days after demand. The agreements in this Section shall survive the termination of the Commitments and repayment of all other Obligations.

Section 9.05Indemnification. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i)the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii)any Advance or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii)any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv)any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, 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 final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. All amounts due under this Section 9.05 shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the resignation of the Administrative Agent, the Resignation of the Issuing Lender, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Obligations.

Section 9.06Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay anyamount required under Section 9.04 or Section 9.05 to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Lender or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Lender or such Related Party, as the case may be, such Lender’s Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the Issuing

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Lender in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or Issuing Lender in connection with such capacity. The failure of any Lender to pay its Pro Rata Share of such unpaid amounts shall not relieve any other Lender of its obligation, if any, to pay its respective share of such unpaid amounts. No Lender shall be responsible for the failure of any other Lender to comply with this Section. All amounts due under this Section 9.06 shall be payable within ten Business Days after demand therefor. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE RESIGNATION OF THE ADMINISTRATIVE AGENT, THE RESIGNATION OF THE ISSUING LENDER, THE REPLACEMENT OF ANY LENDER, THE TERMINATION OF THE COMMITMENTS AND THE REPAYMENT, SATISFACTION OR DISCHARGE OF ALL THE OTHER OBLIGATIONS

Section 9.07Waiver of Damages. To the fullest extent permitted by applicable Legal Requirement, each Loan Party shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Advance or Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

Section 9.08 Successors and Assigns.

(a)Generally. The terms and provisions of this Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section and any other attempted assignment or transfer by any party hereto shall be null and void. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)Assignments by Lenders. Any Lender may assign to one or more Eligible Assignees all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, participations in Letter of Credit Obligations) at the time owing to it); provided, however, that

(i)except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Advances being assigned at the time owing to it or in

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the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitments and Advances of such Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall not be less than $5,000,000.00;

(ii)each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Advances or the Commitment assigned;

(iii)the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance; and

(iv)each Eligible Assignee (other than an Eligible Assignee that is a Lender or an Affiliate of a Lender) shall pay to the Administrative Agent a $3,500 processing and recording fee and shall, if it is not a Lender, deliver to the Administrative Agent an Administrative Questionnaire.

Upon such execution, delivery, acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Acceptance, (A) the Eligible Assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) such assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 9.04 and 9.05 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph 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 paragraph (d) of this Section.

(c)Register. The Administrative Agent shall maintain at its Applicable Lending Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each of the Loan Parties, the Administrative Agent, the Issuing Lender, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d)Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of any Borrower’s Affiliates or Subsidiaries) (each, a

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“Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Advances (including such Lender’s participations in Letter of Credit Obligations) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent 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, waiver or other modification described in the first proviso to Section 9.01 that directly affects such Participant. Subject to the last two sentences of this paragraph (d), Borrower agrees that each Participant shall be entitled to the benefits of, and be bound by the terms of, Sections 2.12, 2.13, 2.14, 9.04, 9.05 and 9.06 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 7.04as though it were a Lender, provided such Participant agrees to be subject to Section 2.11 as though it were a Lender. A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.14than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14 as though it were a Lender.

(e)Pledge to Federal Reserve Bank. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(f)Approved Funds. Notwithstanding anything to the contrary contained herein, any Lender that is a Approved Fund may create a security interest in all or any portion of the Advances owing to it and the Note, if any, held by it to the trustee for holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities, provided that unless and until such trustee actually becomes a Lender in compliance with the other provisions of this Section 9.08, (i) no such pledge shall release the pledging Lender from any of its obligations under the Loan Documents and (ii) such trustee shall not be entitled to exercise any of the rights of a Lender under the Loan Documents even though such trustee may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise.

(g)Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Acceptance shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be

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of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

Section 9.09Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its 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 purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Legal Requirements or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent or any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. For purposes of this Section, “Information” means all information received from any Loan Party relating to any Loan Party or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender or any of its Affiliates on a nonconfidential basis prior to disclosure by any Loan Party, provided that, in the case of information received from a Loan Party after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information in accordance with safe and sound banking practices.Section 9.10Counterparts; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in Section 3.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.11Survival of Representations, etc. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof

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and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Advance, and shall continue in full force and effect as long as any Advance or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.

Section 9.12Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 9.13Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the Maximum Rate. If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Advances or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Legal Requirement, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

Section 9.14Governing Law. This Agreement and each of the other Loan Documents shall be governed by and construed in accordance with the laws of the State of New York and the applicable laws of the United States of America.

Section 9.15Submission to Jurisdiction; Waiver of Venue; Service of Process.

(a)Submission to Jurisdiction. The Borrower, the Lenders, and the other parties hereto irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of New York sitting in New York City and of the United States District Court for the Southern District of the State of New York and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent,

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any Lender or the Issuing Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or any other Loan Party or its properties in the courts of any jurisdiction.

(b)Waiver of Venue. Each of the Borrower, the Lenders and the other parties hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c)Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 9.02 other than by electronic mail. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.

Section 9.16Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. EACH PARTY HEREBY AGREES AND CONSENTS THAT THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

Section 9.17USA Patriot Act. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.

Section 9.18Integration. This Agreement and the other Loan Documents represent the final agreement among the parties and may not be contradicted by evidence of prior,

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contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements among the parties.

[Remainder of this page intentionally left blank. Signature page follows.]

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EXECUTED as of the date first above written.

BORROWER: ABRAXAS ENERGY PARTNERS, L.P.

By: Abraxas General Partner, LLC,

its general partner

By:

Barbara M. Stuckey

President and Chief Operating Officer

ADMINISTRATIVE AGENT/

ISSUING LENDER/LENDER: SOCIÉTÉ GÉNÉRALE

By:

Stephen Warfel

Director

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EX-10

Exhibit 10.4

Execution Copy

OMNIBUS AGREEMENT

AMONG

ABRAXAS PETROLEUM CORPORATION,

ABRAXAS GENERAL PARTNER, LLC,

ABRAXAS OPERATING, LLC

AND

ABRAXAS ENERGY PARTNERS, L.P.

May 25, 2007

OMNIBUS AGREEMENT

THIS OMNIBUS AGREEMENT (“Agreement”) is entered into on, and effective as of, the Effective Time (as defined herein), and is by and among Abraxas Petroleum Corporation, a Nevada corporation (“APC”), Abraxas General Partner, LLC, a Delaware limited liability company (the “General Partner”), Abraxas Operating, LLC, a Delaware limited liability company (“Operating LLC”), and Abraxas Energy Partners, L.P., a Delaware limited partnership (the “Partnership”). The above-named entities are sometimes referred to in this Agreement each as a “Party” and collectively as the “Parties.”

RECITALS:

The Parties desire by their execution of this Agreement to evidence their understanding, as more fully set forth in this Agreement, with respect to certain indemnification obligations of the Parties.

In consideration of the premises and the covenants, conditions, and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions.

(a)Capitalized terms used herein but not defined shall have the meanings given them in the Partnership Agreement.

(b)As used in this Agreement, the following terms shall have the respective meanings set forth below:

“Agreement” has the meaning given to such term in the introduction to this Agreement, as it may be amended, modified or supplemented from time to time in accordance with the terms hereof.

“APC” has the meaning given to such term in the introduction to this Agreement and any successor to such entity.

“Assets” means all of the assets conveyed, contributed or otherwise transferred by APC to the Partnership Group (or any member thereof) prior to or on the Effective Time.

“Assignment” shall have the meaning set forth in the Contribution Agreement.

“Applicable Period” has the meaning given to such term in Section 3.3(a).

“Bankrupt” with respect to any Person means such Person shall generally be unable to pay its debts as such debts become due, or shall so admit in writing or shall make a general

assignment for the benefit of creditors; or any proceeding shall be instituted by or against such Person seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), shall remain undismissed or unstayed for a period of 30 days; or such Person shall take any action to authorize any of the actions set forth above.

“Closing Date” means the date of the consummation of the transactions contemplated by the Purchase Agreement.

“Common Unit” has the meaning given to such term in the Partnership Agreement.

“Commission” means the U.S. Securities and Exchange Commission.

“Conflicts Committee” has the meaning given to such term in the Partnership Agreement.

“Contribution Agreement” has the meaning given to such term in the Partnership Agreement.

“Covered Environmental Losses” means all Environmental Losses by reason of or arising out of any violation, event, circumstance, action, omission or condition, which occurred or existed on or before the Effective Time.

“Effective Time” has the meaning given such term in the Contribution Agreement.

“Environmental Activities” shall mean any investigation, study, assessment, evaluation, sampling, testing, monitoring, containment, removal, disposal, closure, corrective action, remediation (regardless of whether active or passive), natural attenuation, restoration, bioremediation, response, repair, corrective measure, cleanup or abatement that is required or necessary under any applicable Environmental Law, including, but not limited to, institutional or engineering controls or participation in a governmental voluntary cleanup program to conduct voluntary investigatory and remedial actions for the clean-up, removal or remediation of Hazardous Substances that exceed actionable levels established pursuant to Environmental Laws, or participation in a supplemental environmental project in partial or whole mitigation of a fine or penalty.

“Environmental Laws” means all applicable Laws and Environmental Permits relating to (a) pollution, health, safety or protection of the environment or natural resources (b) any Release or threatened Release of, or any exposure of any Person or property to, any Hazardous Substances and (c) the generation, manufacture, processing, distribution, use, treatment, storage, transport or handling of any Hazardous Substances including, without limitation, the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Superfund Amendments and Reauthorization Act, the Resource Conservation and Recovery Act,

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the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Oil Pollution Act of 1990, Occupational Safety and Health Act, the Hazardous Materials Transportation Act, the Marine Mammal Protection Act, the Endangered Species Act, the National Environmental Policy Act and other environmental conservation and protection laws, each as amended through the Effective Time,.

“Environmental Losses” means all losses, damages, liabilities, claims, demands, causes of action, judgments, settlements, fines, penalties, costs and expenses (including, without limitation, costs and expenses of any Environmental Activity, court costs and reasonable attorney’s and experts’ fees) of any and every kind or character, by reason of or arising out of:

(i)any violation or correction of violation of Environmental Laws occurring on or before the Effective Time associated with the ownership or operation of the Assets;

(ii)any Environmental Activities performed to address a Release of Hazardous Substances with respect to or arising out of ownership or operation of the Assets; or

(iii)any event, omission or condition associated with ownership or operation of the Assets (including, without limitation, the exposure to or presence of Hazardous Substances on, under, about or Released to or from the Assets or the exposure to or Release of Hazardous Substances arising out of operation of the Assets or at non-Asset locations) including, without limitation, (A) the cost and expense of any Environmental Activities, (B) the cost and expense of the preparation and implementation of any closure, remedial or corrective action or other plans required or necessary under Environmental Laws and (C) the cost and expense for any environmental or toxic tort pre-trial, trial or appellate legal or litigation support work; but only to the extent that such violation complained of under clause (i), or such events, circumstances, actions, omissions or conditions included in clauses (ii) and (iii) occurred or existed on or before the Effective Time.

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

“Expenses Limit” has the meaning given to such term in Section 3.3(a).

“Existing Operating Agreement” has the meaning given to such term in Section 3.8.

“General Partner”has the meaning given to such term in the introduction to this Agreement and any successor to such entity.

“Governmental Authority” means any nation and any political subdivision thereof, and any government, department, court, commission, board, bureau, ministry, agency, or other instrumentality of such a nation or political subdivision exercising or entitled to exercise administrative, executive, judicial, legislative, police, regulatory or taxing authority.

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“Hazardous Substance” means (a) any substance that is designated, defined or classified under any applicable Environmental Law as a hazardous waste, solid waste, hazardous material, pollutant, contaminant or toxic or hazardous substance, or terms of similar meaning, or that is otherwise regulated under any applicable Environmental Law, including, without limitation, any hazardous substance as defined under CERCLA, as amended, (b) oil as defined in the Oil Pollution Act of 1990, as amended through the Effective Time, including without limitation, oil, gasoline, natural gas, fuel oil, motor oil, waste oil, diesel fuel, jet fuel and other refined petroleum hydrocarbons and petroleum products and (c) radioactive materials, asbestos containing materials, polychlorinated biphenyls or radon.

“Hydrocarbons” has the meaning given to such term in Section 4.1.

“Indemnified Party” means either the Partnership Group or APC, as the case may be, in their capacity as the parties entitled to indemnification in accordance with Article II.

“Indemnifying Party” means either the Partnership Group or APC, as the case may be, in their capacity as the parties from whom indemnification may be required in accordance with Article II.

“Initial Public Offering” has the meaning given to such term in Section 3.3(a).

“Insurance Expenses” has the meaning given to such term in Section 3.2.

“Investments” means Abraxas Energy Investments, LLC and any successor to such entity.

“Laws” means all federal, state, and local laws, statutes, rules, regulations, orders, judgments, ordinances, codes, injunctions, decrees and other legally enforceable requirements and rules of common law, including without limitation, all rules and regulations of the RRC, the Internal Revenue Service and such other rules and regulations promulgated or enforced by any other Governmental Authority in effect as of the date hereof.

“Losses” means any actual losses, damages, liabilities, claims, demands, causes of action, judgments, settlements, fines, penalties, costs and expenses (including, without limitation, court costs and reasonable attorney’s and experts’ fees) of any and every kind or character.

“Master Operating Agreement” has the meaning given to such term in Section 3.8.

“Operating Expenses”has the meaning given to such term in Section 3.1(c).

“Operating LLC” has the meaning given to such term in the introduction to this Agreement and any successor to such entity.

“Partnership” has the meaning given to such term in the introduction to this Agreement and any successor to such entity.

“Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of the Closing Date, as such agreement is in effect on the

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Closing Date, to which reference is hereby made for all purposes of this Agreement. An amendment or modification to the Partnership Agreement subsequent to the Closing Date shall be given effect for the purposes of this Agreement only if it has received the approval of the Conflicts Committee that would be required, if any, pursuant to Section 5.5 hereof if such amendment or modification were an amendment or modification of this Agreement.

“Partnership Entities” means the General Partner and each member of the Partnership Group.

“Partnership Group” means the Partnership, Operating LLC and any other Subsidiary of the Partnership.

“Partnership Indemnitee” means any Person who is an Indemnitee (as defined in the Partnership Agreement); provided, that the term “Partnership Indemnitee” shall exclude APC, Investments and any other Affiliate of APC (as the term Affiliate is defined in the Partnership Agreement) which is not a member of the Partnership Group.

“Party” or “Parties” have the meaning given to such terms in the introduction to this Agreement.

“Person” means an individual, corporation, partnership, joint venture, trust, limited liability company, unincorporated organization or any other entity.

“Public Company Expenses” has the meaning given to such term in Section 3.1(a).

“Purchase Agreement” means the Purchase Agreement dated as of even date herewith by and among APC, Partnership, the General Partner and the purchasers listed therein.

“Release” means any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping or disposing into the environment.

“Services” has the meaning given to such term in Section 3.1(a).

“Subsidiary” has the meaning given to such term in the Partnership Agreement.

“Tax” means all taxes, including income tax, surtax, margin tax, remittance tax, presumptive tax, net worth tax, special contribution tax, production tax, pipeline transportation tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, ad valorem tax, real property tax, sales tax, service tax, transfer tax, use tax, excise tax, premium tax, customs duties, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, social security, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any other assessments, duties, fees, levies or other charges imposed by a Governmental Authority, together with any interest, fine or penalty thereon, or in addition thereto.

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Section 1.2 Construction.

Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (b) references to Articles, Sections and Exhibits refer to Articles and Sections and Exhibits of this Agreement; (c) the terms “include”, “includes”, “including” and words of like import shall be deemed to be followed by the words “without limitation”; and (d) the terms “hereof,” “herein” and “hereunder” refer to this Agreement as a whole and not to any particular provision of this Agreement. The headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement. All Exhibits referenced as exhibits to this Agreement are deemed incorporated into, and made a part of, this Agreement for all purposes.

ATRICLE II

INDEMNIFICATION

Section 2.1 Environmental Indemnification.

(a)Subject to the provisions of Section 2.3 and Section 2.4, APC shall indemnify, defend and hold harmless the Partnership Group and the Partnership Indemnitees from and against any Covered Environmental Losses suffered or incurred by the Partnership Group or any Partnership Indemnitee relating to the Assets for a period of three years from the Effective Time.

(b)The Partnership Group shall indemnify, defend and hold harmless APC, and its Subsidiaries and Affiliates, other than any Subsidiary constituting part of the Partnership Group, from and against any Environmental Losses suffered or incurred by APC, and its Subsidiaries and Affiliates, other than any Subsidiary constituting part of the Partnership Group, relating to the Assets and occurring after the Effective Time, except to the extent that the Partnership Group is indemnified with respect to any Covered Environmental Losses under Section 2.1(a).

Section 2.2Tax Liability Indemnity. Subject to the provisions of Section 2.3 and Section 2.4, APC shall indemnify, defend and hold harmless the Partnership Group and the Partnership Indemnitees from and against any Losses suffered or incurred by the Partnership Group or any Partnership Indemnitee by reason of or arising out of all Taxes and, if applicable, any right-of-way fees, attributable to the ownership or operation of the Assets on or before the Effective Time, including any such Taxes that may result from the consummation of the formation transactions for the Partnership Group occurring on or prior to the Effective Time, but excluding any Taxes reserved on the books of the Partnership Group as of the Effective Time if applicable; provided, however, that any Taxes (other than Taxes measured by gross proceeds, income, profits or capital gains), including, without limitation, ad valorem and property taxes assessed for the 2007 tax year and other similar Taxes, as well as right-of-way fees, if applicable, in each case, that are paid periodically shall be prorated based on the number of days in the applicable period falling before, and at or after, the Effective Time, except that production, severance and similar Taxes (which for purposes hereof shall not include ad valorem taxes) shall be prorated based on the amount of Hydrocarbons actually produced, purchased or sold, as applicable, before, and at or after, the Effective Time. In each case, the Partnership Group shall be responsible for the portion of the Taxes (and right of way fees, if applicable) allocated to the

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period after the Effective Time and APC shall be responsible for the portion of such Taxes and fees allocated to the period on or before the Effective Time.

Section 2.3 Limitations Regarding Indemnification.

(a)No claims may be made against APC for indemnification pursuant to Section 2.1(a) unless the aggregate dollar amount of the Losses suffered or incurred by the Partnership Group or Partnership Indemnitees exceed $500,000, and provided, that in such event, APC shall be liable for the full amount of such claims.

(b)Notwithstanding anything herein to the contrary, in no event shall APC have any indemnification obligations under this Agreement for claims made as a result of additions to, modifications or amendments of, any Laws, including Environmental Laws, promulgated, amended or modified after the Effective Time.

Section 2.4 Indemnification Procedures.

(a)The Indemnified Party agrees that within a reasonable period of time after it becomes aware of facts giving rise to a claim for indemnification pursuant to this Article II, it will provide notice thereof in writing to the Indemnifying Party specifying the nature of and specific basis for such claim; provided, however, that (i) the Indemnified Party shall not submit claims more frequently than once a calendar quarter (or twice in the case of the last calendar quarter prior to the expiration of the applicable indemnity coverage under this Agreement) and (ii) the omission to so notify the Indemnifying Party shall not relieve it from any liability which it may have to the Indemnified Party unless and to the extent the Indemnifying Party did not otherwise learn of such action and such failure results in the forfeiture by the Indemnifying Party of substantial rights and defenses.

(b)The Indemnifying Party shall have the right to control all aspects of the defense of (and any counterclaims with respect to) any claims brought against the Indemnified Party that are covered by the indemnification set forth in this Article II, including, without limitation, the selection of counsel, determination of whether to appeal any decision of any court and the settling of any such matter or any issues relating thereto; provided, however, that no such settlement shall be entered into without the consent (which consent shall not be unreasonably withheld, conditioned or delayed) of the Indemnified Party (with the concurrence of the Conflicts Committee in the case of the Partnership Group) unless it includes a full release of the Indemnified Party from such matter or issues, as the case may be.

(c)The Indemnified Party agrees to cooperate fully with the Indemnifying Party with respect to all aspects of the defense of any claims covered by the indemnification set forth in Article II, including, without limitation, the prompt furnishing to the Indemnifying Party of any correspondence or other notice relating thereto that the Indemnified Party may receive, permitting the names of the Indemnified Party to be utilized in connection with such defense, the making available to the Indemnifying Party of any files, records or other information of the Indemnified Party that the Indemnifying Party considers relevant to such defense and the making available to the Indemnifying Party of any employees of the Indemnified Party; provided, however, that in connection therewith the Indemnifying Party agrees to use reasonable efforts to

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minimize the impact thereof on the operations of the Indemnified Party and further agrees to maintain the confidentiality of all files, records and other information furnished by the Indemnified Party pursuant to this Section 2.4. In no event shall the obligation of the Indemnified Party to cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection with the defense of any claims covered by the indemnification set forth in this Article II; provided, however, that the Indemnified Party may, at its own option, cost and expense, hire and pay for counsel in connection with any such defense. The Indemnifying Party agrees to keep any such counsel hired by the Indemnified Party reasonably informed as to the status of any such defense, but the Indemnifying Party shall have the right to retain sole control over such defense.

(d)In determining the amount of any loss, cost, damage or expense for which the Indemnified Party is entitled to indemnification under this Agreement, the gross amount of the indemnification will be reduced by (i) any insurance proceeds realized by the Indemnified Party, and such correlative insurance benefit shall be net of any incremental insurance premium that becomes due and payable by the Indemnified Party as a result of such claim, (ii) the amount of tax benefits received by the Indemnified Party with respect to such loss, cost, damage or expense and (iii) all amounts recovered by the Indemnified Party under contractual indemnities from third Persons.

ARTICLE III

REIMBURSEMENT OBLIGATIONS

Section 3.1Reimbursement for Operating and General and Administrative Expenses.

(a)APC hereby agrees to continue to provide, or cause to be provided, to the Partnership Group those general and administrative services necessary or useful for the conduct of the business of the Partnership Group, including, but not limited to, legal, accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, taxes, and engineering services (collectively, “Services”), in substantially similar nature and quality to the services of such type previously provided by APC in connection with its management and operation of the Assets, in each case, during the one-year period prior to the Closing Date. For the avoidance of doubt, incremental public company expenses of the Partnership Group, such as in connection with preparation and filing of Commission reports, registration statements and other filings, external audit, internal audit, transfer agent and registrar, legal, printing, unitholder or member reports and other related costs and expenses (collectively, “Public Company Expenses”) shall not be deemed to be expenses and expenditures for the Services.

(b)Subject to the provisions of Section 3.3, the Partnership, on behalf of the Partnership Group, hereby agrees to reimburse APC on a monthly basis for all expenses and expenditures APC (or any Affiliate or designee that performs any Services) incurs or payments it makes on behalf of the Partnership Group for the Services.

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(c)The Partnership, on behalf of the Partnership Group, hereby agrees to reimburse APC on a monthly basis for all expenses and expenditures incurred by APC or made to third parties on behalf of the Partnership Group in connection with the business and operations of the Partnership Group (collectively, “Operating Expenses”), including, but not limited to, (i) salaries of operational personnel performing services on the Partnership Group’s behalf and the cost of employee benefits for such personnel, (ii) capital expenditures, (iii) maintenance and repair costs and (iv) Taxes.

Section 3.2Reimbursement for Insurance. The Partnership, on behalf of the Partnership Group, hereby agrees to reimburse APC for all expenses APC incurs or payments it makes on behalf of the Partnership Group for insurance coverage (“Insurance Expenses”) with respect to (i) the Assets, (ii) claims related to fiduciary obligations of officers, directors and control persons of the Partnership Group, (iii) claims asserted under federal and state securities Laws, and (iv) claims asserted under labor or employment Laws.

Section 3.3 Limitations on Reimbursement.

(a)During the period beginning on the Closing Date and ending on the earlier to occur of: (i) two (2) years from the date of an initial public offering of the Partnership’s securities (an “Initial Public Offering”) or (ii) three (3) years from the Closing Date (the “Applicable Period”), the amount for which APC will be entitled to reimbursement from the Partnership Group pursuant to Section 3.1(b) for Services will not exceed $1.5 million per year (the “Expenses Limit”). Notwithstanding the foregoing, beginning on the first anniversary of the Closing Date, the Expenses Limit shall be adjusted annually until the end of the Applicable Period by an amount equal to the percentage increase or decrease from the immediately preceding year in the “Consumer Price Index - All Urban Consumers, U.S. City Average, Not Seasonally Adjusted” as compiled by the Bureau of Labor Statistics of the United States Department of Labor. After the Applicable Period, the Board of Directors of the General Partner (prior to an Initial Public Offering) and the Conflicts Committee (after an Initial Public Offering) will determine the Expenses Limit and the amount of the Services that will be properly allocated to the Partnership Group in accordance with the terms of the Partnership Agreement. If the Partnership Group makes any acquisitions of assets or businesses or the business of the Partnership Group otherwise expands following the date of this Agreement, then the Expenses Limit will be appropriately increased in order to account for adjustments in the nature or the extent of the Services provided by APC to the Partnership Group, with any such increase in the Expenses Limit subject to the approval of the Board of Directors of the General Partner (prior to an Initial Public Offering) and the Conflicts Committee (after an Initial Public Offering).

(b)Notwithstanding anything herein to the contrary, the obligation of the Partnership, on behalf of the Partnership Group, to reimburse APC for any (i) Public Company Expenses, (ii) Operating Expenses (including operating costs incurred in the production of oil, gas and associated hydrocarbons forming part of the Assets, which are payable by the Partnership Group to APC pursuant to the Master Operating Agreement), or (iii) Insurance Expenses, will not be subject to the Expenses Limit or any other monetary limitation set forth in this Agreement.

Section 3.4 Performance of Services by Affiliates and Third Parties.

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The Parties hereby agree that in discharging its obligations under this Article III, APC may engage any of its current or future Affiliates or any qualified third party to perform such obligations on its behalf, and that the performance of such obligations by any such Affiliate or third party shall be treated as if performed by APC; provided, that notwithstanding the performance by any such third party of APC’s obligations hereunder, APC shall remain primarily responsible for the discharge of such obligations.

Section 3.5 Appointment of Independent Accounting Firm and Independent Petroleum Engineering Firm.

Notwithstanding anything to the contrary in this Agreement, the Parties hereby recognize and agree that the General Partner shall have the exclusive authority to appoint an independent accounting firm to audit the financial statements of the Partnership Group and an independent petroleum engineering firm to provide reports to the Partnership Group relating to estimates of oil and gas reserves for Commission and other reporting purposes.

Section 3.6 Books and Records; Audits; Reports.

APC shall cause accurate books and records regarding the performance of its obligations hereunder and its calculation of amounts reimbursable to APC hereunder, and shall maintain such books and records for the period required by applicable accounting practices or law. The Partnership shall have the right, upon reasonable notice, and at all reasonable times during usual business hours, to audit, examine and make copies of such books and records. Such right may be exercised through any agent or employee of the Partnership Group designated in writing by it or by an independent public accountant, engineer, attorney or other agent so designated. The Partnership shall bear all costs and expenses incurred in any inspection, examination or audit. APC shall review and respond in a timely manner to any claims or inquiries made by the Partnership regarding matters revealed by any such inspection, examination or audit. Without limitation to Section 3.3(b), APC shall cause to be prepared and delivered to the Partnership any reports as the Partnership may reasonably request from time to time regarding the performance of APC’s obligations hereunder.

Section 3.7Master Operating Agreement. APC and the Partnership Group agree that on the Closing Date, they shall enter into a Master Operating Agreement in the form attached hereto as Exhibit A (the “Master Operating Agreement”) , which will provide for the terms and conditions under which APC will operate the Assets that are not already subject to an existing operating agreement (an “ExistingOperating Agreement”). Any Assets that are subject to an Existing Operating Agreement will continue to be operated in accordance with the terms set forth in any such agreement. APC and the Partnership Group hereby agree that for so long as an Existing Operating Agreement may be in effect, with respect to Assets that are subject to Existing Operating Agreements in which APC is the operator, APC will not by virtue of this Agreement, charge additional administrative costs to the Partnership Group with respect to such Assets; provided, however, that with respect to Assets that are subject to Existing Operating Agreements in which APC is not the operator, the Partnership Group will be responsible the share of any operating costs and expenses attributable to the operation of such Assets in accordance with the terms set forth in any such Existing Operating Agreement.

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ARTICLE IV

MISCELLANEOUS

Section 4.1Choice of Law; Submission to Jurisdiction. This Agreement shall be subject to and governed by the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state. Each Party hereby submits to the jurisdiction of the state and federal courts in the State of Texas and to venue in Texas.

Section 4.2Notice. All notices, requests or consents provided for or permitted to be given pursuant to this Agreement must be in writing and must be given by depositing same in the United States mail, addressed to the Person to be notified, postpaid, and registered or certified with return receipt requested or by delivering such notice in person or by telecopier or telegram to such Party. Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telegram or telecopier shall be effective upon actual receipt if received during the recipient’s normal business hours, or at the beginning of the recipient’s next business day after receipt if not received during the recipient’s normal business hours. All notices to be sent to a Party pursuant to this Agreement shall be sent to or made at the address set forth below or at such other address as such Party may stipulate to the other Parties in the manner provided in this Section 5.2.

For notices to APC:

Abraxas Petroleum Corporation

500 N. Loop 1604 East, Suite 100

San Antonio, Texas 78232

Attention: President

For notices to the General Partner or the Partnership:

Abraxas Energy Partners, L.P.

500 N. Loop 1604 East, Suite 100

San Antonio, Texas 78232

Attention: General Partner

For notices to Operating LLC:

Abraxas Operating, LLC

500 N. Loop 1604 East, Suite 100

San Antonio, Texas 78232

Attention: President

Section 4.3Entire Agreement. This Agreement constitutes the entire agreement of the Parties relating to the matters contained herein, superseding all prior contracts or agreements, whether oral or written, relating to the matters contained herein.

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Section 4.4Effect of Waiver or Consent. No waiver or consent, express or implied, by any Party to or of any breach or default by any Person in the performance by such Person of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such Person of the same or any other obligations of such Person hereunder. Failure on the part of a Party to complain of any act of any Person or to declare any Person in default, irrespective of how long such failure continues, shall not constitute a waiver by such Party of its rights hereunder until the applicable statute of limitations period has run.

Section 4.5Amendment or Modification. This Agreement may be amended or modified from time to time only by the written agreement of all the Parties; provided, however, that the Partnership may not, without the prior approval of the Conflicts Committee, agree to any amendment or modification of this Agreement that, in the reasonable discretion of the General Partner, will adversely affect the holders of Common Units. Each such instrument shall be reduced to writing and shall be designated on its face an “Amendment” or an “Addendum” to this Agreement.

Section 4.6Assignment; Third Party Beneficiaries. Except as set forth in Section 3.4, no Party shall have the right to assign its rights or obligations under this Agreement without the consent of the other Parties. Each of the Parties hereto specifically intends that APC and each entity comprising the Partnership Entities, as applicable, whether or not a Party to this Agreement, shall be entitled to assert rights and remedies hereunder as third-party beneficiaries hereto with respect to those provisions of this Agreement affording a right, benefit or privilege to any such entity.

Section 4.7Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all signatory Parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.

Section 4.8Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

Section 4.9Gender, Parts, Articles and Sections. Whenever the context requires, the gender of all words used in this Agreement shall include the masculine, feminine and neuter, and the number of all words shall include the singular and plural. All references to Article numbers and Section numbers refer to Articles and Sections of this Agreement.

Section 4.10Further Assurances. In connection with this Agreement and all transactions contemplated by this Agreement, each Party agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of this Agreement and all such transactions.

Section 4.11Withholding or Granting of Consent. Each Party may, with respect to any consent or approval that it is entitled to grant pursuant to this Agreement, grant or withhold such

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consent or approval in its sole and uncontrolled discretion, with or without cause, and subject to such conditions as it shall deem appropriate.

Section 4.12Laws and Regulations. Notwithstanding any provision of this Agreement to the contrary, no Party shall be required to take any act, or fail to take any act, under this Agreement if the effect thereof would be to cause such Party to be in violation of any applicable law, statute, rule or regulation.

Section 4.13Negation of Rights of Limited Partners, Assignees and Third Parties. The provisions of this Agreement are enforceable solely by the Parties, and no limited partner, member, or assignee of APC, the Partnership, Operating LLC, the General Partner or any other Person shall have the right, separate and apart from APC, the Partnership, Operating LLC or the General Partner to enforce any provision of this Agreement or to compel any Party to comply with the terms of this Agreement.

Section 4.14No Recourse Against Officers or Directors. For the avoidance of doubt, the provisions of this Agreement shall not give rise to any right of recourse against any officer or director of APC or any Partnership Entity.

Section 4.15 Termination.

(a)Subject to Section 4.15(b), the Partnership may terminate Article III of this Agreement on behalf of the Partnership Group at any time by giving notice of such termination to APC. Any termination under this Section 4.15(a) shall become effective 90 days after delivery of such notice, or such later time (not to exceed the first anniversary of the delivery of such notice) as may be specified by the Partnership.

(b)If Article III of this Agreement is terminated in accordance with Section 4.15(a), all rights and obligations of the parties under Article III shall cease except for (i) any obligations that expressly survive termination of this Agreement, if applicable; and (ii) liabilities and obligations that have accrued prior to such termination, including without limitation, the obligation to pay any reimbursement amount for Services or other expenses pursuant to Article III that has accrued prior to such termination, even if such portion has not become due and payable at that time.

[Signature Page on Following Page]

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IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the Closing Date.

APC

ABRAXAS PETROLEUM CORPORATION

By: /s/ Chris E. Williford

Name: Chris E. Williford

Title: Executive Vice President, Chief Financial

Officer and Treasurer

GENERAL PARTNER

ABRAXAS GENERAL PARTNERS, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

OPERATING LLC

ABRAXAS OPERATING, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

PARTNERSHIP

ABRAXAS ENERGY PARTNERS, L.P.

By: Abraxas General Partner, LLC,

its General Partner

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

[Signature Page to Omnibus Agreement]

EX-99

ABRAXAS PETROLEUM CORPORATION

www.abraxaspetroleum.com

Exhibit 99.2

NEWS RELEASE

Abraxas Executes Commitment Letter for $50 million Credit Facility

SAN ANTONIO (May 29, 2007) - Abraxas Petroleum Corporation (AMEX:ABP) today announced that it has executed a Commitment Letter with Société Générale for a $50 million credit facility.

The initial borrowing base is expected to be $6.5 million. Abraxas expects to close the credit facility by June 22, 2007.

“We are pleased to announce that while we will have zero drawn on this facility at closing, it will provide us with financial flexibility going forward,” commented Bob Watson, President and CEO of Abraxas.

Abraxas Petroleum Corporation is a San Antonio-based crude oil and natural gas exploration and production company with operations in Texas and Wyoming.

FOR MORE INFORMATION CONTACT:

Barbara M. Stuckey/Director of Corporate Development

Direct Telephone 210.757.9835

Main Telephone 210.490.4788

bstuckey@abraxaspetroleum.com

www.abraxaspetroleum.com

500 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232

Office: 210.490.4788 Exec/Acctg Fax: 210.490.8816

EX-10

Exhibit 10.3

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

by and among

ABRAXAS ENERGY PARTNERS, L.P.

and

THE PURCHASERS NAMED HEREIN

TABLE OF CONTENTS

ARTICLE I DEFINITIONS 1

SECTION 1.01 DEFINITIONS 1

SECTION 1.02 REGISTRABLE SECURITIES 4

ARTICLE II Registration Rights 4

SECTION 2.01 SHELF REGISTRATION 4

SECTION 2.02 PIGGYBACK REGISTRATION 8

SECTION 2.03 UNDERWRITTEN OFFERING 9

SECTION 2.04 REGISTRATION PROCEDURES 10

SECTION 2.05 COOPERATION BY HOLDERS 13

SECTION 2.06 RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES14

SECTION 2.07 EXPENSES 15

SECTION 2.08 INDEMNIFICATION 16

SECTION 2.09 RULE 144 REPORTING 18

SECTION 2.10 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS 19

ARTICLE III MISCELLANEOUS 19

SECTION 3.01 COMMUNICATIONS 19

SECTION 3.02 SUCCESSORS AND ASSIGNS 19

SECTION 3.03 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS 19

SECTION 3.04 AGGREGATION OF REGISTBABLE SECURITIES 19

SECTION 3.05 RECAPITALIZATION, EXCHANGES, ETC. AFFECTING THE COMMON

UNITS 20

SECTION 3.06 CHANGE OF CONTROL 20

SECTION 3.07 SPECIFIC PERFORMANCE 20

SECTION 3.08 COUNTERPARTS 20

SECTION 3.09 HEADINGS 21

SECTION 3.10 GOVERNING LAW 21

SECTION 3.11 SEVERABILITY OF PROVISIONS 21

SECTION 3.12 ENTIRE AGREEMENT 21

SECTION 3.13 AMENDMENT 21

SECTION 3.14 NO PRESUMPTION 21

SECTION 3.15 INTERPRETATION 21

 

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REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of May 25, 2007, by and among ABRAXAS ENERGY PARTNERS, L.P., a Delaware limited partnership (the “Partnership”), and the Purchasers listed on the signature pages attached hereto (individually, a “Purchaser” or collectively “Purchasers”). Capitalized terms used herein without definition shall have the meanings given to them in the Purchase Agreement, as defined below.

RECITALS

WHEREAS, as of the date hereof, the Partnership and the Purchasers entered into a Purchase Agreement dated as of May 25, 2007 (the “Purchase Agreement”), pursuant to which the Partnership agreed to issue and sell to each Purchaser, and each Purchaser agreed to purchase from the Partnership, the Purchased Securities; and

WHEREAS, to induce the Purchasers to enter into the Purchase Agreement and to consummate the transactions contemplated therein, the Partnership has agreed to provide the registration and other rights set forth in this Agreement for the benefit of the Purchasers; and

WHEREAS, it is a condition to the consummation of the transaction contemplated by the Purchase Agreement that this Agreement be executed and delivered.

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. The terms set forth below are used herein as so defined:

“ABP” means Abraxas Petroleum Corporation, a Nevada corporation.

“Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning specified therefor in the introductory paragraph.

“Business Day” means any day other than a Saturday, Sunday, or a legal holiday for commercial banks in New York, New York.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means common stock, par value $.01 per share, of ABP.

“Common Units” has the meaning assigned to such term in the Partnership Agreement.

“Effectiveness Period” has the meaning specified in Section 2.01(a)(i).

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

“Exchange Agreement” means that certain Exchange and Registration Rights Agreement dated as of the date hereof by and among ABP and the purchasers named therein.

“Holder” means the record holder of any Registrable Securities.

“Included Registrable Securities” has the meaning specified in Section 2.02(a).

“IPO” means the initial public offering of Common Units by the Partnership under the Securities Act that results in the Common Units being listed for trading on the New York Stock Exchange, the Nasdaq Global Market or the American Stock Exchange or any affiliate of the New York Stock Exchange, the Nasdaq Global Market or the American Stock Exchange.

“IPO Liquidated Damages Amount” shall mean an amount equal to 0.25% of the product of $16.66 (subject to appropriate adjustments for any subdivision or combination of the Purchased Securities after the date hereof) times the number of Purchased Securities then held by such Purchaser per 30-day period, that shall accrue daily, for the first 60 days, with such amount increasing by an additional 0.25% of the product of $16.66 (subject to appropriate adjustments for any subdivision or combination of Purchased Securities after the date hereof) times the number of Purchased Securities then held by such Purchaser per 30-day period for each subsequent 60 days, up to a maximum per 30-day period of 1.00% of the product of $16.66 (subject to appropriate adjustments for any subdivision or combination of Purchased Securities after the date hereof) times the number of Purchased Securities then held by such Purchaser. The IPO Liquidated Damages Amount for any period of less than 30-days shall be prorated by multiplying the IPO Liquidated Damages Amount to be paid in a full 30-day period by a fraction, the numerator of which is the number of days for which the IPO Liquidated Damages Amount is owed, and the denominator of which is 30.

“IPO Registration Statement” has the meaning specified in Section 2.01(a).

“Liquidated Damages” has the meaning specified in Section 2.01(e)(i).

“Losses” has the meaning specified in Section 2.08(a).

“Managing Underwriter” means the book running lead manager or managers of any Underwritten Offering including the IPO.

“Partnership” has the meaning specified therefor in the introductory paragraph.

 

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“Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of Abraxas Energy Partners, L.P. dated May 25, 2007.

“Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

“Piggyback Registration Statement or Prospectus” has the meaning specified in Section 2.02(b).

“Purchase Agreement” has the meaning specified in the recitals.

“Purchased Securities” means the Common Units issued and sold by the Partnership pursuant to the Purchase Agreement.

“Purchased Underwriter Registration Statement” has the meaning specified in Section 2.05(m).

“Purchasers” has the meaning specified in the introductory paragraph hereto.

“Registrable Securities” means the Common Units (i) comprising the Purchased Securities and any units or other equity securities issued in exchange therefor in connection with any merger, consolidation, recapitalization or other business combination involving the Partnership, (ii) issued as Liquidated Damages pursuant to Section 2.01(e)(i), or (iii) issued in respect of such Purchased Securities by reason of or in connection with any dividend, distribution, split or purchase in any rights offering, until such time as such securities cease to be Registrable Securities pursuant to Section 1.02.

“Registration Expenses” has the meaning specified therefor in Section 2.07(a).

“Required Effective Date” has the meaning specified in Section 2.01(a)(i).

“S-3 Shelf Registration Statement” has the meaning specified in Section 2.01(b).

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

“Selling Expenses” has the meaning specified in Section 2.07(a)(ii).

“Selling Holder” means a Holder who is selling Registrable Securities pursuant to a registration statement.

“Selling Holder Indemnified Persons” has the meaning specified in Section 2.08(a).

“Shelf Liquidated Damages” shall mean an amount equal to 0.25% of the product of $16.66 (subject to appropriate adjustments for any subdivision or combination of Registrable Securities after the date hereof) times the number of Registrable Securities then held by such Holder (and not then included on an effective Piggyback Registration Statement or Prospectus)

 

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per 30-day period, that shall accrue daily, for the first 60 days, with such amount increasing by an additional 0.25% of the product of $16.66 (subject to appropriate adjustments for any subdivision or combination of Registrable Securities after the date hereof) times the number of Registrable Securities then held by such Holder (and not then included on an effective Piggyback Registration Statement or Prospectus) per 30-day period for each subsequent 60 days, up to a maximum per 30-day period of 1.00% of the product of $16.66 (subject to appropriate adjustments for any subdivision or combination of Registrable Securities after the date hereof) times the number of Registrable Securities then held by such Holder. Shelf Liquidated Damages for any period of less than 30-days shall be prorated by multiplying the Shelf Liquidated Damages to be paid in a full 30-day period by a fraction, the numerator of which is the number of days for which Shelf Liquidated Damages are owed, and the denominator of which is 30.

“Shelf Registration Filing Date” has the meaning specified in Section 2.01(a)(i).

“Shelf Registration Statement” has the meaning specified in Section 2.01(a)(i).

“Underwritten Offering” means an offering (including an offering pursuant to a Shelf Registration Statement) in which Common Units are sold to an underwriter on a firm commitment basis for reoffering to the public or an offering that is a “bought deal” with one or more investment banks.

Section 1.02Registrable Securities. Any Registrable Security will cease to be a Registrable Security when (a) a registration statement covering such Registrable Security has been declared effective by the Commission and such Registrable Security has been sold or disposed of pursuant to such effective registration statement; (b) such Registrable Security has been disposed of pursuant to any section of Rule 144 (or any similar provision then in force under the Securities Act) or is eligible for sale without registration, pursuant to Rule 144(k) promulgated by the Commission pursuant to the Securities Act (or any similar provision then in force under the Securities Act), in the opinion of counsel to the Partnership; (c) such Registrable Security is held by the Partnership or one of its subsidiaries; (d) such Registrable Security has been converted into shares of Common Stock pursuant to the Exchange Agreement; (e) the Partnership is liquidated and dissolved of the Partnership; or (f) such Registrable Security has been sold in a private transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of such securities.

ARTICLE II

REGISTRATION RIGHTS

Section 2.01 Shelf Registration.

(a) Shelf Registration and IPO Registration.

(i)As soon as practicable following the Closing Date, the Partnership shall use its commercially reasonable efforts to prepare and file with the Commission (i) a registration statement under the Securities Act for an IPO (the “IPO Registration Statement”) and (ii) a registration statement under the Securities Act to permit the public resale by the Holders of the Registrable Securities from time to time as permitted by Rule 415 (or any similar provision then in force) of the Securities Act (the “Shelf Registration

 

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Statement”). The Partnership shall use its commercially reasonable efforts to cause the IPO Registration Statement and the Shelf Registration Statement to become effective on or before February 14, 2008 (the “Required Effective Date”). The IPO Registration Statement and the Shelf Registration Statement filed pursuant to this Section 2.01(a)(i) shall be on such appropriate registration form of the Commission as shall be selected by the Partnership.

(ii)The Partnership shall cause the Shelf Registration Statement filed pursuant to Section 2.01(a)(i) to be continuously effective, supplemented and amended to the extent necessary to ensure that it is available for the resale of all Registrable Securities by the Holders and that it conforms in all material respects with the requirements of the Securities Act during the entire period beginning on the date the Shelf Registration Statement first is declared effective under the Securities Act and ending on the earlier to occur of (i) the date all Registrable Securities covered by such Shelf Registration Statement have been distributed in the manner set forth and as contemplated in the Shelf Registration Statement and (ii) the date on which all Registrable Securities covered by the Shelf Registration Statement have ceased to be Registrable Securities hereunder in accordance with Section 1.02 (the “Effectiveness Period”). The Shelf Registration Statement when declared effective will comply as to form in all material respects with all applicable requirements of the Securities Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As soon as practicable following the date that the Shelf Registration Statement becomes effective, but in any event within three Business Days of such date, the Partnership shall provide the Purchasers with written notice of the effectiveness of the Shelf Registration Statement.

(iii)If the Shelf Registration Statement is not declared effective by the Commission by the Required Effective Date, then following the Required Effective Date, until such time as the Shelf Registration Statement is declared effective or there are no longer any Registrable Securities outstanding, the Partnership shall pay each Holder with respect to any such failure, Shelf Liquidated Damages as liquidated damages and not as a penalty. The Holders’ rights to be paid Shelf Liquidated Damages under this Section 2.01 shall terminate when such Registrable Securities cease to be Registrable Securities. If the Partnership is unable to proceed with the Shelf Registration Statement due to (i) trading in securities generally on the exchange in which the Partnership has applied to list its securities having been suspended or materially disrupted, (ii) a banking moratorium having been declared by federal or state authorities, or (iii) there having been a declaration of a national emergency by the President of the United States or a declaration of war by the United States Congress, then the Partnership’s obligation to pay the Shelf Liquidated Damages pursuant to this section shall temporarily cease until the Partnership, in its good faith judgment, is no longer unable to proceed with the Shelf Registration Statement.

(iv)If the IPO Registration Statement is not declared effective by the Commission by the Required Effective Date, then the Partnership shall pay each Holder, as liquidated damages and not as a penalty, the IPO Liquidated Damages Amount. The payment of the IPO Liquidated Damages Amount to a Holder pursuant to this provision

 

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shall cease at the earlier of (i) the consummation of an IPO; (ii) the dissolution and liquidation of the Partnership; and (iii) the later of November 14, 2008 and the date on which the shareholders of ABP approve an exchange of the Purchased Securities then held by the Holders into shares of Common Stock pursuant to the Exchange Agreement. If the Partnership is unable to proceed with the IPO due to (i) trading in securities generally on the exchange in which the Partnership has applied to list its securities having been suspended or materially disrupted, (ii) a banking moratorium having been declared by federal or state authorities, or (iii) there having been a declaration of a national emergency by the President of the United States or a declaration of war by the United States Congress, then the Partnership’s obligation to pay the IPO Liquidated Damages Amount pursuant to this section shall temporarily cease until the Partnership, in its good faith judgment, is no longer unable to proceed with the IPO.

(b)S-3 Registration Statement. If the Partnership becomes eligible to use Form S-3 or such other short-form registration statement form under the Securities Act, the Partnership shall promptly give notice of such eligibility to the Holders covered thereby and may (unless the Holders reasonably object) or shall, at the request of the Holders, promptly convert the Shelf Registration Statement on Form S-1 to a registration statement on Form S-3 or such other short-form registration statement by means of a post-effective amendment or otherwise (the “S-3 Shelf Registration Statement”) for the resale of any then existing Registrable Securities unless any Holder with Registrable Securities registered under the Shelf Registration Statement notifies the Partnership within 10 Business Days of receipt of the Partnership notice that such conversion would interfere with its distribution of Registrable Securities already in progress and provides a reasonable explanation therefor, in which case the Partnership will delay the conversion of the Shelf Registration Statement for a reasonable time after receipt of the first such notice, not to exceed 30 days in the aggregate, for all Holders requesting such suspension (unless the Partnership, at such time as the conversion from Form S-1 to Form S-3 or such other short-form registration statement may occur, would otherwise be required to amend the Shelf Registration Statement and require that Holders suspend sales). Upon the effectiveness of the S-3 Shelf Registration Statement, all references to the Shelf Registration Statement in this Agreement shall then automatically be deemed to be a reference to the S-3 Shelf Registration Statement.

(c)Delay Rights. Notwithstanding anything to the contrary contained in this Agreement, the Partnership may, upon written notice to any Selling Holder whose Registrable Securities are included in the Shelf Registration Statement, from time to time suspend such Selling Holder’s use of any prospectus which is a part of the Shelf Registration Statement (in which event the Selling Holder covenants and agrees that it shall immediately discontinue sales of the Registrable Securities pursuant to the Shelf Registration Statement), for a period or periods not to exceed an aggregate of either 60 days in a 90-day period or 90 days in any 365-day period,if (i) the Partnership is pursuing a material acquisition, merger, reorganization, disposition or other similar transaction and the Partnership determines in good faith that the Partnership’s ability to pursue or consummate such a transaction would be materially adversely affected by any required disclosure of such transaction in the Shelf Registration Statement, (ii) the Partnership has experienced some other material non-public event or is in possession of material non-public information concerning the Partnership, the disclosure of which at such time, in the good faith judgment of the Partnership, would materially adversely affect the Partnership, or (iii) at any time prior to the time when the Partnership is eligible to utilize the S-3 Shelf

 

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Registration Statement, the Partnership has prepared and filed with the Commission a post-effective amendment for the purpose of updating financial information or other information therein and such post-effective amendment has not been declared effective by the Commission. Upon disclosure of such information or the termination of the condition or expiration of the period described above, as applicable, the Partnership shall provide prompt notice within two Business Days to each Selling Holder whose Registrable Securities are included in the Shelf Registration Statement and shall promptly terminate any suspension of sales it has put into effect and shall take such other actions to permit registered sales of Registrable Securities as contemplated in this Agreement.

(d)Delay in Effectiveness of Shelf Registration Statement; Certain Suspensions. If (i) the Holders shall be prohibited from selling their Registrable Securities included under the Shelf Registration Statement as a result of a suspension pursuant to Section 2.01(c) in excess of the periods permitted therein or (ii) the Shelf Registration Statement is filed and declared effective but, during the Effectiveness Period, shall thereafter cease to be effective or fail to be usable for its intended purpose (other than in connection with a suspension pursuant to Section 2.01(c)) without being succeeded by a post-effective amendment to the Shelf Registration Statement, a supplement to the prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, then until the suspension is lifted or a post-effective amendment, supplement or report is filed with the Commission, but not including any day on which a suspension is lifted or such amendment, supplement or report is filed, if applicable, the Partnership shall pay the Holders Shelf Liquidated Damages with respect to the Registrable Securities registered thereon, following (x) the date on which the suspension period exceeded the permitted period under Section 2.01(c), if applicable, or (y) the eleventh Business Day after the Shelf Registration Statement ceased to be effective or failed to be useable for its intended purposes, if applicable, as liquidated damages and not as a penalty. For purposes of this Section 2.01(d), a suspension shall be deemed lifted on the date that notice that the suspension has been lifted is delivered to the Purchasers pursuant to Section 3.01 of this Agreement.

(e) Liquidated Damages.

(i)General. The Shelf Liquidated Damages or IPO Liquidated Damages Amount (collectively, “Liquidated Damages”) payable to each Holder pursuant to this Agreement shall be payable within ten Business Days of the end of each such 30-day period. Any Liquidated Damages shall be paid to each Holder in cash or immediately available funds; provided, however, that if the Partnership certifies that it is unable to pay Liquidated Damages in cash or immediately available funds because such payment would result in a breach under any of the Partnership’s or its subsidiaries’ credit facilities, then the Partnership may pay the Liquidated Damages in kind in the form of the issuance of additional Common Units. Upon any issuance of Common Units as Liquidated Damages, the Partnership shall promptly prepare and file an amendment to the Shelf Registration Statement prior to its effectiveness adding such Common Units to such registration statement as additional Registrable Securities. The determination of the number of Common Units to be issued as Liquidated Damages shall be equal to the amount of Liquidated Damages divided by the lesser of (i) market value of each Common Unit at the time the Liquidated Damages are paid or (ii) $16.66 (subject to appropriate adjustments for any subdivision or combination of Registrable Securities after the date

 

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hereof). Any payments made pursuant to Section 2.01 shall constitute the Holders’ exclusive remedy for such events. Liquidated Damages shall be paid to the Holders in immediately available funds.

(ii)Limitation. Notwithstanding anything in this Agreement to the contrary, the Holders shall not be entitled to receive Shelf Liquidated Damages if the Partnership is already paying the Holders the IPO Liquidated Damages Amount.

Section 2.02 Piggyback Registration.

(a)IPO Participation. Prior to the filing of an IPO Registration Statement, the Partnership shall offer the Holders then holding more than $10 million of Registrable Securities (calculated based on the Per Unit Purchase Price of such Common Units), the opportunity to include in such IPO such number of Registrable Securities as each such Holder may request in writing. Subject to Section 2.02(c), the Partnership shall include in such IPO Registration Statement all such Registrable Securities (“Included Registrable Securities”) with respect to which the Partnership has received requests within ten Business Days after the Partnership’s notice has been delivered in accordance with Section 3.01. If no request for inclusion from a Holder is received within the specified time, such Holder shall have no further right to participate in the IPO. If, at any time after giving written notice of its intention to undertake an IPO and prior to the closing of such IPO, the Partnership shall determine for any reason not to undertake or to delay such IPO, the Partnership may, at its election, give written notice of such determination to the Selling Holders and, (i) in the case of a determination not to undertake such IPO, shall be relieved of its obligation to sell any Included Registrable Securities in connection with such terminated IPO, and (ii) in the case of a determination to delay such IPO, shall be permitted to delay offering any Included Registrable Securities for the same period as the delay in the IPO. If any Holder disapproves of the terms of such IPO, such Holder may elect to withdraw therefrom by written notice to the Partnership and the Managing Underwriter delivered (i) prior to the commencement of any marketing efforts for the Underwritten Offering or (ii) at any time up to and including the time of pricing of the Underwritten Offering if the price to the public at which the Registrable Securities are proposed to be sold is not within the price range stated on the front cover of the preliminary prospectus for the IPO. The Partnership will provide notice to the Holders on the second trading day prior to the date of commencement of marketing efforts and the applicable price or price range determined under the immediately preceding sentence. If any Holder disapproves of the terms of an Underwritten Offering, such Holder may elect to withdraw therefrom by written notice to the Partnership of such withdrawal up to and including the time of pricing of such offering. No such withdrawal shall affect the Partnership’s obligation to pay all Registration Expenses.

(b)Underwritten Offering Participation. If at any time after the closing of an IPO, the Partnership proposes to file (i) a shelf registration statement or (ii) a registration statement other than a shelf registration statement, in either case, for the sale of Common Units in an Underwritten Offering for its own account and/or the account of another Person, then as soon as practicable but not less than ten Business Days prior to the filing of (x) any preliminary prospectus supplement to a prospectus that includes the Registrable Securities, relating to such Underwritten Offering pursuant to Rule 424(b), (y) the prospectus supplement to a prospectus that includes the Registrable Securities, relating to such Underwritten Offering pursuant to Rule

 

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424(b) (if no preliminary prospectus supplement is used) or (z) such registration statement, as the case may be (any of the foregoing registration statements, a “Piggyback Registration Statement or Prospectus”), the Partnership shall give notice of such proposed Underwritten Offering to the Holders then holding more than $10 million of Registrable Securities (calculated based on the Per Unit Purchase Price of such Common Units) and such notice shall offer the Holders the opportunity to include in such Underwritten Offering such number of Registrable Securities as each such Holder may request in writing. Subject to Section 2.02(c), the Partnership shall include in such Underwritten Offering all such Registrable Securities with respect to which the Partnership has received requests within five Business Days after the Partnership’s notice has been delivered in accordance with Section 3.01. If no request for inclusion from a Holder is received within the specified time, such Holder shall have no further right to participate in such Underwritten Offering. If, at any time after giving written notice of its intention to undertake an Underwritten Offering and prior to the closing of such Underwritten Offering, the Partnership shall determine for any reason not to undertake or to delay such Underwritten Offering, the Partnership may, at its election, give written notice of such determination to the Selling Holders and, (i) in the case of a determination not to undertake such Underwritten Offering, shall be relieved of its obligation to sell any Registrable Securities included in such offering in connection with such terminated Underwritten Offering, and (ii) in the case of a determination to delay such Underwritten Offering, shall be permitted to delay offering any such Registrable Securities for the same period as the delay in the Underwritten Offering. If any Holder disapproves of the terms of an Underwritten Offering, such Holder may elect to withdraw therefrom by written notice to the Partnership of such withdrawal up to and including the time of pricing of such offering. No such withdrawal shall affect the Partnership’s obligation to pay all Registration Expenses.

(c)Priority of Registration. If the Managing Underwriter or Underwriters of any proposed Underwritten Offering of Common Units determines that the total amount of Common Units which the Selling Holders and any other Persons intend to include in such offering pursuant to Section 2.02(a) and (b) exceeds the number which can be sold in such offering without being likely to have an adverse effect in any material respect on the price, timing or distribution of the Common Units offered or the market for the Common Units, then the Common Units to be included in such Underwritten Offering shall include the number of Registrable Securities that such Managing Underwriter or Underwriters advises the Partnership can be sold without having such adverse effect, with such number to be first allocated to the Partnership and second, if there remains availability for additional Common Units to be included in such Underwritten Offering, prorata among the Selling Holders and third, if there remains availability for additional Common Units to be included in such Underwritten Offering, pro rata among other holders of securities of the Partnership who have requested participation in the Underwritten Offering.

Section 2.03 Underwritten Offering.

(a)Underwritten Offering. Any one or more Holders may deliver written notice to the Partnership that such Holders wish to dispose of Registrable Securities under the Shelf Registration Statement in an Underwritten Offering if the Holders reasonably anticipate selling collectively at least $20 million of Common Units (calculated based on the Per Unit Purchase Price of such Common Units). Upon receipt of such written request, the Partnership shall use

 

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commercially reasonable efforts to retain underwriters and effect such sale through an Underwritten Offering and take all commercially reasonable actions as are reasonably requested by the Managing Underwriter or underwriters to expedite or facilitate the disposition of such Registrable Securities, including the entering into an underwriting agreement, and participation by the Partnership’s management in a “road show” or similar marketing effort; provided, however, that the Partnership shall not be required to cause its management to participate in a “road show” or similar marketing effort on behalf of any Holder if (i) the Managing Underwriter or underwriters of any such proposed Underwritten Offering advise the Partnership that the gross proceeds of the Underwritten Offering are not expected to exceed $30 million; and (ii) a “bought deal” or “overnight transaction” is contemplated. The Partnership may elect to include primary Common Units in any Underwritten Offering undertaken pursuant to this Section 2.03(a). In addition, any Underwritten Offering undertaken pursuant to this Section 2.03 will be subject to the provisions of Section 2.02(c).

(b)General Procedures. In connection with an Underwritten Offering, each Selling Holder and the Partnership shall be obligated to enter into an underwriting agreement which contains such representations, covenants, indemnities and other rights and obligations as are customary in underwriting agreements for firm commitment offerings of securities. No Selling Holder may participate in such Underwritten Offering unless such Selling Holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities, securities escrow agreements and other documents reasonably required under the terms of such underwriting agreement, and furnish to the Partnership such information as the Partnership may reasonably request in writing for inclusion in the IPO Registration Statement, Piggyback Registration Statement or Prospectus or Shelf Registration Statement, as the case may be. Each Selling Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Partnership to and for the benefit of such underwriters also be made to and for such Selling Holder’s benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to its obligations. No Selling Holder shall be required to make any representations or warranties to or agreements with the Partnership or the underwriters other than representations, warranties or agreements regarding such Selling Holder and its ownership of the securities being registered on its behalf and its intended method of distribution and any other representation required by law. If any Selling Holder disapproves of the terms of the Offering contemplated by this Section 2.03, such Selling Holder may elect to withdraw therefrom by notice to the Partnership and the Managing Underwriter and such withdrawal may be made up to and including the time of pricing of the Underwritten Offering. No such withdrawal or abandonment shall affect the Partnership’s obligation to pay Registration Expenses.

(c)Appointment of Underwriters. In connection with an Underwritten Offering, the Partnership shall have the sole right to appoint the Managing Underwriters.

Section 2.04Registration Procedures.In connection with its obligations contained in Section 2.01 and 2.02 hereof, the Partnership will, as promptly as reasonably practicable:

(a)subject to Section 2.01(c), prepare and file with the Commission the Shelf Registration Statement, and any amendments and supplements thereto and the prospectus used in

 

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connection therewith or reports filed with the Commission pursuant to Section 13(a), 13(c), 14 of 15(d) of the Exchange Act as may be necessary to keep the Shelf Registration Statement effective for the Effectiveness Period and as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities included in the Shelf Registration Statement;

(b)furnish to each Selling Holder (i) as far in advance as reasonably practicable before filing the Shelf Registration Statement or any other registration statement contemplated by this Agreement and the Prospectus included therein or any supplement or amendment thereto, upon request, copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits and each document incorporated by reference therein to the extent then required by the rules and regulations of the Commission), and provide each such Selling Holder the opportunity to object to any information pertaining to such Selling Holder and its plan of distribution that is contained therein and make the corrections reasonably requested by such Selling Holder with respect to such information prior to filing the Shelf Registration Statement or such other registration statement and the prospectus included therein or any supplement or amendment thereto, and (ii) such number of copies of the Shelf Registration Statement or such other registration statement and the prospectus included therein and any supplements and amendments thereto as each Selling Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Shelf Registration Statement or other registration statement;

(c)if applicable, use its commercially reasonable efforts to register or qualify the Registrable Securities covered by the Shelf Registration Statement or any other registration statement contemplated by this Agreement under the securities or blue sky laws of such jurisdictions as any Selling Holder or, in the case of an Underwritten Offering, the Managing Underwriter, shall reasonably request, provided that the Partnership will not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject;

(d)promptly notify each Selling Holder and each underwriter of Registrable Securities, at any time when a prospectus relating thereto is required to be delivered by any of them under the Securities Act, of (i) the filing of the Shelf Registration Statement or any other registration statement contemplated by this Agreement or any prospectus or prospectus supplement to be used in connection therewith, or any amendment or supplement thereto, and, with respect to such Shelf Registration Statement or any other registration statement or any post-effective amendment thereto, when the same has become effective; and (ii) any written comments from the Commission with respect to any filing referred to in clause (i) and any written request by the Commission for amendments or supplements to the Shelf Registration Statement or any other registration statement or any prospectus or prospectus supplement thereto;

(e)immediately notify each Selling Holder and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of (i) the happening of any event (other than any event specified in Section 2.01(c))as a result of which the prospectus or prospectus supplement contained in the Shelf Registration Statement or any other

 

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registration statement contemplated by this Agreement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, provided, however, that the Partnership shall not be required to specify in the written notice to the Selling Holders the nature of such event; (ii) the issuance or threat of issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or any other registration statement contemplated by this Agreement, or the initiation of any proceedings for that purpose; (iii) the receipt by the Partnership of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; or (iv) the Commission requests that the Shelf Registration Statement or any other registration statement contemplated by this Agreement be amended or supplemented; following the provision of such notice, the Partnership agrees to as promptly as practicable amend or supplement the prospectus or prospectus supplement or take other appropriate action so that the prospectus or prospectus supplement does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and to take such other action as is necessary to remove such stop order, suspension, threat thereof or proceedings related thereto;

(f)in the case of an Underwritten Offering under Section 2.02 and 2.03 hereof, use its commercially reasonable efforts to furnish upon request, (i) an opinion of counsel for the Partnership, dated the effective date of the applicable registration statement or the date of any amendment or supplement thereto, and an opinion in customary form dated the date of the closing of the Underwritten Offering, and (ii) a “cold comfort” letter or letters, dated the date of execution of the underwriting agreement and a letter or letters of like kind dated the date of the closing of the Underwritten Offering, in each case, signed by the independent public accountants who have certified the financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the “cold comfort” letter or letters shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus and any prospectus supplement included therein) and as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to the underwriters in Underwritten Offerings of securities, and such other matters as such underwriters may reasonably request;

(g)upon request, furnish to each Selling Holder copies of any and all transmittal letters or other written correspondence with the Commission or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of Registrable Securities;

(h)otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act in accordance with Rule 158 thereunder (or any similar rule promulgated under the Securities Act) or otherwise;

(i)make available to the appropriate representatives of the Managing Underwriter and each Selling Holder access to such information and personnel as is reasonable and customary

 

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to enable such parties to establish a due diligence defense under the Securities Act; provided that the Partnership need not disclose any information to any such representative unless and until such representative has entered into a confidentiality agreement with the Partnership reasonably satisfactory to the Partnership (including any confidentiality agreement referenced in Section 7.6 of the Purchase Agreement);

(j)cause all such Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by the Partnership are then listed;

(k)provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement;

(l)enter into customary agreements and take such other actions as are reasonably requested by any Selling Holder or the underwriters, if any, in order to expedite or facilitate the disposition of such Registrable Securities; and

(m)cooperate with such Purchaser in allowing such Purchaser to conduct customary “underwriter’s due diligence” with respect to the Partnership and satisfy its obligations in respect thereof if any Purchaser could reasonably be deemed to be an “underwriter,” as defined in Section 2(a)(11) of the Securities Act, in connection with the registration statement in respect of any registration of the Partnership’s securities of any Purchaser pursuant to this Agreement, and any amendment or supplement thereof (any such registration statement or amendment or supplement a “Purchaser Underwriter Registration Statement”). In addition, at any Purchaser’s request, the Partnership will furnish to such Purchaser, on the date of the effectiveness of any Purchaser Underwriter Registration Statement and thereafter from time to time on such dates as such Purchaser may reasonably request, (i) a letter, dated such date, from the Partnership’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to such Purchaser, and (ii) an opinion, dated as of such date, of counsel representing the Partnership for purposes of such Purchaser Underwriter Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, including a standard “10b-5” assurance for such offering, addressed to such Purchaser. The Partnership will also permit legal counsel to such Purchaser to review and comment upon any such Purchaser Underwriter Registration Statement at least five Business Days prior to its filing with the Commission and all amendments and supplements to any such Purchaser Underwriter Registration Statement within a reasonable number of days prior to their filing with the Commission and not file any Purchaser Underwriter Registration Statement or amendment or supplement thereto in a form to which such Purchaser’s legal counsel reasonably objects. If any Purchaser desires to be named as a statutory underwriter in the Shelf Registration Statement, it shall, within three business days of being informed by the Partnership of the filing thereof, notify the Partnership of such desire and the Partnership shall comply with that request.

Section 2.05 Cooperation by Holders.

(a)Each Selling Holder, upon receipt of notice from the Partnership of the happening of any event of the kind described in Section 2.01(c) or subsection (e) of Section 2.04, shall

 

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forthwith discontinue disposition of the Registrable Securities until such Selling Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.01(c) or subsection (e) of Section 2.04 or until it is advised in writing by the Partnership that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings incorporated by reference in the prospectus, and, if so directed by the Partnership, such Selling Holder will, or will request the Managing Underwriter or underwriters, if any, to deliver to the Partnership (at the Partnership’s expense) all copies in their possession or control, other than permanent file copies then in such Selling Holder’s possession, which shall be used solely to comply with any document retention policy of such Selling Holder of the prospectus and any prospectus supplement covering such Registrable Securities current at the time of receipt of such notice unless supplemented by filings incorporated by reference.

(b)The Partnership shall have no obligation to include in the Shelf Registration Statement, Piggyback Registration Statement or Prospectus or IPO Registration Statement, Registrable Securities of a Selling Holder who has failed to timely furnish such information which, in the opinion of counsel to the Partnership, is reasonably required in order for the registration statement or prospectus supplement, as applicable, to comply with the Securities Act.

Section 2.06 Restrictions on Public Sale by Holders of Registrable Securities.

(a) IPO.

(i)Each Holder selling Registrable Securities in the IPO will be required, upon request of the Managing Underwriters in the IPO, to enter into a standard lock-up agreement covering Registrable Securities for a period of up to 90 days beginning on the date of a prospectus or prospectus supplement filed with the Commission with respect to the pricing of the IPO, provided that the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the Managing Underwriters on the Partnership or the officers, directors or any other unitholder of the Partnership on whom a restriction is imposed. In the event that either (x) during the last 17 days of the 90-day period referred to in this Section 2.06(a)(i), the Partnership issues an earnings release or material news or a material event relating to the Partnership occurs or (y) prior to the expiration of the 90-day restricted period, the Partnership announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 90-day restricted period, the lock-up restrictions described in this Section 2.06(a)(i) shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

(ii)Each Holder that does not sell Registrable Securities in the IPO, will be required, upon request of the Managing Underwriters in the IPO, to enter into a standard lock-up agreement covering Registrable Securities for a period of up to 60 days beginning on the date of a prospectus or prospectus supplement filed with the Commission with respect to the pricing of the IPO, provided that the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the Managing Underwriters on the Partnership or the officers, directors or any other unitholder of the Partnership on whom a restriction is imposed. In

 

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the event that either (x) during the last 17 days of the 60-day period referred to in this Section 2.06(a)(ii), the Partnership issues an earnings release or material news or a material event relating to the Partnership occurs or (y) prior to the expiration of the 60-day restricted period, the Partnership announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 60-day restricted period, the lock-up restrictions described in this Section 2.06(a)(ii) shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

(b)Underwritten Offering. For one year following the consummation of an IPO, each Holder who, along with its Affiliates, holds at least $10 million of Registrable Securities (calculated based on the Per Unit Purchase Price of such Common Units) shall agree not to effect any public sale or distribution of the Registrable Securities during the 30 calendar day period beginning on the date of a prospectus or prospectus supplement filed with the Commission with respect to the pricing of an Underwritten Offering that is not the IPO, provided that (i) the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the underwriters on the Partnership or the officers, directors or any other unitholder of the Partnership on whom a restriction is imposed. In the event that either (x) during the last 17 days of the 30-day period referred to in this Section 2.06(b), the Partnership issues an earnings release or material news or a material event relating to the Partnership occurs or (y) prior to the expiration of the 30-day restricted period, the Partnership announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 30-day restricted period, the lock-up restrictions described in this Section 2.06(b) shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; provided, however, that the extension provided for by this sentence shall no longer apply when the Partnership is eligible to use Form S-3 and meets the definition of “actively traded securities” in Regulation M.

Section 2.07 Expenses.

(a) Certain Definitions.

(i)“Registration Expenses” means all expenses incident to the Partnership’s performance under or compliance with this Agreement to effect the registration of Registrable Securities in a Shelf Registration Statement pursuant to Section 2.01, a Piggyback Registration Statement or Prospectus pursuant to Section 2.02 or an Underwritten Offering pursuant to Section 2.03, and the disposition of such securities, including, without limitation, all registration, filing, securities exchange listing and quotation system fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, fees of the National Association of Securities Dealers, Inc., transfer taxes and fees of transfer agents and registrars, all word processing, duplicating and printing expenses, the fees and disbursements of counsel and independent public accountants for the Partnership, including the expenses of any special audits or “cold comfort” letters required by or incident to such performance and compliance. Except as otherwise provided in Section 2.08 hereof, the Partnership shall not be

 

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responsible for legal fees or other costs incurred by Holders in connection with the exercise of such Holders’ rights hereunder.

(ii)“Selling Expenses,” means all underwriting fees, discounts and selling commissions allocable to the sale of the Registrable Securities.

(b)Expenses. The Partnership will pay all reasonable Registration Expenses in connection with the Shelf Registration Statement filed pursuant to Section 2.01(a) of this Agreement, a Piggyback Registration Statement or Prospectus pursuant to Section 2.02 or an Underwritten Offering pursuant to Section 2.03, whether or not the applicable registration statement becomes effective or any sale is made pursuant to the Shelf Registration Statement, a Piggyback Registration Statement or Prospectus or an Underwritten Offering. The Partnership shall not be responsible for any Selling Expenses. Each Selling Holder shall pay all Selling Expenses in connection with any sale of its Registrable Securities hereunder.

Section 2.08 Indemnification.

(a)By the Partnership. In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Partnership will indemnify and hold harmless each Selling Holder thereunder, its Affiliates and their respective directors and officers, and each underwriter, pursuant to the applicable underwriting agreement with such underwriter, of Registrable Securities thereunder and each Person, if any, who controls such Selling Holder or underwriter within the meaning of the Securities Act and the Exchange Act (collectively, the “Selling Holder Indemnified Persons”), against any losses, claims, damages, expenses or liabilities (including reasonable attorneys’ fees and expenses) (collectively, “Losses”), joint or several, to which such Selling Holder Indemnified Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Shelf Registration Statement or any other registration statement contemplated by this Agreement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or any “free writing prospectus” (as defined in Rule 405 under the Securities Act) (in the case of a prospectus, in the light of the circumstances under which they were made), and will reimburse each such Selling Holder Indemnified Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or actions or proceedings within a reasonable time after such expenses are incurred and the Selling Holder Indemnified Person notifies the Partnership of such expenses; provided, however, that the Partnership will not be liable in any such case if and to the extent that any such Loss arises out of or is based upon (i) either an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Selling Holder Indemnified Person in writing specifically for use in the Shelf Registration Statement or such other registration statement, or prospectus supplement, as applicable or (ii) the breach by any Selling Holder of the agreements by such Selling Holder set forth in Section 2.01(c) or Section 2.05(a). Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Selling Holder Indemnified Person, and shall survive the transfer of such securities by such Selling Holder.

 

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(b)By Each Selling Holder. Each Selling Holder agrees severally and not jointly to indemnify and hold harmless the Partnership, its Affiliates and their respective directors, officers, employees and agents and each Person, if any, who controls the Partnership within the meaning of the Securities Act or of the Exchange Act to the same extent as the foregoing indemnity from the Partnership to the Selling Holders, but only with respect to (i) information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for inclusion in the Shelf Registration Statement or prospectus supplement relating to the Registrable Securities, or any amendment or supplement thereto or (ii) the breach by any Selling Holder of the agreements by such Selling Holder set forth in Section 2.01(c) or Section 2.05(a); provided, however, that the liability of each Selling Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification.

(c)Notice. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under this Section 2.08 except to the extent that it has been materially prejudiced by such failure and shall not relieve it from any liability which it may have to any indemnified party other than under this Section 2.08. The indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.08 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, (i) if the indemnifying party has failed to assume the defense and employ counsel or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and outside counsel to the indemnified party shall have concluded in writing that there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the reasonable expenses and fees of one such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding any other provision of this Agreement, (i) no indemnifying party shall settle any action brought against it with respect to which it is entitled to indemnification hereunder without the consent of the indemnified party, unless the settlement thereof imposes no liability or obligation on, and includes a complete and unconditional release from all liability of, the indemnified party and does not contain any admission of wrongdoing or illegal activity by the indemnified party and (ii) no indemnifying party shall be liable for any settlement of any such action effected without its consent (which shall not be unreasonably withheld).

(d)Contribution. If the indemnification provided for in this Section 2.08 is held by a court or government agency of competent jurisdiction to be unavailable to the Partnership or any Selling Holder or is insufficient to hold them harmless in respect of any Losses, then each such

 

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indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Partnership on the one hand and of such Selling Holder on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations; provided, however, that in no event shall such Selling Holder be required to contribute an aggregate amount in excess of the dollar amount of proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable Securities giving rise to such indemnification. The relative fault of the Partnership on the one hand and each Selling Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact has been made by, or relates to, information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. The amount paid by an indemnified party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such indemnified party in connection with investigating or defending any Loss which is the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.

(e)Other Indemnification. The provisions of this Section 2.08 shall be in addition to any other rights to indemnification or contribution which an indemnified party may have pursuant to law, equity, contract or otherwise.

Section 2.09Rule 144 ReportingWith a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Registrable Securities to the public without registration, the Partnership agrees to use its commercially reasonable efforts to:

(a)Make and keep public information regarding the Partnership available, as those terms are understood and defined in Rule 144 of the Securities Act, at all times after the effective date of the first registration statement filed by the Partnership for an offering of its securities to the general public;

(b)File with the Commission in a timely manner all reports and other documents required to be filed by the Partnership under the Securities Act and the Exchange Act (at any time that it is subject to such reporting); and

(c)So long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request a copy of the most recent annual or quarterly report of the Partnership, if any, filed with the Commission, and such other reports and documents filed with the Commission as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such Registrable Securities without registration.

 

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Section 2.10Limitation on Subsequent Registration Rights. From and after the date hereof, the Partnership shall not, without the prior written consent of the Holders of a majority of the then outstanding Registrable Securities, enter into any agreement with any current or future holder of any securities of the Partnership that would allow such current or future holder to require the Partnership to include securities in any registration statement filed by the Partnership on a basis that is senior in any way to the registration rights granted to the Purchasers hereunder.

ARTICLE III

MISCELLANEOUS

Section 3.01Communications. All notices and other communications provided for or permitted hereunder shall be made in writing by facsimile, courier service or personal delivery:

(a)if to any Purchaser, at the most current address given by such Purchaser to the Partnership in accordance with the provisions of this Section 3.01, which address initially is, with respect to the Purchasers, the addresses set forth in the Purchase Agreement,

(b)if to a permitted transferee of a Purchaser, to such Holder at the address furnished by such permitted transferee, and

(c)if to the Partnership, at 500 N. Loop 1604 East, Suite 100, San Antonio, TX 78232, or such other address notice of which is given in accordance with the provisions of this Section 3.01.

All such notices and communications shall be deemed to have been received at the time delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile; and when actually received, if sent by any other means.

Section 3.02Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including subsequent Holders of Registrable Securities to the extent permitted herein.

Section 3.03Transfer or Assignment of Registration Rights. The rights to cause the Partnership to register Registrable Securities granted to the Holders hereunder may be transferred or assigned by one or more Holders to one or more transferee(s) or assignee(s) of such Registrable Securities, provided that (a) unless such transferee is a Holder or an Affiliate of the transferring Holder, or the transfer is to a swap counterparty, following such transfer or assignment, each such transferee or assignee owns Registrable Securities representing at least $10 million of Registrable Securities (calculated based on the Per Unit Purchase Price of such Common Units) or the Partnership otherwise consents to such transfer or assignment, (b) the Partnership is given written notice prior to any said transfer or assignment, stating the name and address of each such transferee and identifying the securities with respect to which such registration rights are being transferred or assigned, and (c) each such transferee assumes in writing responsibility for its portion of the obligations of such Holder under this Agreement (unless it is already a party to this Agreement).

Section 3.04Aggregation of Registrable Securities. All Registrable Securities held or acquired by Persons who are Affiliates of one another shall be aggregated together for the purpose of

 

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determining the availability of any rights under this Agreement. In addition, all Registrable Securities held or acquired by (i) Fiduciary/Claymore MLP Opportunity Fund and its Affiliates, FAMCO MLP Partners, LLC, Series ABP-1 and its Affiliates shall be aggregated together for purposes of determining the availability of any rights under this Agreement, (ii) Energy Income and Growth Fund and its Affiliates, Third Point Partners Qualified LP and its Affiliates, Third Point Partners LP and its Affiliates, Third Point Offshore Fund, Ltd. and its Affiliates, Third Point Ultra Ltd. and its Affiliates shall be aggregated together for purposes of determining the availability of any rights under this Agreement, and (iii) Martin B Perlman Associates and its Affiliates, MEDDS III and its Affiliates, PH Industries, Inc. Money Purchase Plan and its Affiliates, Perlman Value Partners and its Affiliates, Morgan Stanley FBO Leonard Greenberg Roth IRA and its Affiliates, Morgan Stanley FBO JoAnn Hassan IRA and its Affiliates, and Morgan Stanley FBO JoAnn Hassan Roth IRA and its Affiliates shall be aggregated together for purposes of determining the availability of any rights under this Agreement.

Section 3.05Recapitalization, Exchanges, etc. Affecting the Common Units. The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all Common Units or other partnership interests of the Partnership or any successor or assign of the Partnership (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the Registrable Securities, including any Common Units or other equity securities that may be issued in exchange for Registrable Securities in connection with any merger, consolidation or other business combination involving the Partnership and any of its subsidiaries, and shall be appropriately adjusted for combinations, recapitalizations and the like occurring after the date of this Agreement.

Section 3.06Change of Control. The Partnership shall not merge, consolidate or combine with any other Person unless the agreement providing for such merger, consolidation or combination expressly provides for the continuation of the registration rights specified in this Agreement with respect to the Registrable Securities or other equity securities issued pursuant to such merger, consolidation or combination.

Section 3.07Specific Performance. Damages in the event of breach of this Agreement by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief, including specific performance, in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each of the parties hereto hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.

Section 3.08Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. In the event that this Agreement is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format date file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf

 

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such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

Section 3.09Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

Section 3.10Governing Law. The laws of the State of New York shall govern this Agreement without regard to principles of conflict of laws.

Section 3.11Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction.

Section 3.12Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the rights granted by the Partnership set forth herein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings between the parties with respect to such subject matter.

Section 3.13Amendment. This Agreement may be amended only by means of a written amendment signed by the Partnership and the Holders of a majority of the then outstanding Registrable Securities; provided, however, that no such amendment shall materially and adversely affect the rights of any Holder hereunder, relative to any other Holder, without the consent of such Holder; and provided, further, however, that the immediately preceding proviso shall not apply to, and thus shall not prevent or impair the ability of the Partnership and the Holders of a majority of the then outstanding Registrable Securities to effect, a modification or waiver under of this Agreement.

Section 3.14No Presumption. In the event any claim is made by a party relating to any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.

Section 3.15Interpretation. Article and Section references are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to”. Whenever any determination, consent or approval is to be made or given by a Purchaser under this Agreement, such action shall be in such Purchaser’s sole discretion unless otherwise specified.

[The remainder of this pageis intentionally left blank.]

 

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

ABRAXAS ENERGY PARTNERS, L.P.

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

 

[Signature Page to Registration Rights Agreement]

EX-10

Exhibit 10.8

Execution Copy

EXCHANGE AND REGISTRATION RIGHTS AGREEMENT

dated as of May 25, 2007

among

ABRAXAS PETROLEUM CORPORATION

ABRAXAS ENERGY PARTNERS, L.P.

and

THE PURCHASERS NAMED IN THIS AGREEMENT

EXCHANGE AND REGISTRATION RIGHTS AGREEMENT

This EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made and entered into as of the 25th day of May, 2007, by and among Abraxas Petroleum Corporation, a Nevada corporation (“Parent”), Abraxas Energy Partners, L.P., a Delaware limited partnership (the “Partnership”) and each of the persons listed on Schedule 1 attached to this Agreement (each a “Purchaser” and collectively the “Purchasers”).

W I T N E S S E T H

WHEREAS, at or prior to the execution of this Agreement, Parent, Abraxas General Partner, LLC, a Delaware limited liability company (the “General Partner”), the Partnership and the other parties named therein shall enter into that certain Contribution, Conveyance and Assumption Agreement (the “Contribution Agreement”);

WHEREAS, in connection with the consummation of the transactions contemplated by the Contribution Agreement, among other things (i) Parent will contribute certain Assets to the Operating Company (the “Contribution”) in exchange for a general partner interest and an indirect limited partner interest in the Partnership; (ii) the Partnership and the other parties named therein shall enter into that certain $150,000,000 Revolving Credit Facility with Société Générale (the “Credit Agreement”) under which the Partnership will immediately borrow $35,000,000.00; and (iii) the Partnership and the Operating Company will assume certain of Parent’s indebtedness, and will use the proceeds from the sale of Purchased Securities to refinance the $125,000,000 Floating Rate Senior Notes issued by the Parent and currently outstanding (the “Floating Rate Senior Notes”) and as otherwise contemplated in the Contribution Agreement;

WHEREAS, subject to the terms and conditions set forth in that certain Purchase Agreement dated as of the date hereof (the “Partnership Purchase Agreement”) by and among Parent, the Partnership, the General Partner and the Purchasers, the Partnership has agreed to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Partnership, up to 6,002,408 Common Units of the Partnership (the “Purchased Common Units”);

WHEREAS, pursuant to the terms of that certain Securities Purchase Agreement dated as of the date hereof (the “Securities Purchase Agreement”) by and among Parent and the Purchasers, (i) each Purchaser will purchase the number of shares of the Parent’s Common Stock shown opposite such Purchaser’s name on Schedule 1 thereto (“Purchased Shares”), at a price of $3.83 per share (the “Purchase Price”) and (ii) the Parent shall issue to each Purchaser a warrant to purchase a number of shares of Common Stock equal to the product of (a) the number of Purchased Shares purchased by such Purchaser, times (b) 0.20, on the additional terms and conditions set forth in Exhibit A thereto (the “Warrants”); and

WHEREAS, it is a condition to the obligations of the Purchasers under the Partnership Purchase Agreement and the Securities Purchase Agreement that, contemporaneously with the sale of the Common Units and the Parent Securities, the parties hereto execute and deliver this Agreement;

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows:

1. Definitions. The following terms have the meanings indicated:

“Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble hereto.

“AMEX” means the American Stock Exchange.

“Applicable Number” has the meaning set forth in Section 2.

“Assets” has the meaning set forth in the Contribution Agreement.

“Black Out Period” has the meaning set forth in Section 7.3(c).

“Business Day” means any day other than a Saturday, Sunday, or a legal holiday for commercial banks in New York, New York.

“Commission” means the Securities and Exchange Commission.

“Common Units” has the meaning assigned to such term in the Partnership Agreement.

“Common Stock” has the meaning set forth in Section 2.

“Contribution” has the meaning set forth in the recitals hereto.

“Contribution Agreement” has the meaning set forth in the recitals hereto.

“Credit Agreement” has the meaning set forth in the recitals hereto.

“Effectiveness Date” has the meaning set forth in Section 7.1(b).

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

“Exchange Shares” has the meaning set forth in Section 2.

“Exchange Price” means a price per share of Common Stock equal to 0.9 times the Market Price.

“Existing Credit Facility” means that certain Loan Agreement, dated as of October 28, 2004, by and among the Partnership, the subsidiaries of the Partnership signatory thereto, the

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lenders signatory thereto and Wells Fargo Foothill, Inc., as the Arranger and Administrative Agent, as amended.

“Filing Date” has the meaning set forth in Section 7.1(a).

“Floating Rate Senior Notes” has the meaning set forth in the recitals hereto.

“General Partner” has the meaning set forth in the recitals hereto.

“Initial Exchange Date” has the meaning set forth in Section 3.1.

“Initial Exchange Shares” means the aggregate number of Exchange Shares equal to 19.99% of the total number of shares of Common Stock issued and outstanding on the Trigger Date.

“IPO” means the initial public offering of Common Units by the Partnership under the Securities Act that results in the Common Units being listed for trading on the New York Stock Exchange, the Nasdaq Global Market or AMEX or any affiliate of the New York Stock Exchange, the Nasdaq Global Market or AMEX.

“Law” means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, law, rule or regulation in effect as of the date hereof.

“Liens” means mortgages, charges, pledges, liens (statutory or other), security interests, hypothecations, assignments for security, claims, or preferences or priorities or other encumbrances or similar agreements or preferential agreements of any kind or nature whatsoever serving to provide security for any obligations whether or not filed, recorded or otherwise perfected under applicable law upon or with respect to any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Liquidated Damages Amount” has the meaning set forth in Section 7.2.

“Losses” means any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, reasonable attorneys’ fees.

“Management Stockholder” means any executive officer of Parent as of the date hereof who owns Voting Securities.

“Material Adverse Effect” means with respect to any Person (i) a material adverse effect on the legality, validity or enforceability of this Agreement, the Purchased Shares or the Purchased Common Units, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of any such Person, (iii) a material adverse effect on the ability of such Person to perform in any material respect on a timely basis its obligations under this Agreement or the Parent Purchase Agreement, or (iv) an event which would reasonably be expected to subject such Person to any material liability.

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“Market Price” means the volume weighted average price of the Common Stock for the ten (10) Business Days immediately prior to the Initial Exchange Date as quoted on the principal securities exchange on which the Common Stock is then quoted or traded.

“Operating Company” means Abraxas Operating, LLC, a Texas limited liability company.

“Parent” has the meaning set forth in the preamble hereto.

“Parent Securities” shall mean the Purchased Shares and the Warrants.

“Parent Stockholders” has the meaning set forth in Section 3.3.

“Partnership” has the meaning set forth in the preamble hereto.

“Partnership Agreement” means that First Amended and Restated Agreement of Limited Partnership of the Partnership, dated May 25, 2007.

“Partnership Purchase Agreement” has the meaning set forth in the recitals hereto.

“Person” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or any court or other federal, state, local or other governmental authority or other entity of any kind.

“Per Unit Purchase Price” shall mean $16.66, subject to appropriate adjustment in the event the Partnership effects a distribution, subdivision or combination of Common Units.

“Preliminary Prospectus or Preliminary Prospectuses” has the meaning set forth in Section 7.1(e).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Pro Rata Share” means a fraction, the numerator of which is the number of Common Units purchased by a Purchaser pursuant to the Partnership Purchase Agreement and the denominator of which is the total number of Common Units purchased by all Purchasers.

“Prospectus” has the meaning set forth in Section 7.1(c).

“Purchased Common Units” has the meaning set forth in the recitals hereto.

“Purchased Securities” means the Purchased Common Units and the Purchased Shares.

“Purchased Shares” has the meaning set forth in the recitals hereto.

“Purchase Price” has the meaning set forth in the recitals hereto.

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“Purchaser” and “Purchasers” has the meaning set forth in the preamble hereto.

“Purchaser Underwriter Registration Statement” has the meaning set forth in Section 7.1.

“Registration Statement” has the meaning set forth in Section 7.1(a) and Section 7.4(a)(ii).

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such rule.

“SEC Filings” has the meaning set forth in the Securities Purchase Agreement.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

“Securities Purchase Agreement” has the meaning set forth in the recitals hereto.

“Selling Stockholder” has the meaning set forth in Section 7.4(a)(i).

“Selling Stockholder Indemnified Parties” has the meaning set forth in Section 7.4(b).

“Short Sales” means, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

“Stockholder Approval” means the approval by the holders of the requisite number of shares of Common Stock to the issuance of shares of Common Stock pursuant to the terms of this Agreement at a duly called meeting of the Stockholders in accordance with the rules of the AMEX or such other securities exchange on which the Common Stock is then quoted or traded and all other Laws.

“Stockholders’ Meeting” has the meaning set forth in Section 3.3.

“Suspension” has the meaning set forth in Section 7.3(c).

“Suspension Notice” has the meaning set forth in Section 7.3(c).

“Termination Date” has the meaning set forth in Section 10.

“Transfer Agent” has the meaning set forth in the Partnership Agreement.

“Trigger Date” has the meaning set forth in Section 3.1.

“Underwritten Offering” has the meaning set forth in the Securities Purchase Agreement.

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“Voting Securities” means the Common Stock and all other securities of any class of Parent entitling the holders thereof to vote in the election of, or to appoint, members of the Board of Directors of Parent.

“Warrants” has the meaning set forth in the recitals hereto.

2.            Agreement to Exchange Securities. Subject to the terms and conditions set forth in this Agreement, Parent agrees, from and after the Trigger Date until the Termination Date, to exchange a number of shares of common stock, par value $.01 per share of Parent (“Common Stock”), for each Purchased Common Unit (collectively, the “Exchange Shares”) in an amount equal to the Per Unit Purchase Price divided by the Exchange Price (the “Applicable Number”).

3. Mechanics of Exchange.

3.1          Subject to the terms of this Section 3, if the IPO has not been consummated on or before 5:00 p.m. on November 15, 2008 (the “Trigger Date”), then beginning on the Business Day immediately after the Trigger Date (the “Initial Exchange Date”) and ending at the close of business on the Termination Date, each of the Purchasers shall have the right to exchange each of the Purchased Common Units into the Applicable Number of Exchange Shares.

3.2          Notwithstanding Section 3.1 above, each Purchaser shall have the option, during the period beginning on the Initial Exchange Date and ending on the date that Stockholder Approval is received by Parent, to exchange each Purchased Common Unit then owned by such Purchaser into the Applicable Number of Exchange Shares; provided, however, that the maximum number of Exchange Shares a Purchaser may receive in connection with an exchange effectuated pursuant to this Section 3.2 shall be equal to such Purchaser’s Pro Rata Share of the Initial Exchange Shares.

3.3          On the Initial Exchange Date, Parent shall take all action necessary to convene a meeting of its stockholders (the “Parent Stockholders”) to consider and vote upon the issuance of the aggregate number of shares of Common Stock issuable upon exchange of the Purchased Common Units for shares of Common Stock pursuant to this Agreement in excess of the Initial Exchange Shares as soon as practicable, but in any event not later than 60 days after the Trigger Date (the “Stockholders’ Meeting”). Except as provided in this Section 3.3, the board of directors of Parent shall, in connection with such meeting, recommend approval of the issuance of shares of Common Stock in excess of the Initial Exchange Shares and take all other lawful action to solicit the approval of the issuance of shares of Common Stock in excess of the Initial Exchange Shares by the Parent Stockholders; provided, however, that the board of directors of Parent shall not be required to recommend such approval if it advised by counsel that such recommendation would violate its fiduciary duties to Parent’s stockholders under applicable Law.

3.4          In order to exchange the Purchased Common Units for the Exchange Shares, the holder thereof shall surrender at the office of the Transfer Agent, the certificate or certificates therefor, duly endorsed or assigned to Parent or in blank, and give written notice to Parent in accordance with Section 8 hereof, together with the letter attached hereto as Exhibit A, that such holder elects to convert the number of Purchased Common Units specified by such holder in

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such notice. Purchased Common Units shall be deemed to have been exchanged immediately prior to the close of business on the day of surrender of the certificates for such Purchased Common Units for exchange in accordance with the foregoing provisions, and at such time the rights of the holder of such Purchased Common Units as holders thereof shall cease and from and after such time the person or persons entitled to receive the Exchange Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Exchange Shares. As promptly as practicable on or after the Initial Exchange Date, Parent shall cause the Transfer Agent to issue and deliver at such office a certificate or certificates for the number of full shares of Common Stock issuable upon such exchange, together with payment in lieu of any fraction of a share, as provided in Section 3.7, to the person or persons entitled to receive the same. If fewer than all the Purchased Common Units represented by a certificate are exchanged, upon such exchange the Partnership shall (or cause the Transfer Agent for the Purchased Common Units to) issue a new certificate representing the Purchased Common Units not so exchanged.

3.5          Notwithstanding anything to the contrary set forth in this Agreement, prior to the receipt of Stockholder Approval, in no event shall the total number of Exchange Shares that Parent shall be required to issue pursuant to this Agreement exceed the maximum number of shares of Common Stock that Parent can issue without Stockholder Approval pursuant to any rule of AMEX, or any other national exchange on which Parent’s Common Stock is then traded including, without limitation, Section 713 of the AMEX Listing Standards, Policies and Requirements, subject to equitable adjustments from time to time for stock-splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date of this Agreement.

3.6          If Parent at any time shall consolidate or merge with or sell or convey all or substantially all of its assets to any other Person, the Purchaser shall thereafter be entitled to exchange its Purchased Common Units into such number and kind of securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance upon or with respect to the securities to be received upon an exchange of Purchased Common Units immediately prior to such consolidation, merger, sale or conveyance. Parent shall take such steps in connection with such consolidation or merger or sale as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter deliverable upon an exchange of Purchased Common Units. The foregoing provisions shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the registration rights provisions hereof shall apply to the securities of such successor or purchaser after any such consolidation, merger, sale or conveyance.

3.7          No fractional shares of Common Stock of Parent will be issued in connection with an exchange of Purchased Common Units, but in lieu of such fractional shares, Parent shall make a cash payment thereafter upon the basis of the Market Price of its Common Stock on the date of such exchange.

3.8          Each Management Stockholder hereby agrees to (i) vote all such Management Stockholder’s Voting Securities and (ii) take all other necessary or desirable actions within such Management Stockholder’s control (whether in such Management Stockholder’s capacity as a

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stockholder of Parent or otherwise, and including, without limitation, attendance at meetings, in person or by proxy, for purposes of obtaining a quorum and execution of written consents in lieu of meetings), in each case, in favor of exchange of the Purchased Common Units for shares of Common Stock in excess of the Initial Exchange Shares.

3.9          From and after the date hereof, Parent shall use its commercially reasonable efforts to obtain the agreement of each of the directors of Parent to the terms of Section 3.8.

4.            Parent’s Representations and Warranties. Parent hereby represents and warrants to the Purchasers that:

4.1          Corporate Existence; Authority. Parent is a corporation duly organized, validly existing and in good standing under the laws of Nevada, and it has all requisite corporate power and authority to carry on its business as it is now being conducted. The individual executing and delivering this Agreement on behalf of Parent has been duly authorized to execute and deliver this Agreement on behalf of Parent, and the signature of such individual is binding upon Parent. All corporate action on the part of the Parent, its officers, directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of the Parent hereunder and the authorization, sale, issuance and delivery of the Exchange Shares pursuant hereto has been taken.

4.2          Enforceability. Parent has duly executed and delivered this Agreement and (subject to its execution by the Purchasers) it constitutes a valid and binding agreement of Parent enforceable in accordance with its terms against Parent, except as such enforceability may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors generally and general principles of equity governing specific performance, injunctive relief or other equitable remedies and except to the extent that the enforceability of the indemnification and contribution provisions of Section 7.4 relating to registration rights granted hereunder may be limited by applicable laws.

4.3          Capitalization. The authorized capital of Parent consists, or will consist immediately prior to the Closing, of:

(a)          1,000,000 shares of Preferred Stock, par value $0.01 per share, of which (i) 100,000 shares have been designated Series A Preferred Stock, par value $100.00 per share, of which no shares are issued and outstanding; (ii) 45,741 shares have been designated Series B 8% Cumulative Convertible Preferred Stock, par value $100.00 per share, of which no shares are issued or outstanding; and (iii) 45,471 shares have been designated as Series 1995-B 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of which no shares are issued and outstanding.

(b)          200,000,000 shares of Common Stock of which 42,878,725 shares are issued and outstanding as of the date of this Agreement.

(c)          All of the outstanding shares of Common Stock of Parent (i) have been duly and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights and (ii) were issued in compliance with all applicable state and Federal laws concerning the issuance of securities or pursuant to valid exemptions therefrom. The Exchange

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Shares have been duly authorized and when issued and delivered to the Purchasers as provided by this Agreement, will be validly issued, fully paid and non-assessable and the issuance of such Exchange Shares will not be subject to any preemptive or similar rights.

(d)          Prior to giving effect to the transactions set forth herein, there are no outstanding subscriptions, options, warrants, convertible securities, calls, commitments, agreements or rights to purchase or otherwise acquire from Parent any shares of, or any securities convertible into, the capital stock of Parent except as disclosed in the SEC Filings.

4.4          No Conflicts. The issuance and sale of the Exchange Shares to the Purchasers as contemplated hereby and the performance of this Agreement will not violate or conflict with Parent’s Articles of Incorporation, as amended, or Bylaws, as amended, or any material agreements to which Parent is a party or by which it is otherwise bound or any statute, rule or regulation (federal, state, local or foreign) to which it is subject, except, in the case of (iii) above, where such violation or conflict could not reasonably be expected to have a Material Adverse Effect.

5.            Covenants of Parent. Parent covenants and agrees that until the Termination Date it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Exchange Shares upon an exchange of Purchased Common Units. Parent will take all such actions as may be necessary to insure that all shares issuable upon an exchange of Purchased Common Units will be duly and validly authorized and issued and fully paid and non-assessable.

6. Restrictions on Transfer.

6.1          Resale Restrictions. Each Purchaser understands that the Exchange Shares to be received by the Purchasers in accordance with the terms of this Agreement have not been registered under the Securities Act or under any state laws. Each Purchaser agrees, severally and not jointly, with the other Purchasers, not to offer, sell or otherwise transfer the Exchange Shares, or any interest in the Exchange Shares, unless (i) the offer and sale is registered under the Securities Act, (ii) the Exchange Shares may be sold in accordance with the applicable requirements and limitations of Rule 144 under the Securities Act and any applicable state laws and, if American Stock Transfer & Trust Company, as transfer agent for the Parent, reasonably requests, such Purchaser delivers to Parent an opinion of counsel to such effect, or (iii) such Purchaser delivers to Parent an opinion of counsel (at the expense of Parent) reasonably satisfactory to Parent that the offer and sale is otherwise exempt from Securities Act registration. Notwithstanding the foregoing subsections (ii) and (iii), no opinion shall be required for transfers by a Purchaser to its Affiliates.

6.2          Short Selling Acknowledgement and Agreement. Each Purchaser understands and acknowledges, severally and not jointly with any other Purchaser, that the Commission currently takes the position that coverage of short sales of securities “against the box” prior to the effective date of a registration statement is a violation of Section 5 of the Securities Act. Each Purchaser agrees, severally and not jointly, that it will not engage in any Short Sales that result in the disposition of the Exchange Shares acquired hereunder by the Purchaser until such time as the Registration Statement is declared effective. No Purchaser makes any representation, warranty or

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covenant hereby that it will not engage in Short Sales in the securities of Parent otherwise owned by such Purchaser or borrowed from a broker after the time that the transactions contemplated by this Agreement are first publicly announced.

6.3          Restrictive Legend. Each Purchaser understands and agrees that a legend in substantially the following form will be placed on the certificates or other documents representing the Exchange Shares:

“THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION, AND THE TERMS OF SECTION 6.1 OF THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT PURSUANT TO WHICH THE SHARES OF COMMON STOCK WERE ORIGINALLY ACQUIRED AND APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH. A COPY OF THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT IS ON FILE AT THE CORPORATE OFFICE OF THE CORPORATION.”

6.4          Illiquid Investment. Each Purchaser acknowledges and agrees that it must bear the economic risk of its investment in the Exchange Shares for an indefinite period of time, until such time as the Exchange Shares are registered or an exemption from registration is available.

7. Registration of the Common Stock; Compliance with the Securities Act.

7.1 Registration Procedures and Other Matters. Parent shall:

(a)          subject to receipt of necessary information from the Purchasers after prompt request from Parent to the Purchasers to provide such information, no later than the 30th day following the Trigger Date (the “Filing Date”), prepare and file with the Commission a registration statement on Form S-3 or such other successor form (except that if Parent is not then eligible to register for resale the Exchange Shares on Form S-3, in which case such registration shall be on Form S-1 or any successor form) (a “Registration Statement”) to enable the resale of the Exchange Shares, by the Purchasers or their transferees from time to time over the AMEX or any other national exchange on which Parent’s Common Stock is then traded, or in privately-negotiated transactions. No Purchaser may include any Exchange Shares in the Registration Statement pursuant to this Agreement unless such Purchaser furnishes to Parent in writing within ten (10) business days after receipt of request therefor, such requested information;

(b)          use its commercially reasonable efforts, subject to receipt of necessary information from the Purchasers after prompt request from Parent to the Purchasers to provide such information, to cause the Registration Statement to become effective prior to the 120th day following the Trigger Date; provided, however, that if Parent has filed the Registration Statement by the Filing Date and the Commission has not declared the Registration Statement effective

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prior to the date that is specified in Rule 3-12 of Regulation S-X promulgated by the Commission, then the time period for becoming effective shall be extended to the 180th day following the Trigger Date (the “Effectiveness Date”);

(c)          use its commercially reasonable efforts to cause such Registration Statement to remain continuously effective and prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith (the “Prospectus”) (and the applicable Exchange Act reports incorporated therein by reference, so filed on a timely basis) as may be necessary to keep the Registration Statement current, effective and free from any material misstatement or omission to state a material fact for a period ending on the date that is, with respect to each Purchaser’s Exchange Shares purchased hereunder, the earlier of (i) the date on which the Purchaser may sell all Exchange Shares then held by the Purchaser without restriction under Rule 144(k), or (ii) such time as all Exchange Shares received by such Purchaser pursuant to this Agreement have been sold or otherwise transferred pursuant to a registration statement or otherwise;

(d)          so long as a Purchaser holds Exchange Shares received pursuant to this Agreement, provide copies to and permit single legal counsel designated by the Purchasers to review the Registration Statement and all amendments and supplements thereto, no fewer than three (3) business days prior to their filing with the Commission, and not file any Registration Statement, amendment or supplement thereto to which a holder of the Exchange Shares reasonably objects in writing within such three (3) business day period;

(e)          furnish to the Purchasers with respect to the Exchange Shares included in the Registration Statement such number of copies of the Registration Statement, Prospectuses and preliminary Prospectuses (“Preliminary Prospectuses” and individually, “Preliminary Prospectus”) in conformity with the requirements of the Securities Act and such other documents as the Purchasers may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Exchange Shares by the Purchasers; provided, however, that the obligation of Parent to deliver copies of Prospectuses or Preliminary Prospectuses to the Purchasers shall be subject to the receipt by Parent of reasonable assurances from the Purchasers that the Purchasers will comply with the applicable prospectus delivery requirements under the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses;

(f)           file documents required of Parent for customary blue sky clearance in states specified in writing by the Purchasers and use its commercially reasonable efforts to maintain such blue sky qualifications during the period Parent is required to maintain the effectiveness of the Registration Statement pursuant to Section 7.1(c); provided, however, that Parent shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented;

(g)          promptly notify the Purchasers after it receives notice of the time when the Registration Statement has been declared effective by the Commission, or when a supplement or amendment to any Registration Statement has been filed with the Commission;

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(h)          advise the Purchasers, promptly: (i) after it shall receive notice or obtain knowledge of the issuance of any stop order by the Commission delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and (ii) at any time when a Prospectus relating to the Exchange Shares is required to be delivered under the Securities Act, upon discovery that, or upon the happening of an event as a result of which, the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(i)           upon request and subject to appropriate confidentiality obligations, furnish to each Purchaser copies of any and all transmittal letters or other correspondence with the Commission or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of Exchange Shares;

(j)           in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel for Parent dated the effective date of the applicable registration statement or the date of any amendment or supplement thereto, and a letter of like kind dated the date of the closing under the underwriting agreement, and (ii) a “cold comfort” letter, dated the date of the applicable registration statement or the date of any amendment or supplement thereto and a letter of like kind dated the date of the closing under the underwriting agreement, in each case, signed by the independent public accountants who have certified Parent’s financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the “cold comfort” letter shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus and any prospectus supplement included therein) as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to the underwriters in Underwritten Offerings of securities and such other matters as such underwriters or Purchasers may reasonably request;

(k)          otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;

(l)           make available to the appropriate representatives of the managing underwriter and Purchasers access to such information and Parent personnel as is reasonable and customary to enable such parties to establish a due diligence defense under the Securities Act; provided, however, that Parent need not disclose any such information to any such representative unless and until such representative has entered into or is otherwise subject to a confidentiality agreement with Parent satisfactory to Parent; and

(m)         cause all the Exchange Shares registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by Parent are then listed.

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Parent agrees that, if any Purchaser could reasonably be deemed to be an “underwriter”, as defined in Section 2(a)(11) of the Securities Act, in connection with the registration statement in respect of any registration of Exchange Shares of any Purchaser pursuant to this Agreement, and any amendment or supplement thereof (any such registration statement or amendment or supplement a “Purchaser Underwriter Registration Statement”), then Parent will cooperate with such Purchaser in allowing such Purchaser to conduct customary “underwriter’s due diligence” with respect to Parent and satisfy its obligations in respect thereof. In addition, at any Purchaser’s request, Parent will furnish to such Purchaser, on the date of the effectiveness of any Purchaser Underwriter Registration Statement and thereafter from time to time on such dates as such Purchaser may reasonably request, (i) a letter, dated such date, from Parent’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to such Purchaser, and (ii) an opinion, dated as of such date, of counsel representing Parent for purposes of such Purchaser Underwriter Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, including standard “10b-5” assurances for such offering, addressed to such Purchaser. Parent will also permit legal counsel to such Purchaser to review and comment upon any such Purchaser Underwriter Registration Statement at least five (5) business days prior to its filing with the Commission and all amendments and supplements to any such Purchaser Underwriter Registration Statement within a reasonable number of days prior to their filing with the Commission and not file any Purchaser Underwriter Registration Statement or amendment or supplement thereto in a form to which such Purchaser’s legal counsel reasonably objects.

7.2          Failure of Registration Statement to Become Effective. Parent and the Purchasers agree that the Purchasers will suffer damages if the Registration Statement is not declared effective on or prior to Effectiveness Date. Parent and the Purchasers further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the Registration Statement is not declared effective on or prior to the Effectiveness Date, Parent shall pay as Liquidated Damages, and not as a penalty, 1% of (i) the Purchase Price multiplied by (ii) the number of Exchange Shares held by such Purchaser (such product being the “Liquidated Damages Amount”) per thirty (30) day period (which shall be pro rated for such periods less than thirty (30) days) until the Registration Statement is declared effective. The Liquidated Damages Amount will be paid in cash, unless Parent certifies that such cash payment would result in a breach under its credit facility or other documents evidencing indebtedness, then Parent may pay the Liquidated Damages Amount in kind in the form of additional Common Stock. The determination of the number of shares of Common Stock to be issued as the Liquidated Damages Amount shall be equal to the Liquidated Damages Amount divided by the lesser of (i) the Purchase Price per share; and (ii) the closing price of Parent’s Common Stock on the AMEX on the date on which the Liquidated Damages payment is due. In no event shall Parent be required to issue fractional shares pursuant to the terms of this Section 7.2 and all fractional shares shall be rounded down to the next lowest number of whole shares. The parties agree that the amounts set forth in this Section 7.2 represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that will be incurred by the Purchasers if the Registration Statement is not declared effective on or prior to the Effectiveness Date. Notwithstanding anything to the contrary set forth in this Agreement, in no event shall the total

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number of Exchange Shares that Parent shall be required to issue pursuant to this Agreement exceed the maximum number of shares of Common Stock that Parent can issue without Stockholder Approval pursuant to any rule of AMEX, or any other national exchange on which Parent’s Common Stock is then traded including, without limitation, Section 713 of the AMEX Listing Standards, Policies and Requirements, subject to equitable adjustments from time to time for stock-splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date of this Agreement.

7.3 Transfer of Shares After Registration; Suspension.

(a)          Each Purchaser agrees that it will not effect any disposition of the Exchange Shares that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 7.1 and as described below or as otherwise permitted by law, and that it will promptly notify Parent in writing of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution.

(b)          Except in the event that paragraph (c) below applies, Parent shall if deemed necessary by Parent: (i) prepare and file from time to time with the Commission a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and so that, as thereafter delivered to purchasers of the Common Stock being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) provide the Purchasers copies of any documents filed pursuant to Section 7.3(b)(i), and (iii) inform each Purchaser that Parent has complied with its obligations in Section 7.3(b)(i) (or that, if Parent has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, Parent will notify the Purchasers to that effect, will use its commercially reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Purchaser pursuant to Section 7.3(b)(i) hereof when the amendment has become effective).

(c)          In the event of (i) any request by the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) the receipt by Parent of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Exchange Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) any event or circumstance which, upon the advice of its counsel, necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any

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omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then Parent shall promptly deliver a notice in writing to the Purchasers (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Purchasers will refrain from selling any Exchange Shares pursuant to the Registration Statement (a “Suspension”) until the Purchasers’ receipt of copies of a supplemented or amended Prospectus prepared and filed by Parent, or until the Purchasers are advised in writing by Parent that the current Prospectus may be used, and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, Parent will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as promptly as practicable after the delivery of a Suspension Notice to the Purchasers. Notwithstanding the foregoing, Parent shall not be required to amend or supplement the Registration Statement, any related Prospectus or any document incorporated therein by reference in the event that, and for a period (a “Black Out Period”) not to exceed, for so long as this Agreement is in effect, thirty (30) days consecutively in any ninety (90) day period or ninety (90) days in any twelve (12) month period if either (A) any action by Parent pursuant to this Section 7.4(c) would violate applicable law or (B) (x) an event occurs and is continuing as a result of which the Registration Statement, any related Prospectus or any document incorporated therein by reference as then amended or supplemented would, in Parent’s good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (y) (1) Parent determines in good faith that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of Parent or (2) the disclosure otherwise relates to a material business transaction which has not yet been publicly disclosed in any relevant jurisdiction.

(d)          Provided that a Suspension or a Black Out Period is not then in effect, the Purchasers may sell Exchange Shares received pursuant to this Agreement under the Registration Statement in the manner set forth under the caption “Plan of Distribution” in the Prospectus, provided that each arranges for delivery of a current Prospectus to the transferee of the Exchange Shares. Upon receipt of a request therefor, Parent agrees to provide an adequate number of current Prospectuses to the Purchasers and to supply copies to any other parties requiring such Prospectuses.

7.4 Indemnification.

(a) For the purpose of this Section 7.4:

(i)           the term “Selling Stockholder” shall include the Purchasers and their respective Affiliates;

(ii)          the term “Registration Statement” shall include the Prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the Securities Act or filed as part of the Registration Statement at the time of effectiveness if no

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Rule 424(b) filing is required, any exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 7.1; and

(iii)        the term “untrue statement” shall include any untrue statement or alleged untrue statement of a material fact in the Registration Statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein not misleading.

(b)          Parent agrees to indemnify and hold harmless each Selling Stockholder and its officers, directors, members and their respective successors and assigns (collectively, the “Selling Stockholder Indemnified Parties”) from and against any third party losses, claims, damages or liabilities to which such Selling Stockholder Indemnified Parties may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any breach of the representations or warranties of Parent contained herein, or failure to comply with the covenants and agreements of Parent contained herein, (ii) any untrue statement of a material fact contained in the Registration Statement as amended at the time of effectiveness or any omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (iii) any failure by Parent to fulfill any undertaking included in the Registration Statement as amended at the time of effectiveness, and Parent will reimburse such Selling Stockholder Indemnified Parties for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, provided, however, that Parent shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, (1) an untrue statement made in such Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading in reliance upon and in conformity with written information furnished to Parent by or on behalf of such Selling Stockholder Indemnified Parties specifically for use in preparation of the Registration Statement, (2) a breach of any representations or warranties made by such Selling Stockholder herein, or the failure of such Selling Stockholder Indemnified Parties to comply with its covenants and agreements contained in this Agreement hereof or (3) the use by the Selling Stockholder Indemnified Party of an outdated or defective Prospectus after Parent has notified such Selling Stockholder Indemnified Party in writing that the Prospectus is outdated or defective and prior to the receipt by such Selling Stockholder Indemnified Party of a supplemented Prospectus or written notice from Parent that the use of the applicable Prospectus may be resumed. Parent shall reimburse each Selling Stockholder Indemnified Party for the amounts provided for herein on demand as such expenses are incurred.

(c)          Each Purchaser agrees to indemnify and hold harmless Parent (and each person, if any, who controls Parent within the meaning of Section 15 of the Securities Act, each officer of Parent who signs the Registration Statement and each director of Parent) from and against any third party losses, claims, damages or liabilities to which Parent (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any breach of the representations and warranties of such Purchaser contained herein or in Exhibit A hereto, (ii) any failure to comply with the covenants

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and agreements of such Purchaser contained herein, or (iii) any untrue statement of a material fact contained in the Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading if such untrue statement or omission was made in reliance upon and in conformity with written information furnished by or on behalf of such Purchaser specifically for use in preparation of the Registration Statement, and such Purchaser will reimburse Parent (or such officer, director or controlling person), as the case maybe, for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that such Purchaser’s obligation to indemnify Parent or any other persons hereunder shall be limited to the amount by which the net amount received by such Purchaser from the sale of the Exchange Shares to which such loss relates exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue statement or omission, provided further that, with respect to any indemnification obligation arising under clause (iii) of this paragraph (b), such obligation shall be limited to the net amount received by such Purchaser from the sale of the Exchange Shares included in the Registration Statement in question.

(d)          Promptly after receipt by any indemnified person of a notice of a claim or the commencement of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 7.4, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying person will not relieve it from any liability which it may have to any indemnified person under this Section 7.4 (except to the extent that such omission materially and adversely affects the indemnifying person’s ability to defend such action or such failure results in the forfeiture by the indemnifying party of substantial rights or defenses) or from any liability otherwise than under this Section 7.4. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified person promptly after receiving the aforesaid notice from such indemnified person, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof. Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) only in the event that (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would, in the opinion of counsel for the indemnified party, present such counsel with a potential or actual conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. In no event shall any indemnifying person be liable in respect of any amounts paid in

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settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.

(e)          If the indemnification provided for in this Section 7.4 is unavailable to or insufficient to hold harmless an indemnified person under subsection (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying person, in lieu of indemnifying such indemnified person, shall contribute to the amount paid or payable by such indemnified person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of Parent, on the one hand, and the Purchaser(s), on the other, in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by Parent, on the one hand, or the Purchaser(s), on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. Parent and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified person as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), a Purchaser shall not be required to contribute any amount in excess of the amount by which the net amount received by such Purchaser from the sale of the Exchange Shares to which such loss relates exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each Purchaser’s obligations in this subsection (e) to contribute shall be in proportion to its sale of Exchange Shares to which such loss relates and shall not be joint with any other Selling Stockholders.

(f)           The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 7.4, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 7.4 fairly allocate the risks in light of the ability of the parties to investigate Parent and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act. The parties are advised that federal or state public policy as interpreted by the courts in certain jurisdictions may be contrary to certain of the

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provisions of this Section 7.4, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 7.4 and further agree not to attempt to assert any such defense.

7.5          Registration Expenses. Parent will bear all expenses incident to or incurred in connection with the preparation and filing of the Registration Statement whether or not declared effective, including, without limitation, all registration and filing fees and expenses, fees and expenses of compliance with federal and state securities laws or with blue sky laws as provided in Section 7.1(f), any NASD filing fees required to be made in connection with an underwritten offering of the Exchange Shares, application and filing fees and expenses, duplicating and printing expenses, and fees and disbursements of counsel to Parent (including expenses of legal opinions) and all independent accountants, but excluding fees and expenses of counsel to any of the Purchasers, fees and expenses of any accountants, engineers, consultants or any other advisers to the Purchasers, any underwriting discount or commission and any broker-dealer sales commission that the Purchasers may incur in disposing of their Exchange Shares.

7.6          Termination of Conditions and Obligations. The conditions precedent imposed by this Agreement upon the transferability of the Exchange Shares, shall cease and terminate as to any particular Exchange Share when the sale of the Exchange Share shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering the sale of the Exchange Share or at such time as an opinion of counsel reasonably satisfactory to Parent shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act.

8.            Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within the United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail, three (3) business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one (1) business day after so mailed, (iii) if delivered by International Federal Express, two (2) business days after so mailed, (iv) if delivered by facsimile, upon electronic confirmation of receipt and shall be delivered as addressed as set forth in the Partnership Purchase Agreement.

9.            Reliance. Each Purchaser and Parent understand and agree that the other party and its respective officers, directors, employees and agents may, and will, rely on the accuracy of the other party’s respective representations and warranties in this Agreement to establish compliance with applicable securities laws. Each Purchaser and Parent agree to indemnify and hold harmless all such parties against all losses, claims, costs, expenses and damages or liabilities which they may suffer or incur caused or arising from their reliance on such representations and warranties.

10. Termination. This Agreement shall terminate upon the earliest to occur of:

(a) the consummation of the IPO;

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(b)          as to any Purchaser, the agreement of Parent and such Purchaser to terminate this Agreement;

(c) the liquidation and dissolution of the Partnership; or

(d)          the date that the Registration Statement is declared effective by the Commission;

provided, however, that in the event that this Agreement is terminated pursuant to this Section 7 prior to the time specified in Section 7.1(c), the terms of Article 7 shall survive until the time specified in Section 7.1(c).

The date of the termination of this Agreement is referred to in this Agreement as the “Termination Date.”

11. Miscellaneous.

11.1       Survival. The representations and warranties made in this Agreement shall survive the closing of the transactions contemplated by this Agreement.

11.2       Assignment. This Agreement is not transferable or assignable, except that the rights of the Purchasers set forth in Section 7 hereof shall be transferable by a Purchaser to its Affiliate.

11.3       Execution and Delivery of Agreement. Parent shall be entitled to rely on delivery by facsimile transmission of an executed copy of this Agreement, and acceptance by Parent of such facsimile copy shall create a valid and binding agreement between the Purchaser and Parent.

11.4       Titles. The titles of the sections and subsections of this Agreement are for the convenience of reference only and are not to be considered in construing this Agreement.

11.5       Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement.

11.6       Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matters herein and supersedes and replaces any prior agreements and understandings, whether oral or written, between them with respect to such matters.

11.7       Waiver and Amendment. Except as otherwise provided herein, the provisions of this Agreement may be waived, altered, amended or repealed, in whole or in part, only upon the mutual written agreement of Parent and Purchasers acquiring in the aggregate a majority of the Exchange Shares pursuant to this Agreement and if any such amendment, modification, restatement or supplement would adversely affect the rights or increase the obligations of any Purchaser hereunder, the approval of such Purchaser will be required for such amendment, modification, restatement or supplement. This Section 11.7 shall not be amended, modified,

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restated or supplemented without the written approval of 100% of the Purchasers. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against who that waiver is sought to be enforced. No failure or delay on the part of any of the parties in exercising any right, power or privilege hereunder, and no course of dealing between or among any of the parties, shall operate as a waiver of any right, power or privilege hereunder. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. No notice to or demand on any of the parties in any case shall entitle such party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any party to any other or further action in any circumstances without notice or demand.

11.8       Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. In the event that this Agreement is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format date file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

11.9       Governing Law. This Agreement is governed by and shall be construed in accordance with the laws of the State of New York.

11.10 Submission to Jurisdiction

11.11 . Each of the parties to this Agreement hereby (a) irrevocably submits to the non-exclusive personal jurisdiction of any New York state or federal court, over any claim arising out of or relating to this Agreement and irrevocably agrees that all such claims may be heard and determined in such New York state or federal court, and (b) irrevocably waives, to the fullest extent permitted by applicable law, any objection it may now or hereafter have to the laying of venue in any proceeding brought in a New York state or federal court, and any claim that any such proceeding brought in a New York state or federal court, has been brought in an inconvenient forum; provided, however, that nothing in this paragraph is intended to waive the right of any of the parties to remove any such action or proceeding commenced in any a New York state court to an appropriate New York federal court to the extent the basis for such removal exists under applicable law. Each of the parties hereby irrevocably agrees that service of process may be made on him, her or it by mailing, by certified mail, a copy of such process to such party at his, her or its address for notices specified herein. Each of the parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this paragraph shall affect the right of any of the parties to serve legal process in any other manner permitted by law or affect the right of any of the parties to bring any action or proceeding in the courts of any other jurisdictions, domestic or foreign.

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11.11     Attorney’s Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorney’s fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy.

11.12     Independent Nature of Purchaser’s Obligations and Rights. The obligations of each Purchaser under this Agreement are several and not joint with the obligations of any other present or subsequent purchaser of the Exchange Shares, and each Purchaser shall not be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement. The decision of each Purchaser to exchange Purchased Common Units for Exchange Shares pursuant to this Agreement will be made by such Purchaser independently of any other Purchaser of the Exchange Shares and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of Parent or the Partnership that may have been made or given by any other Purchaser or by any agent or employee of any such Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other Purchaser (or any other Person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute such Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that such Purchaser is in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making an investment in the Exchange Shares and that no other Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Exchange Shares. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser represents that it has been represented by its own separate legal counsel in its review and negotiations of this Agreement.

11.12 Successors and Assigns

11.13 . Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Exchange Shares from time to time.

1.14 Remedies

1.15 . The Parties agree that the covenants and obligations in this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms hereof would cause irreparable injury in an amount which would be impossible to estimate or determine and for which any remedy at law would be inadequate. As such, the parties agree that if any of the parties fails or refuses to fulfill any of its obligations under this Agreement or to make any payment or deliver any instrument required hereunder, then the other parties shall have the remedy of

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specific performance, which remedy shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies otherwise available under any other contract or at law or in equity and to which such party might be entitled.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above mentioned.

ABRAXAS PETROLEUM CORPORATION

By:/s/ Chris E. Williford

Name: Chris E. Williford

Title: Executive Vice President, Chief Financial

Officer and Treasurer

ABRAXAS ENERGY PARTNERS, L.P.

By: Abraxas General Partner, LLC, General Partner

By:/s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

[Purchaser Signature Pages to Follow]

[Signature Page to Exchange and Registration Rights Agreement]

MANAGEMENT STOCKHOLDERS:

THE UNDERSIGNED AGREE TO THE PROVISIONS OF SECTION 3.8.

 

/S/ ROBERT L.G. WATSON

ROBERT L.G. WATSON

 

/S/ CHRIS E. WILLIFORD

CHRIS E. WILLIFORD

 

/S/ STEVEN T. WENDEL

STEVEN T. WENDEL

 

/S/ LEE BILLINGSLEY

LEE BILLINGSLEY

 

/S/ WILLIAM WALLACE

WILLIAM WALLACE

 

/S/ BARBARA M. STUCKEY

BARBARA M. STUCKEY

[Signature Page to Exchange and Registration Rights Agreement]

DIRECTORS:

 

/S/ FRANKLIN A. BURKE

Franklin A. Burke

[Signature Page to Exchange and Registration Rights Agreement]

[Signature Page to Exchange and Registration Rights Agreement]

EX-99

ABRAXAS PETROLEUM CORPORATION

www.abraxaspetroleum.com

Exhibit 99.1

NEWS RELEASE

Abraxas Forms a Master Limited Partnership and

Repays all Outstanding Indebtedness

SAN ANTONIO (May 25, 2007) - Abraxas Petroleum Corporation (AMEX:ABP) today announced that Abraxas will redeem its existing $125 million senior secured notes and has terminated its existing revolving credit facility. A conference call to discuss these transactions has been scheduled for 11:00 a.m. CT today.

Abraxas outstanding indebtedness will be repaid in connection with a series of transactions that are expected to close on May 25, 2007, including:

Abraxas formed a master limited partnership, Abraxas Energy Partners, L.P. (the “Partnership”), pursuant to which Abraxas contributed certain assets located in South and West Texas. The assets contributed to the Partnership had estimated proved reserves of approximately 65 Bcfe as of December 31, 2006 and which currently account for approximately 85% of Abraxas’ daily production. Abraxas through certain wholly-owned subsidiaries, will own an approximate 47% interest in the Partnership, consisting of 5,131,959 common units and 227,232 general partner units. The general partner of the Partnership, Abraxas General Partner, LLC, will be a wholly-owned subsidiary of Abraxas.

Abraxas, through certain wholly-owned subsidiaries, sold an approximate 53% interest in the Partnership in a private placement offering for $100 million. The private placement investor group was led by Lehman Brothers MLP Opportunity Fund L.P. and co-led by Citigroup Global Markets Inc., Third Point LLC, funds managed by Fiduciary Asset Management, LLC, and funds managed by Merrill Lynch Commodity Partners, L.P. and Tortoise Capital Resources Corporation. The private placement consisted of 6,002,408 common units at a purchase price of $16.66 per unit. In connection with the private placement of the Partnership units, the Partnership has entered into registration rights agreements with regard to the limited partner units purchased by the investors.

The Partnership entered into a $150 million credit facility, of which $35 million was drawn at closing.

Abraxas sold $22.5 million of its common stock in a private placement offering to several purchasers of the Partnership units. The private placement consisted of 5,874,678 shares of common stock, at a purchase price of $3.83 per share. The purchase price reflects the 10-day volume weighted average price of the Abraxas’ common stock prior to closing. The purchasers of the common stock were also issued a five-year warrant to purchase up to an additional 1,174,938 shares of common stock, at the purchase price of the common stock in the private placement. In connection with the private placement of Abraxas’ common stock, Abraxas has agreed to file a registration statement relating to the shares sold and the shares issuable upon exercise of the warrants within the next 30 days.

500 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232

Office: 210.490.4788 Fax: 210.490.8816

Net proceeds from the above transactions of approximately $147.3 million will be used to repay all of Abraxas’ and its subsidiaries’ outstanding indebtedness with the excess proceeds dedicated to fund future drilling opportunities and for general corporate purposes.

“I am extremely pleased to announce that for the first time in almost thirty years, Abraxas is a debt-free entity, other than the debt at the Partnership. Earlier this year, we realized there was a unique opportunity to recapitalize Abraxas on much better terms than we currently had with our existing debt, and thus, we embraced and acted upon the opportunity to form a master limited partnership. As a result of the private placement, we will ultimately own (through certain wholly-owned subsidiaries) an approximate 47% interest in the Partnership, for which we will receive commensurate quarterly distributions. Outside of the Partnership, we retained approximately 34 Bcfe of proved reserves with numerous high-impact proved undeveloped and probable locations. We retained our resource plays in West Texas (Woodford Shale) and Wyoming (Brooks Draw), in addition to several exploratory projects we have identified in South Texas targeting the Wilcox formation,” commented Bob Watson, President and CEO of Abraxas.

A.G. Edwards acted as exclusive financial advisor in connection with the formation of the Partnership and the sole placement agent in connection with the private placement offerings of the Partnership’s common units and Abraxas’ common stock and warrants.

SG Americas Securities, LLC acted as bookrunner and lead arranger, and Société Générale acted as administrative agent, for the Partnership’s credit facility.

Conference call information: Abraxas invites you to participate in a conference call on Friday, May 25, 2007, at 11:00 a.m. CT to discuss these transactions and respond to questions. Please dial 1.866.383.8003, passcode 28714401, 10 minutes before the scheduled start time, if you would like to participate in the call. The conference call will also be webcast live on the Internet and can be accessed directly on the Company’s website at www.abraxaspetroleum.com under the Investor Relations section. In addition to the audio webcast replay, a podcast and transcript of the conference call will be posted on the Investor Relations section of the Company’s website approximately 24 hours after the conclusion of the call, and will be accessible for at least 60 days.

The securities have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and unless so registered, the securities may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction. For more details, refer to the 8-K filed with the Securities and Exchange Commission on even date.

Abraxas Petroleum Corporation is a San Antonio-based crude oil and natural gas exploitation and production company with operations in Texas and Wyoming.

Safe Harbor for forward-looking statements: Statements in this release looking forward in time involve known and unknown risks and uncertainties, which may cause Abraxas’ actual results in future periods to be materially different from any future performance suggested in this release. Such factors may include, but may not be necessarily limited to, changes in the prices received by Abraxas for natural gas and crude oil. In addition, Abraxas’ future natural gas and crude oil production is highly dependent upon Abraxas’ level of success in acquiring or finding additional reserves. Further, Abraxas operates in an industry sector where the value of securities is highly volatile and may be influenced by economic and other factors beyond Abraxas’ control. In the context of forward-looking information provided for in this release, reference is made to the discussion of risk factors detailed in Abraxas’ filings with the Securities and Exchange Commission during the past 12 months.

FOR MORE INFORMATION CONTACT:

Barbara M. Stuckey/Director of Corporate Development

Direct Telephone 210.757.9835

Main Telephone 210.490.4788

bstuckey@abraxaspetroleum.com

www.abraxaspetroleum.com

EX-10

Exhibit 10.7

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Warrant No. 2007-_____

COMMON STOCK PURCHASE WARRANT

To Purchase ___________ Shares of Common Stock of

ABRAXAS PETROLEUM CORPORATION

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, __________________ (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after May ___, 2007 (the “Initial Exercise Date”) and on or prior to the close of business on May ___, 2012 (the “Termination Date”) but not thereafter, to subscribe for and purchase from ABRAXAS PETROLEUM CORPORATION, a Nevada corporation (the “Company”), up to ____________ shares (the “Warrant Shares”) of Common Stock, par value $0.01 per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(c). Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”) dated May ___, 2007, among the Company and the purchasers signatory thereto.

Section 1. Exercise.

(a)Exercise of Warrant. The Holder shall have the right at any time or from time to time on or after the Initial Exercise Date and on or before the Termination Date to exercise all or any part of this Warrant by (i) delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of

4746219v.7

the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) together with this Warrant; and (ii) within 3 Business Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer of immediately available funds or cashier’s check drawn on a United States bank, unless this Warrant is being exercised pursuant to the cashless exercise provision set forth in Section 2(d) below. In the event this Warrant is exercised in part, the Company shall issue a new Warrant, which shall be dated as of the date of this Warrant, covering the number of shares in respect of which this Warrant shall not have been exercised. The Company shall deliver any objection to any Notice of Exercise Form within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error.

(b)Expiration of Warrant. This Warrant shall expire and cease to be of any force or effect on the Termination Date.

(c)Exercise Price. The exercise price per share of the Common Stock at which Common Stock shall be purchasable upon exercise of this Warrant shall be $____, subject to adjustment hereunder (the “Exercise Price”).

(d)Cashless Exercise. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant by payment of cash , this Warrant may be exercised by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to, and the Company shall issue to Holder the number of Shares equal to, the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP (as defined below) on the Business Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

“VWAP” means, for any date, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the American Stock Exchange or such other exchange on which the Common Stock is then traded or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)).

(e) Mechanics of Exercise.

i.Authorization of Warrant Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase

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4746219v.7

rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

ii.Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Business Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date (a) the Exercise Price is received by the Company or (b) notification to the Company that this Warrant is being exercised pursuant to a cashless exercise provision set forth in Section 2(d) above. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(iv) prior to the issuance of such shares, have been paid.

iii.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

iv.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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4746219v.7

Section 3. CertainAdjustments.

(a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

(b)Reclassifications; Reorganizations. In case of any reclassification, capital reorganization, or change of the outstanding Common Stock of the Company (other than as a result of a subdivision, combination or stock dividend), or in case of any consolidation of the Company with, or merger of the Company into, another corporation or other business organization (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock of the Company), or in case of any sale or conveyance to another corporation or other business organization of the property of the Company as an entirety or substantially as an entirety, at any time prior to the expiration of this Warrant, then, as a condition of such reclassification, reorganization, change, consolidation, merger, sale or conveyance, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the holder of this Warrant, so that the holder of this Warrant shall have the right prior to the expiration of this Warrant to purchase, at a total price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company which might have been purchased by the holder of this Warrant immediately prior to such reclassification, reorganization, change, consolidation, merger, sale or conveyance, and in any such case appropriate provisions (including without limitation, provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock, and other securities and property thereafter deliverable upon exercise hereof.

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(c)Issuance of Additional Shares. If at any time the Company (except as hereinafter provided) issues or sells any additional shares of Common Stock after the Initial Exercise Date, other than (i) Warrant Shares, (ii) shares of Common Stock issued or issuable on conversion or exercise of Convertible Securities (as defined below) outstanding on the date hereof or (iii) Permitted Shares (as defined below), (collectively, any “Additional Shares”), in exchange for consideration in an amount per Additional Share less than the VWAP in effect immediately prior to the time of such issue or sale, then

i. the Exercise Price for which this Warrant is exercisable shall be reduced to a price equal to the price obtained by multiplying (i) the Exercise Price in effect immediately prior to the issuance of such Additional Shares by (ii) a fraction of which (x) the numerator equals the sum of (i) the number of fully-diluted shares of Common Stock outstanding immediately prior to such issue or sale and (ii) the number of additional shares of Common Stock that the aggregate consideration received by Company upon such issue or sale would purchase at the VWAP in effect immediately prior to such issuance and (y) the denominator equals the total number of shares of Common Stock outstanding immediately after such issue or sale, provided that if any adjustment would reduce the Exercise Price to below the par value of the shares of Common Stock, the Company will first reduce the par value to below such adjusted Exercise Price; and

ii. the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the Exercise Price in effect immediately prior to such issue or sale by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale and dividing the product thereof by the Exercise Price resulting from the adjustment made pursuant to clause (i) above.

“Permitted Shares” means any of the following:

i. options to purchase shares of Common Stock outstanding on the date hereof and the shares of Common Stock issuable upon exercise thereof;

ii. options to purchase shares of Common Stock and shares of Common Stock issued pursuant to any plan approved by the stockholders of the Company or in accordance with the rules and regulations of the securities exchange on which the shares of the Common Stock is then quoted, traded or granted after the date hereof and the shares of Common Stock issuable upon exercise thereof; and

iii. shares of Common Stock issued pursuant to that certain Exchange and Registration Rights Agreement dated as of May ___, 2007 by and among the Company, Abraxas Energy Partners, LP and the purchasers named therein.

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4746219v.7

(d)Issuance of Warrants or Other Rights. If at any time Company shall take a record of holders of its shares of Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger where Company is the surviving corporation) issue or sell, any warrants or other rights to subscribe for or purchase any additional shares of Common Stock other than Permitted Shares or any securities convertible into or exchangeable for Common Stock other than Permitted Shares (“Convertible Securities”), whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share of Common Stock for which shares of Common Stock are issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such Convertible Securities shall be less than the VWAP in effect immediately prior to the time of such issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be adjusted as provided in Section 3(c) on the basis that the maximum number of Additional Shares issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and Company shall have received all of the consideration payable therefor, if any, as of the date of the actual issuance of the number of shares of Common Stock for which this Warrant is exercisable and such warrants or other rights, provided that if any adjustment would reduce the Exercise Price to below the par value of the shares of the Common Stock, the Company will first reduce the par value to below such adjusted Exercise Price. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be made upon the actual issue of such additional shares of Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issuance of such shares of Common Stock upon such conversion or exchange of such Convertible Securities.

(e)Issuance of Convertible Securities. If at any time Company shall take a record of holders of its shares of Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger where Company is the surviving entity) issue or sell, any Convertible Securities other than Permitted Shares, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share of Common Stock for which shares of Common Stock are issuable upon such conversion or exchange shall be less than the VWAP in effect immediately prior to the time of such issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be adjusted as provided in Section 3(c) on the basis that the maximum number of Additional Shares necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities, provided that if any adjustment would reduce the Exercise Price to below the par value of the shares of Common Stock, the Company will first reduce the par value to below such adjusted Exercise Price. No adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be made under this Section 3(e) upon the issuance of any Convertible Securities that are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon

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the issuance of such warrants or other rights pursuant to Section 3(d). No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be made upon the actual issue of such shares of Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price have been or are to be made pursuant to other provisions of this Section 3, no further adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be made by reason of such issue or sale.

(f)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

(g)Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

Section 4. Transfer of Warrant.

(a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(c) hereof and to the provisions of Section 8.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

(b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

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(c)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may (except in case of a transfer of this Warrant to an Affiliate) require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company if American Stock Transfer & Trust Company, as transfer agent for the Company, reasonably requests, a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions and which opinion shall be at the expense of Company) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

Section 5. Miscellaneous.

(a)No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(e)(ii).

(b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

(c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

(d)Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.

(e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

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(f)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Company’s or the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company or a Holder willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder or Company (as the case may be), the breaching party shall pay to the other party such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the non-breaching party in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

(g)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

(h)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(i)Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to seek specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

(j)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

(k)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

(l)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(m)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

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********************

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated: May _____, 2007

ABRAXAS PETROLEUM CORPORATION

By:

Name: Chris E. Williford

Title: Executive Vice President, Chief Financial Officer and Treasurer

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4746219v.7

NOTICE OF EXERCISE

TO: ABRAXAS PETROLEUM CORPORATION

Attention: Chief Financial Officer

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(d), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(d).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4)Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended (together with the rules and regulations promulgated by the Securities and Exchange Commission thereunder, the “Securities Act”).

(5)Investment Experience. The undersigned has sufficient knowledge and experience in business, financial and investment matters so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof.

(6)Company Information; No General Solicitation. The undersigned had access to such information regarding the Company and its affairs as is necessary to enable it to evaluate the merits and risks of an investment in restricted securities of the Company and has had a reasonable opportunity to ask questions and receive answers and documents concerning the Company and its current and proposed operations, financial condition, business, business plans and prospects. The undersigned has not been offered any of the Warrant Shares by any means of general solicitation or advertising.

4746219v.7

(7)Acquisition for Own Account. The Warrant Shares being issued to and acquired by the undersigned are being acquired by it for its account for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof. The undersigned understands that it must bear the economic risk of such investment indefinitely, and hold the Warrant Shares indefinitely, unless a subsequent disposition of the Warrant Shares is registered pursuant to the Securities Act, or an exemption from such registration is available, and that the Company has no present intention of registering the Warrant Shares. The undersigned further understands that there is no assurance that any exemption from the Securities Act will be available or, if available, that such exemption will allow it to dispose of or otherwise transfer any or all of the Warrant Shares under the circumstances, in the amounts or at the times the undersigned might propose.

(8)Restricted Securities. The undersigned understands and acknowledges that none of the offer, issuance or sale of the Warrant Shares has been registered under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act. The undersigned understands and acknowledges that the Warrant Shares may be subject to additional restrictions on transfer under state and/or federal securities laws.

[SIGNATURE OF HOLDER]

Name of Investing Entity: _______________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

4746219v.7

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature: _____________________________

Holder’s Address: _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

4746219v.7

EX-10

Exhibit 10.2

Execution Copy

PURCHASE AGREEMENT

by and among

ABRAXAS ENERGY PARTNERS, L.P.

ABRAXAS GENERAL PARTNER, LLC

ABRAXAS OPERATING, LLC

ABRAXAS PETROLEUM CORPORATION

and

THE PURCHASERS NAMED HEREIN

TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS 2

1.1 Definitions 2

ARTICLE II PURCHASE AND SALE 8

2.1 Purchase 8

2.2 Closing 8

2.3 Closing Deliveries 8

2.4 Lock-Up 10

2.5 Hedges 10

2.6 Termination 10

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE

GENERAL PARTNER AND PARENT 10

3.1 Formation of Partnership Parties 10

3.2 Capitalization 11

3.3 Ownership of the General Partner 11

3.4 Ownership of the General Partner Interest in the Partnership 11

3.5 Ownership of the Operating Company 11

3.6 No other Subsidiaries 12

3.7 Authorization; Enforcement 12

3.8 No Violation 12

3.9 Restrictions on Distributions 13

3.10 Issuance of Purchased Securities 13

3.11 Financial Statements 13

3.12 Permits 13

3.13 Reserve Engineer 14

3.14 Information Underlying Reserve Report 14

3.15 Execution and Sufficiency of the Contribution Agreement 14

3.16 Validity of Contracts and Easements 14

3.17 Title to Assets 14

3.18 Environmental 15

3.19 No Consents 16

3.20 No Default 16

3.21 Certain Fees 16

3.22 Private Placement 17

3.23 Registration Rights; Preemptive Rights 17

3.24 Absence of Changes 17

3.25 Insurance 17

3.26 Transactions With Affiliates and Employees 17

3.27 No Litigation 17

3.28 Investment Partnership 18

i

3.29 Taxes 18

3.30 Qualifying Income 18

3.31 Accounting Firm 18

3.32 No Labor Dispute 18

3.33 Material Contracts 18

3.34 Absence of Undisclosed Liabilities 19

3.35 Disclosure 19

3.36 Oil and Gas Operations 19

3.37 Production Sales Contracts 19

3.38 Payment of Expenses and Royalties 19

3.39 Prepayments; Imbalances 20

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS 20

4.1 Organizations; Authority 20

4.2 Purchaser Intent 21

4.3 Purchases Status 21

4.4 Compliance with Laws and Other Instruments 21

4.5 Consents 21

4.6 No Government Declarations as to Purchased Securities 21

4.7 No Market for Purchased Securities 22

4.8 Reliance on Exemptions 22

4.9 Experience of Purchaser 22

4.10 Access to Information 22

4.11 Investment Risk 22

4.12 Publicly Traded Partnerships 22

4.13 No Legal, Tax or Investment Advice 23

4.14 Certain Fees 23

4.15 Certain Illegal Activities 23

ARTICLE V OTHER AGREEMENTS OF THE PARTIES 24

5.1 Transfer Restrictions 24

5.2 Integration 25

5.3 Further Assurances 25

5.4 Audited Financial Statements 25

5.5 Payment of Distributions 25

ARTICLE VI INDEMNIFICATION 26

6.1 Survival 26

6.2 Indemnification 26

6.3 Exclusive Remedy 28

6.4 Limitation of Damages 28

6.5 Remedies 28

ARTICLE VII 29

7.1 Entire Agreement 29

7.2 Notices 29

ii

7.3 Additional Information 29

7.4 Amendments; Waivers 29

7.5 Equal Treatment of Purchasers 30

7.6 Confidentiality and Non-Disclosure 30

7.7 Construction 30

7.8 Successors and Assigns 30

7.9 No Third-Party Beneficiaries 30

7.10 Governing Law 30

7.11 Execution 31

7.12 Severability 31

7.13 Expenses 31

7.14 Indpendent Nature of Purchaser’s Obligations and Rights 31

Schedules and Exhibits

Schedule 1 — List of Purchasers and Commitment Amounts

Schedule 3.11 — Unaudited Pro Forma Financial Statements

Schedule 3.16 — Validity of Contracts and Easements

Schedule 3.17(a) — Title to Assets

Schedule 3.24 — Absence of Changes

Schedule 3.33 — Material Contracts

Schedule 3.34 — Liabilities

Schedule 3.37 — Production Sales Contracts

Schedule 3.39 — Material Production Imbalances

Exhibit A — Contribution Agreement

Exhibit B — Form of Legal Opinion from Jackson Walker L.L.P. to Purchasers

Exhibit C — Form of Legal Opinion from Jackson Walker L.L.P. to Partnership

Exhibit D — Form of Legal Opinion from Hale Lane Peek Dennison and Howard

iii

PURCHASE AGREEMENT

This Purchase Agreement (this “Agreement”) is dated as of May 25, 2007 by and among ABRAXAS PETROLEUM CORPORATION, a Nevada corporation (the “Parent”), ABRAXAS ENERGY PARTNERS, L.P., a Delaware limited partnership (the “Partnership”), ABRAXAS GENERAL PARTNER, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Parent (the “General Partner”), Abraxas Operating, LLC, a Texas limited liability company (the “Operating Company”), and the purchasers listed on Schedule 1 attached hereto (individually, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act, the Partnership desires to issue and sell to each Purchaser, and each Purchaser desires to purchase from the Partnership, certain securities of the Partnership as more fully described in this Agreement;

WHEREAS, at or prior to the execution of this Agreement, the Parent, the General Partner, the Partnership and the other parties named therein shall enter into that certain Contribution, Conveyance and Assumption Agreement (the “Contribution Agreement”);

WHEREAS, in connection with the consummation of the transactions contemplated by the Contribution Agreement, among other things (i) the Parent will contribute the Assets to the Operating Company (the “Contribution”) subject to certain liabilities of the Parent under the Senior Notes (defined below), in exchange for a general partner interest and an indirect limited partner interest in the Partnership; (ii) the Partnership and the other parties named therein shall enter into that certain $150,000,000 Revolving Credit Facility with Société Générale (the “Credit Agreement”) under which the Partnership will immediately borrow $35,000,000; and (iii) the Partnership will assume certain of Parent’s indebtedness, and will use the proceeds from the sale of Purchased Securities and the amount borrowed under the Credit Agreement to refinance and repay the $125 million Floating Rate Senior Notes issued by the Parent and currently outstanding (the “Senior Notes”).

WHEREAS, it is a condition to the obligations of the Purchasers hereunder that, contemporaneously with the sale of Purchased Securities, (i) the Contribution is completed, (ii) the Credit Agreement is consummated, and (iii) the Senior Notes and the Existing Credit Facility are refinanced and repaid;

WHEREAS, the Partnership desires to sell to the Purchasers and the Purchasers desire to Purchase from the Partnership up to 6,002,408 Common Units; and

WHEREAS, it is a condition to the obligations of the Purchasers hereunder that the Partnership provide the Purchasers with certain registration rights as set forth in the Registration Rights Agreement;

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are

hereby acknowledged, the Partnership and the General Partner and each Purchaser, severally and not jointly, agree as follows:

ARTICLE I

DEFINITIONS

1.1. Definitions. The following terms have the meanings indicated:

“Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble hereto.

“Assets” has the meaning set forth in the Contribution Agreement.

“Assignment” means one or more Assignment and Assumption Agreements and Bills of Sale substantially in the form attached as Exhibit A to the Contribution Agreement.

“Assumption and Indemnification Agreement” has the meaning set forth in the Contribution Agreement.

“Available Cash” has the meaning set forth in the Partnership Agreement.

“Business Day” means any day other than a Saturday, Sunday, or a legal holiday for commercial banks in New York, New York.

“Closing” has the meaning set forth in Section 2.2 of this Agreement.

“Closing Date” has the meaning set forth in Section 2.2 of this Agreement.

“Commission” means the Securities and Exchange Commission.

“Commitment Amount” means the amount set forth opposite each Purchaser’s name on Schedule 1 to this Agreement, which shall be the product of the number of Common Units purchased by such Purchaser times the Per Unit Purchase Price.

“Common Units” has the meaning assigned to such term in the Partnership Agreement.

“Confidentiality Agreement” has the meaning set forth in Section 7.6 of this Agreement.

“Contracts” means the Partnership’s right, title and interest in and to all farm out agreements, utilization agreements, pooling agreements, unit declarations, gas sales or purchase contracts, operating agreements and contracts attributable to the Oil and Gas Properties or other agreements and instruments (including all amendments thereto and any agreements settling claims asserted thereunder) to the extent and only to the extent that the same (i) relate, pertain or

2

are incidental to the Oil and Gas Properties and (ii) are material to the value, use or operation of the Oil and Gas Properties.

“Contribution” has the meaning set forth in the recitals hereto.

“Contribution Agreement” has the meaning set forth in the recitals hereto.

“Credit Agreement” has the meaning set forth in the recitals hereto and any successor or replacement agreement (together with all documents and instruments executed in connection therewith), whether with the same or any other lender, group of lenders or agent, in each case as the same may be amended (including an amendment and restatement thereof), modified, supplemented, extended, restated, substituted, replaced, renewed or refinanced from time to time.

“Defensible Title” has the meaning set forth in the Contribution Agreement.

“Delaware LP Act” means the Delaware Revised Limited Partnership Act, as amended from time to time.

“Easements” means the Partnership’s non-exclusive right to use lands, tenements, appurtenances, surface leases, easements, permits, licenses, servitudes and rights-of-way in any way appertaining, belonging, affixed or incidental to or used in connection with the ownership or operation of the Oil and Gas Properties.

“Effective Time” has the meaning set forth in the Contribution Agreement.

“Environmental Laws and Regulations” means all Laws of any Governmental Authority relating to pollution, nuisance, natural resources or the protection of health and safety (relating to exposure to Hazardous Materials), the environment, (including emissions, discharges, Releases, or threatened Releases of any Hazardous Material; and the manufacture, processing, distribution, use, coverage, disposal, transportation, storage or handling of any Hazardous Material) in effect as of the date hereof including, without limitation, (i) the Federal Clean Air Act, 42 U.S.C. §§ 7401 et seq.; (ii) the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq.; (iii) the Federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. §§ 1101 et seq.; (iv) the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; (v) the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq.; (vi) the Solid Waste Disposal Act, 42 U.S.C. §§ 6901 et seq.; (vii) the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.; and (viii) the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

“Existing Credit Facility” means that certain Loan Agreement, dated as of October 28, 2004, by and among the Parent, the subsidiaries of the Parent signatory thereto, the lenders signatory thereto and Wells Fargo Foothill, Inc., as the Arranger and Administrative Agent, as amended.

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“Existing Liens” means the Liens granted pursuant to the Indenture and the Existing Credit Facility.

“Financial Statements” means the unaudited pro forma financial statements of the Partnership attached hereto as Schedule 3.11.

“General Partner” has the meaning set forth in the preamble hereto.

“Governmental Authority” means any United States or foreign, federal, state, local or provincial government or any governmental, regulatory or administrative authority, agency, commission, body or other entity or any court, tribunal, or judicial or arbitral body.

“Hazardous Materials” means any hazardous, infectious or toxic substance, chemical, pollutant, contaminant, emission or waste which is regulated or requires removal, remediation or reporting under any Environmental Laws and Regulations. Hazardous Materials include, without limitation, anything which is: (i) defined as a “pollutant” pursuant to 33 U.S.C. § 1362(6) as of the date of this Agreement; (ii) defined as a “hazardous waste” pursuant to 42 U.S.C. § 6921 as of the date of this Agreement; (iii) defined as a “regulated substance” pursuant to 42 U.S.C. § 6991 as of the date of this Agreement; (iv) defined as a “hazardous substance” pursuant to 42 U.S.C. § 9601(14); (v) defined as a “pollutant or contaminant” pursuant to 42 U.S.C. § 9601(33) as of the date of this Agreement; (vi) petroleum; (vii) asbestos; and (viii) polychlorinated biphenyl.

“Hydrocarbon Interests” means all rights, titles, interests and estates now owned or hereafter acquired by the Operating Company in and to oil and gas leases, oil, gas and mineral leases (including subleases), oil, gas and casinghead gas leases, or other liquid or gaseous hydrocarbon leases, mineral fee or lease interests, other oil, gas and mineral leasehold fee or term interests, farm outs, overriding royalty and royalty interests, net profits interests, net revenue interests, carried interests, oil payments, production payment interests and similar mineral interests, including any reserved, reversionary or residual interest of whatever nature.

“Indenture” means that certain Indenture dated as of October 28, 2004 among the Parent, the subsidiary guarantors named therein and U.S. Bank National Association as Trustee, as amended and supplemented.

“Indemnified Party” has the meaning set forth in Section 6.2(c) of this Agreement.

“Indemnifying Party” has the meaning set forth in Section 6.2(c) of this Agreement.

“Initial Public Offering” has the meaning set forth in the Partnership Agreement.

“Investor Rights Agreement” means that certain Investor Rights Agreement dated as of the date hereof by and among the Parent, the Partnership , the GP and the Purchasers.

“Law” means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, law, rule, regulation or other restriction of any court or Governmental Authority (including federal and state securities law and regulations) in effect as of the date hereof.

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“Liens” means mortgages, charges, pledges, liens (statutory or other), security interests, hypothecations, assignments for security, claims, or preferences or priorities or other encumbrances or similar agreements or preferential agreements of any kind or nature whatsoever serving to provide security for any obligations whether or not filed, recorded or otherwise perfected under applicable law upon or with respect to any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Losses” means any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, reasonable attorneys’ fees.

“LTIP” means the Long Term Incentive Plan to be adopted by the Partnership.

“Master Operating Agreement” has the meaning set forth in the Omnibus Agreement.

“Material Adverse Effect” means with respect to any Person or group of Persons (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document or the Parent Securities Purchase Agreement to which such Person or group of Persons is a party, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of any such Person or group of Persons, (iii) a material adverse effect on the ability of such Person or group of Persons to perform in any material respect on a timely basis its obligations under any Transaction Document or the Parent Securities Purchase Agreement; or (iv) an event which would reasonably be expected to subject such Person or group of Persons to any material liability.

“Notice” has the meaning set forth in Section 7.2 of this Agreement.

“Oil and Gas Properties” means all of the Operating Company’s Hydrocarbon Interests; personal property and/or real property now or hereafter pooled or unitized with Hydrocarbon Interests; currently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including all units created under orders, regulations and rules of any governmental body having jurisdiction) which may affect all or any portion of the Hydrocarbon Interests; pipelines, gathering lines, compression facilities, tanks and processing plants; oil wells, gas wells, water wells, injection wells, platforms, spars or other offshore facilities, casings, rods, tubing, pumping units and engines, Christmas trees, derricks, separators, gun barrels, flow lines, gas systems (for gathering, dehydration, treating and compression), and water systems (for treating, disposal and injection); interests held in royalty trusts whether currently existing or hereafter created; hydrocarbons in and under and which may be produced, saved, processed or attributable to the Hydrocarbon Interests, the lands covered thereby and all hydrocarbons in pipelines, gathering lines, tanks and processing plants and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; tenements, hereditaments, appurtenances and personal property and/or real property in any way appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, and all rights, titles, interests and estates described or referred to above, including any and all real property, now owned or hereafter acquired, used or held for use in connection with the operating, working or development of any of such Hydrocarbon Interests or personal property and/or real property and including any and all surface leases, rights-of-way, easements and servitudes

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together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

“Omnibus Agreement” means that certain Omnibus Agreement, dated as of the Closing Date by and among the Parent, the General Partner, the Partnership and the Operating Company.

“Operating Company” has the meaning set forth in the preamble hereto.

“Parent” has the meaning set forth in the preamble hereto.

“Parent Securities Purchase Agreement” means that certain Securities Purchase Agreement dated as of the date hereof, by and among the Parent and the purchasers named therein.

“Partnership” has the meaning set forth in the preamble hereto.

“Partnership Agreement” means that First Amended and Restated Agreement of Limited Partnership of the Partnership dated May 25, 2007.

“Partnership Parties” means the Partnership, the General Partner, the Operating Company and the Parent.

“Patriot Act” has the meaning set forth in Section 4.15 of this Agreement.

“Per Unit Purchase Price” shall mean $16.66.

“Permitted Liens” has the meaning set forth in the Contribution Agreement.

“Person” means any individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or any court or other federal, state, local or other Governmental Authority or other entity of any kind.

“PowerPoint Presentation” means the PowerPoint presentation titled “Private Investment Opportunity in Upstream Master Limited Partnership”, dated April 2007.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prohibited Investor” has the meaning set forth in Section 4.15 of this Agreement.

“Purchased Securities” has the meaning set forth in Section 2.1 of this Agreement.

“Purchaser” has the meaning set forth in the preamble to this Agreement.

“Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of the Closing Date, by and among the Partnership and the Purchasers.

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“Related Party Agreements” means the Omnibus Agreement, the Contribution Agreement, the Assignment, the Master Operating Agreement and the Assumption and Indemnification Agreement.

“Release” means the active or passive spilling, emitting, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the indoor or outdoor environment.

“Reserve Engineer” has the meaning set forth in Section 3.12 of this Agreement.

“Reserve Report” means the Appraisal Report prepared by the Reserve Engineer covering the Parent’s natural gas and crude oil reserve information as of December 31, 2006.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such rule.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

“Senior Notes” has the meaning set forth in the recitals hereto.

“Subsidiary” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares or member interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, (b) a partnership (whether general or limited) or limited liability company in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership or member of such limited liability company, but only if more than 50% of the Partnership or member interests of such partnership or limited liability company (considering all of the Partnership or member interests of the Partnership or limited liability company as a single class) is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, or (c) any other Person (other than a corporation, partnership or limited liability company) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Total Commitment Amount” means $100,000,000.

“Transaction Documents” means this Agreement, the Partnership Agreement, the Investor Rights Agreement, the Credit Agreement, the Registration Rights Agreement, the Related Party Agreements, and any other agreements executed in connection with the transactions contemplated hereunder.

“Transactions” means the consummation of the transactions contemplated by the Transaction Documents or the Parent Securities Purchase Agreement.

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“Transfer Agent” has the meaning set forth in the Partnership Agreement.

ARTICLE II

PURCHASE AND SALE

2.1.Purchase. Subject to the terms and conditions hereof, each Purchaser, severally and not jointly, hereby agrees to purchase from the Partnership and the Partnership hereby agrees to issue and sell to each Purchaser, on the Closing Date, such number of Common Units as is set forth under the column entitled “Common Units” on Schedule 1 of this Agreement (the “Purchased Securities”) on the terms and subject to the conditions provided for herein. Each Purchaser, severally and not jointly, hereby agrees, in consideration of the Purchased Securities, to pay the Partnership the Commitment Amount corresponding to such Purchaser at the Closing.

2.2.Closing. The execution and delivery of the Transaction Documents and the Parent Securities Purchase Agreement, payment by each Purchaser and the consummation of the transactions contemplated hereby (the “Closing”) shall take place at the offices of Jackson Walker L.L.P., 112 E. Pecan St., Suite 2400, San Antonio, Texas 78205 on May 25, 2007 (the “Closing Date”).

2.3. Closing Deliveries.

(a)At the Closing, subject to the terms and conditions hereof, the Partnership will deliver, or cause to be delivered, to each Purchaser:

(i)the Purchased Securities by delivery of certificates evidencing such Purchased Securities at the Closing meeting the requirements of the Partnership Agreement, all free and clear of any Liens of any other Person or other restrictions whatsoever (other than those arising under the Partnership Agreement or state or federal securities laws or those created by a Purchaser);

(ii)Certificates of the Secretary of State of the State of Delaware and the State of Nevada, as applicable, each dated as of a recent date, that each of the Partnership, the General Partner, the Operating Company and the Parent is in good standing or existence, as the case may be;

(iii)Confirmation that all closing conditions under the Parent Securities Purchase Agreement have been satisfied in all material respects or the fulfillment of any such conditions shall have been waived, except for those conditions which, by their nature, will be satisfied concurrently with the Closing.

(iv)The Contribution Agreement, which shall have been duly executed by the Partnership Parties;

(v)The Omnibus Agreement, which shall have been duly executed by the Partnership Parties;

(vi)The Partnership Agreement, which shall have been duly executed by the Partnership Parties;

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(vii)The Assignment, which shall have been duly executed by the Partnership Parties;

(viii)The Assumption and Indemnification Agreement, which shall have been duly executed by the Partnership Parties;

(ix)The Master Operating Agreement, which shall have been duly executed by the Partnership Parties;

(x)The Credit Agreement, which shall have been duly executed by the Partnership Parties and the other parties thereto;

(xi)The Registration Rights Agreement, which shall have been duly executed by the Partnership;

(xii)An opinion addressed to the Purchasers from Jackson Walker L.L.P., dated as of the Closing Date, in substantially the form and substance attached hereto as Exhibit B;

(xiii)A qualifying income opinion addressed to the Partnership from Jackson Walker L.L.P., dated as of the Closing date, in substantially the form and substance attached hereto as Exhibit C;

(xiv)An opinion addressed to the Purchasers from Hale Lane Peek Dennison and Howard, dated as of the Closing Date, in substantially the form and substance attached hereto as Exhibit D; and

(xv)Purchasers shall have received from the Partnership’s, the General Partner’s and the Operating Company’s Secretary or Assistant Secretary, a certificate having attached thereto (i) the certificate of limited partnership or certificate of formation of limited liability company, as applicable, in each case, as in effect at the time of the Closing, (ii) the Partnership Agreement or the Limited Liability Company Agreement, as applicable, in each case, as in effect at the time of the Closing, (iii) resolutions approved by the applicable governing body each of the foregoing entities authorizing the transactions contemplated by this Agreement, (iv) a list of the officers who are authorized to sign this Agreement for each such entity, (v) specimen signatures of such authorized officers and (vi) good standing certificates with respect to each such entity from the applicable authorities in the jurisdiction of organization of such entities, as applicable.

(b)At the Closing, subject to the terms and conditions hereof, each Purchaser will deliver, or cause to be delivered to the Partnership:

(i)The Commitment Amount, which shall be paid in United States dollars in immediately available funds, by wire transfer to an account designated in writing by the Partnership prior to the Closing;

(ii)The Partnership Agreement, which shall have been duly executed by such Purchaser; and

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(iii)The Registration Rights Agreement, which shall have been duly executed by such Purchaser.

2.4. Lock-Up.

(a)Without the written consent of the holders of a majority of the Purchased Securities, the Partnership agrees that it will not, nor will it permit any of its directors, officers and affiliates, to offer, sell, contract to sell, pledge, or otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the issuance or disposition of any Common Units or any securities convertible into or exchangeable therefor prior to the date which is 90 days from the Closing Date (the “Lock-up Date”), excluding (i) the issuance of Common Units, options and other equity-based awards under the LTIP and (ii) Common Units issued upon the exercise of options granted under the LTIP.

(b)Without the written consent of the Partnership and subject to the Partnership Agreement and Section 5.1 of this Agreement, each Purchaser agrees that from and after the Closing Date it will not offer, sell, contract to sell, pledge, or otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of any of the Purchased Securities prior to the Lock-up Date (other than to an Affiliate of such Purchaser); provided, however, that any Purchaser may enter into a cash settled derivative, total return swap or similar transaction with respect to the Purchased Securities purchased by it, subject to compliance by such Purchaser with all applicable rules and regulations of the Commission.

2.5.Hedges. Simultaneously with the Closing of the issuance and sale of the Purchased Securities, the Partnership shall have in place commodity price hedges on at least 75% of its proved developed producing volumes for no less than three (3) years from the Closing Date in form and substance reasonably satisfactory to the Purchaser.

2.6.Termination. Notwithstanding anything to the contrary contained herein, in the event the Partnership does not receive the Total Commitment Amount on the Closing Date, this Agreement shall automatically terminate and any payments of a Purchaser’s Commitment Amount received by the Partnership shall be returned to such Purchaser within two Business Days.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER AND PARENT

Each of the General Partner and Parent, jointly and severally, hereby represents and warrants to each Purchaser that, as of the Closing Date, after giving effect to the transactions contemplated by this Agreement:

3.1.Formation of Partnership Parties. Each of the Partnership Parties has been duly formed and is validly existing as a corporation, limited partnership or limited liability company, as the case may be, under the laws of its state of formation, with all requisite corporate, limited partnership or limited liability company power and authority to own or lease its properties and to conduct its business in all material respects as currently conducted. Each of the Partnership Parties is duly qualified, registered or licensed to do business as a foreign corporation, limited

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partnership or limited liability company, as the case may be, for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases property, or in which the nature of the business conducted by it makes such qualification necessary (except where the failure to be so qualified or registered or in good standing would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect).

3.2.Capitalization. Immediately after Closing, the only issued and outstanding limited partnership interests of the Partnership will consist of 11,134,367 Common Units. All outstanding Common Units have been or will be duly authorized and are or will be validly issued in accordance with the Partnership Agreement and are or will be fully paid (to the extent required under the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by Section 17-607 and 17-804 of the Delaware LP Act). Except as set forth in Schedule 3.2, there are no outstanding subscriptions, options, warrants, convertible securities, calls, commitments, agreements or rights to purchase or otherwise acquire from the Issuer any shares of, or any securities convertible into, the Common Units.

3.3.Ownership of the General Partner. All of the outstanding membership interests of the General Partner have been duly authorized and validly issued in accordance with the General Partner’s operating agreement and are fully paid (to the extent required under the General Partner’s operating agreement) and non-assessable (except as such nonassessability may be affected by Section 18-607 and 18-804 of the Delaware Limited Liability Company Act and otherwise by matters described in the General Partner’s operating agreement); and all of such membership interests are owned by Parent, free and clear of all Liens, encumbrances, security interests, charges or claims, except those granted pursuant to the Credit Agreement.

3.4.Ownership of the General Partner Interest in the Partnership. The General Partner is the sole general partner of the Partnership and owns a 2% general partner interest in the Partnership; such general partner interest has been duly authorized and validly issued in accordance with the Partnership Agreement; and the General Partner owns such general partner interest free and clear of all liens, encumbrances, security interests, charges and other claims. There are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or any right to subscribe for or acquire, any equity securities of the Partnership or the General Partner, or contracts or commitments by which the Partnership or the General Partner are bound to issue additional equity securities of the Partnership or the General Partner, or securities or rights convertible or exchangeable into equity securities of the Partnership or the General Partner nor is there any restriction upon the voting or transfer of any equity securities of the Partnership or the General Partner except as set forth in the Partnership Agreement.

3.5.Ownership of the Operating Company. All of the outstanding membership interests of the Operating Company have been duly authorized and validly issued in accordance with the Operating Company’s operating agreement and are fully paid (to the extent required under the General Partner’s operating agreement) and non-assessable (except as such nonassessability may be affected by Section 101.206 of the Texas Business Organizations Code and otherwise by matters described in the Operating Company’s operating agreement); and all of

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such membership interests are owned by the Partnership, free and clear of all Liens, encumbrances, security interests, charges or claims.

3.6.No Other Subsidiaries. Other than the Partnership’s ownership of 100% of the Operating Company, the Partnership does not own, directly or indirectly, any equity or debt securities of any corporation, partnership, limited liability company, joint venture, association or other entity.

3.7.Authorization; Enforcement. Each of the Partnership Parties has the requisite power and authority to execute and deliver the Transaction Documents to which it is a party, and to consummate the Transactions in the manner contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery by each of the Partnership Parties of the Transaction Documents to which it is a party, and the consummation by each such Partnership Party of the Transactions in the manner contemplated by the Transaction Documents to which it is a party has been or at Closing will be duly authorized by all necessary action on the part of such Partnership Party and no further consent or action is required by such Partnership Party in connection therewith. Each of the Transaction Documents to which each Partnership Party is a party has been or at Closing will be duly executed and delivered by such Partnership Party and each Transaction Document constitutes, or as of Closing will constitute, the legal, valid and binding obligation of each Partnership Party thereto, and is enforceable against each Partnership Party thereto in accordance with its terms, except as such enforceability may be limited by:

(a)applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general application relating to or affecting the enforcement of creditors rights generally,

(b)general principles of equity, including principles of commercial reasonableness, fair dealing and good faith (regardless of whether such enforceability is considered in a proceeding at law or in equity); and

(c)applicable laws and public policy with respect to the indemnity, contribution and exoneration provisions contained in the Transaction Documents.

3.8.No Violation. The offering, issuance and sale by the Partnership of the Purchased Securities being delivered at the Closing Date, the execution, delivery and performance of the Transaction Documents by the Partnership Parties that are parties thereto and the consummation by the Partnership Parties that are parties thereto of the Transactions do not and will not:

(a)violate any provision of the certificate of formation, partnership agreement, limited liability company agreement, or other organizational or charter documents of any of the Partnership Parties;

(b)constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a debt or other obligation of the Partnership Parties) to which the Partnership Party is a party or by which any property or asset of the

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Partnership Parties is bound or affected, except to the extent that such default, termination, amendment, acceleration or cancellation right would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect;

(c)result in the violation of any Law to which any of the Partnership Parties is subject (including applicable federal and state securities Laws and regulations) or by which any property or asset of the Partnership Parties is bound or affected, except to the extent that such violation would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; or

(d)result in the creation or imposition of any Lien, charge or encumbrance upon any property or assets of any of the Partnership Parties (other than liens created pursuant to the Credit Agreement or arising by, through or under the Partnership Agreement), which Liens would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.9.Restrictions on Distributions. Except as provided in the Partnership Agreement and the Credit Agreement, none of the Partnership Parties has entered into any agreement that restricts or prohibits its ability to pay cash distributions.

3.10.Issuance of the Purchased Securities. The Purchased Securities are duly authorized and, when issued and paid for in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable (except as such nonassessability may be affected by Section 17-607 and 17-804 of the Delaware LP Act and otherwise by matters described in the Partnership Agreement), free and clear of all Liens and shall not be subject to preemptive, redemption or similar rights (in each case, other than those arising under the Transaction Documents or those created by the Purchasers).

3.11.Financial Statements. The Partnership has made available to the Purchasers the Financial Statements. The Financial Statements attached hereto as Schedule 3.11 comply as to form in all material respects with the applicable requirements of Regulation S-X and have been prepared in all material respects in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly computed on the bases described therein. The assumptions used in the preparation of such pro forma financial statements are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein.

3.12.Permits. Each of the Partnership Parties possesses all certificates, authoritizations or permits issued by the appropriate local, state or federal regulatory agencies or bodies necessary to conduct the business currently conducted by it, and with respect to the Partnership, to be conducted immediately following Closing, except for such certificates, authorizations or permits which, (i) are of the type that are to be obtained in the ordinary course of business and the Partnership Parties reasonably believe will be obtained, or (ii) if not obtained, would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. None of the Partnership Parties has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which would reasonably be expected to have a Material Adverse Effect. The continuation, validity and effectiveness of all such certificates, authorizations and permits will not be adversely affected by the transactions

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contemplated by this Agreement, the other Transaction Documents or the Parent Securities Purchase Agreement.

3.13.Reserve Engineer. DeGolyer & MacNaughton (the “Reserve Engineer”) is the Parent’s independent reserve engineer. No information has come to the attention of the Partnership that could reasonably be expected to cause the Reserve Engineer to withdraw its Reserve Report.

3.14.Information Underlying Reserve Report. The information underlying the estimates of the Parent’s proved reserves that was supplied to the Reserve Engineer for the purposes of preparing the Reserve Report and estimates of the proved reserves that form part of the Assets which are set forth in the Reserve Report, including production, costs of operation, and, to the knowledge of the Partnership, future operations and sales of production, was true and correct in all material respects on the dates such information was provided, and such information was supplied and prepared in accordance with customary industry practices. Other than normal production of the reserves, product price fluctuations, and fluctuations of demand for such products, and except as disclosed in the Reserve Report, the Partnership is not aware of any facts or circumstances that would result in a materially adverse change in the reserves in the aggregate, or the aggregate present value of the future net cash flows therefrom, as reflected in the Reserve Report.

3.15.Execution and Sufficiency of the Contribution Agreement. The Partnership has, prior to or contemporaneously with entering into this Agreement, entered into the Contribution Agreement. The consummation of the transactions contemplated by the Contribution Agreement and the filing of record in the office of the county clerk of the counties within which the Assets are located, of one or more Assignments, will be legally sufficient to transfer or convey to the Operating Company all of the Parent’s right, title and interest in the Assets, subject to the Existing Liens and the conditions, reservations and limitations contained in the Contribution Agreement or any applicable Assignment. All of the representations and warranties made by Parent in the Contribution Agreement are true and correct.

3.16.Validity of Contracts and Easements. All Contracts and Easements related to the Oil and Gas Properties are in full force and effect, are valid and subsisting and cover the entire estates or rights that they purport to cover and contain no provision that prevents the Partnership from managing and operating, or causing the management and operations of, the Oil and Gas Properties. The Partnership Parties have performed all material obligations required to be performed by them to date under the Contracts and Easements. Except as disclosed on Schedule 3.16, to the knowledge of the Partnership Parties, no event has occurred, which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default by any third party under any Contract or Easement which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Partnership or the Operating Company.

3.17. Title to Assets.

(a)Except as disclosed on Schedule 3.17(a), the Operating Company has Defensible Title to the Oil and Gas Properties. Schedule 3.17(a) attached hereto sets forth a

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summary description of the Oil and Gas Properties which describes the Parent’s right, title and interest in the Oil and Gas Properties, as set forth in the PowerPoint Presentation, prior to the Effective Time. The Oil and Gas Properties contributed to the Operating Company pursuant to the Contribution Agreement and the Assignment (i) include all of the interests of Parent and its Affiliates in each of the counties referred to in Schedule 3.17(a), except as set forth on Schedule 3.17(a), and (ii) constitute not less than the percentages set forth in Schedule 3.17(a) of Parent’s proved reserves and oil and gas production.

(b)With respect to all real property and buildings held under lease by the Partnership and the Operating Company (A) such leases are in full force and effect and constitute valid and binding obligations of the Partnership and the Operating Company; (B) there have not been and there currently are not any defaults by either the Partnership or the Operating Company thereunder except for such defaults as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; (C) to the knowledge of the Partnership Parties, no event has occurred, which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default thereunder by the Partnership and the Operating Company entitling the lessor to terminate the lease; and (D) the continuation, validity and effectiveness of all such leases under the current rentals and other current terms thereof will not be adversely affected by the transactions contemplated by this Agreement, the other Transaction Documents or the Parent Securities Purchase Agreement.

3.18.Environmental. Except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect:

(a)The operations and activities of each of the Partnership Parties are in compliance with all applicable Environmental Laws and Regulations.

(b)Each of the Partnership Parties has obtained and is in compliance with all requirements, permits, licenses and other authorizations which are required with respect to its operations, under all applicable Environmental Laws and Regulations.

(c)There is no civil, criminal, administrative or other action, suit, demand, claim, hearing, notice of violation, proceeding, investigation, notice or demand pending, received, or, to the knowledge of the Partnership Parties, threatened against any of the Partnership Parties relating in any way to any applicable Environmental Laws and Regulations, which has not been abated.

(d) To the knowledge of the Partnership Parties, no real property currently owned, leased or operated by the Partnership Parties has been placed on the National Priorities List of hazardous waste sites by the U.S. Environmental Protection Agency and no real properties previously owned, leased or operated by the Partnership Parties is currently identified on this list.

(e) No underground tanks exist or, to the knowledge of the Partnership Parties, have existed on any real property now or previously owned, leased, operated or utilized by the Partnership Parties or their predecessors.

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(f)The Partnership Parties have made available to the Purchasers all internal and external environmental studies, reports, audits and assessments and all correspondence on substantial environmental matters related to the Partnership’s properties in possession of the Partnership Parties.

(g)No Hazardous Materials have been Released at, on, under or from any property currently owned, operated or to the knowledge of the Partnership Parties, previously owned or operated by the Partnership Parties for which remedial or corrective action may be required under applicable Environmental Laws and Regulations.

3.19.No Consents. No consent, approval, authorization, order, registration or qualification of or with any court or Governmental Authority or third party is required for the issuance and sale of the Purchased Securities by the Partnership or for the consummation by the Partnership Parties of the Transactions, except in each case for such consents, approvals, authorizations, orders, registrations or qualifications (i) as have been obtained, (ii) as may be required under federal or state securities or Blue Sky laws in connection with the purchase of the Purchased Securities or (iii) the failure of which to obtain would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.20.No Default. None of the Partnership Parties (i) is in violation of its certificate of limited partnership, certificate of formation, partnership agreement or other organizational or charter documents, (ii) is in default and no event has occurred which, with notice or lapse of time or both, would become a default under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a debt or other obligation of the Partnership Parties) to which a Partnership Party is a party or by which any property or asset of the Partnership Parties is bound or affected which default would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect, or (iii) is in violation of any Law to which any of the Partnership Parties is subject (including, without limitation, federal and state securities Laws and regulations), or by which any property or asset of the Partnership Parties is bound or affected, which violation would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the knowledge of the Partnership Parties, no third party to any agreement, credit facility, debt or other instrument (evidencing a debt or other obligation of the Partnership Parties) to which any of the Partnership Parties is a party or by which any of them is bound or to which any of their properties is subject, is in default under any such agreement, which default would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.21.Certain Fees. Other than fees owed to A.G. Edwards, Inc., no brokerage or finder’s fees or commissions (exclusive of certain other fees and expenses incurred in connection with the Credit Agreement or the transactions as described in the Contribution Agreement) are or will be payable by the Partnership to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the offer, sale and issuance of the Purchased Securities, and the Partnership has not taken any action that could cause the Purchasers to be liable for any such fees or commissions.

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3.22.Private Placement. Assuming the accuracy of the representations and warranties of the Purchasers contained in this Agreement, the offer, sale and issuance of the Purchased Securities to the Purchasers are exempt from the registration requirements of the Securities Act, and the securities laws of any state having jurisdiction with respect thereto and none of the Partnership Parties has taken any action that would cause the loss of such exemption.

3.23.Registration Rights; Preemptive Rights. Except for registration rights granted (i) pursuant to the Registration Rights Agreement or (ii) pursuant to the Partnership Agreement, the Partnership has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any Common Units or other securities of any of the Partnership Parties registered with the Commission. No person has any preemptive or similar rights with respect to the Common Units.

3.24.Absence of Changes. Except as disclosed on Schedule 3.24, since December 31, 2006, (i) none of the Partnership Parties has incurred any liability or obligation, indirect, direct or contingent (including off-balance sheet obligations), or entered into any transactions, not in the ordinary course of business, that, singly or in the aggregate, is material to the Partnership Parties, taken as a whole, (ii) except as a result of this offering, there has not been any material change in the capitalization, or material increase in the short-term debt or long-term debt, of the Partnership Parties, taken as a whole, and (iii) there has not been any material adverse change, or any development involving or which may reasonably be expected to involve, singly or in the aggregate, a prospective material adverse change in the business, prospects, financial condition or results of operations of the Partnership Parties, taken as a whole.

3.25.Insurance. The Partnership Parties are insured by insurers of recognized financial responsibility covering their properties, operations, personnel and businesses against such losses and risks and in such amounts as are reasonably adequate to protect them and the businesses in which the Partnership Parties are engaged. All such insurance is outstanding and duly in force on the date hereof.

3.26.Transactions With Affiliates and Employees. None of the officers or directors of the Partnership Parties and, to the knowledge of the Partnership Parties, none of the employees of the Partnership Parties is a party to any transaction with any of the Partnership Parties (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or any entity in which any officer, director or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case that would be required to be described in a registration statement on Form S-1 filed with the Commission under the Securities Act. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by any Partnership Party to or for the benefit of any of the officers or directors of any Partnership Party or their respective family members.

3.27.No Litigation. There is no action, suit, proceeding, hearing, or investigation of, in, or before any court or Governmental Entity or before any arbitrator pending or, to the

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knowledge of any Partnership Party, threatened against any Partnership Party or any of their assets that would reasonably be expected to have a Material Adverse Effect.

3.28.Investment Partnership. None of the Partnership Parties is now, and after the sale of the Purchased Securities and the application of the net proceeds from such sale will be, an “investment company” or a company “controlled by” an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

3.29.Taxes. (i) the Partnership Parties have, in respect of their business, filed all tax returns required to be filed other than those tax returns the failure of which to file would not have or be reasonably expected to have, singly or in the aggregate, a Material Adverse Effect; (ii) such tax returns are true, correct and complete; (iii) the Partnership Parties have paid in full all taxes shown to be due on such tax returns; and (iv) none of the Partnership Parties have received any written notice of deficiency or assessment from any taxing authority with respect to liabilities for taxes of the Partnership, which have not been fully paid or finally settled, unless being contested in good faith through appropriate proceedings and for which adequate reserves are presented on the Financial Statements.

3.30.Qualifying Income. The assets and businesses of the Partnership currently meet the gross income requirements of Section 7704 (c)(2) of the Internal Revenue Code of 1986, as amended, and are expected to continue to meet such gross income requirements for the taxable year ended December 31, 2007.

3.31.Accounting Firm. BDO Seidman L.L.P. is an independent registered public accounting firm with respect to the Partnership Parties.

3.32.No Labor Dispute. No labor dispute with the employees of any of the Partnership Parties exists or, to the knowledge of the Partnership Parties, is imminent or threatened that would, singly or in the aggregate, reasonably expected to have a Material Adverse Effect.

3.33.Material Contracts. Schedule 3.33 lists all material contracts and other agreements (and all written amendments or other modifications thereto) of the General Partner, the Partnership and the Operating Company. Except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect: (i) all of such material contracts and other agreements are valid, subsisting, in full force and effect, binding upon the General Partner, the Partnership or the Operating Company party thereto, as applicable, and, to the knowledge of the Partnership Parties, binding upon the other parties thereto in accordance with their terms; (ii) the General Partner, the Partnership or the Operating Company party thereto is not in default under any of them, nor, to the knowledge of the Partnership Parties, is any other party to any such contract or other agreement in default thereunder; and (iii) to the knowledge of the Partnership Parties no event has occurred that with notice or lapse of time or both would constitute a default by the General Partner, the Partnership or the Operating Company party thereto thereunder. Except as set forth in Schedule 3.33, no Person has any preferential right to purchase any of the Assets. Except as set forth in Schedule 3.33, no consents or other approvals are required from any third Person to transfer the Assets.

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3.34.Absence of Undisclosed Liabilities. Except as and to the extent (i) reflected and reserved against in the Financial Statements, (ii) of liabilities and obligations incurred by the Partnership or the Operating Company in the Ordinary Course of Business since the date of the Financial Statements or (iii) liabilities set forth on Schedule 3.34, the Partnership does not have any material indebtedness or obligations of any nature (whether absolute, accrued, contingent or otherwise) which are required to be reflected in the Financial Statements as a liability or disclosed in the footnotes to the Financial Statements in accordance with generally accepted accounting principles. The Partnership has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any liability), except for (i) liabilities set forth on the face of the Financial Statements and (ii) liabilities which have arisen after the Financial Statements in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of Law) and (iii) liabilities set forth on Schedule 3.34.

3.35.Disclosure. The PowerPoint Presentation was prepared in good faith with a reasonable basis for the information contained therein.

3.36.Oil and Gas Operations. To the knowledge of the Partnership Parties and the directors and officers (and employees with responsibility for oil and gas operational matters) of the Partnership Parties, all wells included in the Oil and Gas Properties have been drilled and (if completed) completed, operated and produced in accordance with generally accepted oil and gas field practices and in compliance in all material respects with applicable oil and gas leases, pooling and unit agreements, and Laws except where the failure to take any such action or comply would not have a Material Adverse Effect on the Partnership or the affected assets. Proceeds from the sale of oil, gas and other hydrocarbons produced from the Oil and Gas Properties are being received by the Operating Company in a timely manner and are not being held in suspense for any reason (except for amounts held in suspense in the Ordinary Course of Business).

3.37.Production Sales Contracts. Neither the Partnership nor the Operating Company is a party or subject to any agreements or arrangements for the sale of the Operating Company’s share of oil, gas and other hydrocarbons produced from the Oil and Gas Properties (including calls on, or other rights to purchase, production, whether or not the same are currently being exercised) other than (a) production sales contracts disclosed in Schedule 3.37, (b) agreements or arrangements which are cancelable on ninety (90) days notice or less without penalty or detriment or (c) except as contemplated by the Transaction Documents.

3.38.Payment of Expenses and Royalties. All expenses (including all bills for labor, materials and supplies used or furnished for use in connection with the Oil and Gas Properties, and all severance, production, ad valorem and other similar taxes) relating to the ownership or operation of the Oil and Gas Properties, have been, and are being, paid (timely, and before the same become delinquent) by the Operating Company, except such expenses and taxes as are disputed in good faith and for which an adequate accounting reserve has been established. To knowledge of the Partnership Parties, the Operating Company is not delinquent with respect to its obligations to bear costs and expenses relating to the development and operation of the Oil and Gas Properties. All royalties, overriding royalties, compensatory royalties and other

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payments due from or in respect of production with respect to the Properties, have been properly and correctly paid or provided for in all material respects.

3.39.Prepayments; Imbalances. The Operating Company is not obligated by virtue of a take or pay or other prepayment arrangement to deliver oil, gas or other hydrocarbons, or proceeds from the sale thereof, attributable to the Oil and Gas Properties at some future time without receiving payment therefor at or after the time of delivery. Schedule 3.39 sets forth all material production imbalances of the Operating Company as of the date set forth on such schedule with respect to the Oil and Gas Properties.

EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE III, THE TRANSACTION DOCUMENTS, THE PARENT SECURITIES PURCHASE AGREEMENT OR ANY CERTIFICATE DELIVERED HEREUNDER, NONE OF THE PARTNERSHIP PARTIES NOR ANY OF THEIR RESPECTIVE AFFILIATES, NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, MEMBERS OR EMPLOYEES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF THE PARTNERSHIP PARTIES NOR ANY OF THEIR RESPECTIVE ASSETS, LIABILITIES OR OPERATIONS.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASERS.

Each Purchaser hereby, severally and not jointly, represents and warrants to the Partnership Parties as follows:

4.1.Organization; Authority. Such Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Such Purchaser has the requisite corporate, partnership or limited liability company power and authority to enter into any Transaction Documents to which such Purchaser is a party and to consummate the Transactions hereunder and thereunder and otherwise to carry out its obligations hereunder and thereunder. The purchase by such Purchaser of the Purchased Securities has been duly authorized by all necessary action on the part of such Purchaser. Each of the Transaction Documents to which such Purchaser is a party has been or as of Closing will be duly executed and delivered by such Purchaser and constitutes, or as of Closing will be will constitute, the valid and binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as limited by:

(a)applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general application relating to or affecting the enforcement of creditors rights generally,

(b)general principles of equity, including principles of commercial reasonableness, fair dealing and good faith (regardless of whether such enforceability is considered in a proceeding at law or in equity); and

(c) applicable laws and public policy with respect to the indemnity, contribution and exoneration provisions contained in the Transaction Documents.

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4.2.Purchaser Intent. Such Purchaser is acquiring the Purchased Securities for investment purposes only and not with a view to or for distributing or reselling such Purchased Securities or any part thereof. Such Purchaser understands that it must bear the economic risk of this investment indefinitely, that the Purchased Securities may not be sold or transferred or offered for sale or transfer by it without registration under the Securities Act and any applicable state securities or Blue Sky laws or the availability of exemptions therefrom. Such Purchaser understands that any Transfer Agent of the Partnership will be issued stop-transfer restrictions with respect to the Purchased Securities unless such transfer is registered under the Securities Act and applicable state and other securities laws or unless an exemption from such registration is available. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold the Purchased Securities for any period of time. Such Purchaser understands and agrees that that if such Purchaser in the future decides to dispose of any of the Purchased Securities, that it may do so only in compliance with the Securities Act and applicable state securities Laws, as then in effect, or pursuant to an exemption therefrom or in the manner contemplated in any registration statement pursuant to which such securities are being offered. Notwithstanding the foregoing, such Purchaser may enter into a derivative transaction or one or more total return swaps with respect to its Purchased Securities with a third party provided that such transaction is exempt from registration under the Securities Act.

4.3.Purchaser Status. Such Purchaser is an “accredited investor” (within the meaning of Rule 501(a) under the Securities Act) and is acquiring the Purchased Securities only for its own account and not for the account of others, for investment purposes and not on behalf of any other account or Person or with a view to, or for offer or sale in connection with, any distribution thereof. Such Purchaser is not an entity formed for the specific purpose of acquiring the Purchased Securities.

4.4.Compliance with Laws and Other Instruments. The execution and delivery of the Transaction Documents by such Purchaser and the consummation of the transactions contemplated thereby do not conflict with or result in any violation of or default under any provision of any charter, bylaws, trust agreement, partnership agreement, or other organizational document, as the case may be, of such Purchaser or any agreement, certificate, or other instrument to which such Purchaser is a party or by which such Purchaser or, to such Purchaser’s knowledge, any of its properties is bound, or any permit, franchise, judgment, decree, statute, rule, regulation, or other Law applicable to such Purchaser or the business or properties of such Purchaser, other than any conflict, violation or default that would not affect such Purchaser’s ability to consummate the purchase of the Purchased Securities.

4.5.Consents. No consent, approval or authorization of, or filing, registration or qualification with, any court or governmental or regulatory department, agency or authority having jurisdiction over such Purchaser or its business or properties is required for the execution and delivery of this Agreement, the Registration Rights Agreement or the Partnership Agreement by the Purchaser or the performance of such Purchaser’s obligations and duties hereunder or thereunder.

4.6.No Government Declaration as to Purchased Securities. Such Purchaser agrees and is aware that no federal or state agency has passed upon the Purchased Securities, or made any findings or determination as to the fairness of an investment in the Purchased Securities.

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4.7.No Market for Purchased Securities. Such Purchaser understands that there is presently no established market for the Purchased Securities and that no public market for the Purchased Securities may develop.

4.8.Reliance on Exemptions. Such Purchaser understands that the Purchased Securities are being offered and sold to such Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Partnership is relying upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Purchased Securities.

4.9.Experience of Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Purchased Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Purchased Securities and, at the present time and in the foreseeable future, is able to afford a complete loss of such investment. Such Purchaser understands that the Purchased Securities it is purchasing are characterized as “restricted securities” under the federal securities Laws inasmuch as they are being acquired from the Partnership in a transaction not involving a public offering and that under such Laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, such Purchaser represents that it is knowledgeable with respect to Rule 144 under the Securities Act.

4.10. Access to Information. Such Purchaser has been afforded:

(a)the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Partnership Parties concerning the terms and conditions of the offering of the Purchased Securities and the merits and risks of investing in the Purchased Securities;

(b)access to information about the Partnership Parties and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and

(c)the opportunity to obtain such additional information from the Partnership Parties that is necessary to make an informed investment decision with respect to the investment.

4.11.Investment Risk. Such Purchaser acknowledges that it is aware that its investment in the Purchased Securities is speculative and involves a high degree of risk.

4.12.Publicly Traded Partnerships. Either such Purchaser is not a partnership, S corporation, or grantor trust for U.S. federal income tax purposes, or, if such Purchaser is a partnership, S corporation, or grantor trust, such Purchaser was not formed with, and will not be used for, a principal purpose of permitting the Partnership to satisfy the 100 partner limitation contained in Section 1.7704-1(h)(1)(ii) of the Treasury Regulations promulgated under the Code.

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4.13.No Legal, Tax or Investment Advice. Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Partnership to such Purchaser in connection with the purchase of the Purchased Securities constitutes legal, tax or investment advice. Such Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Purchased Securities.

4.14.Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by such Purchaser to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the offer, sale and issuance of the Purchased Securities, and such Purchaser has not taken any action that could cause the Partnership to be liable for any such fees or commissions.

4.15.Certain Illegal Activities. Such Purchaser represents that neither it nor, to its knowledge, any Person or entity controlling, controlled by or under common control with such Purchaser nor any Person or entity having a beneficial interest in such Purchaser nor any Person or entity on whose behalf such Purchaser is acting (a) is a Person or entity listed in the annex to Executive Order No. 13224 (2001) issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), (b) is named on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Office of Foreign Assets Control (OFAC), (c) is a non-U.S. shell bank or is providing banking services indirectly to a non-U.S. shell bank, (d) is a senior non-U.S. political figure or an immediate family member or close associate of such figure, or (e) is otherwise prohibited from investing in the Partnership pursuant to applicable U.S. anti-money laundering, antiterrorist and asset control laws, regulations, rules or orders (categories (a) through (e) collectively, a “Prohibited Investor”). Such Purchaser agrees to provide the Partnership, promptly upon request, all information that the Partnership reasonably deems necessary or appropriate to comply with applicable U.S. anti-money laundering, antiterrorist and asset control laws, regulations, rules and orders. Such Purchaser consents to the disclosure to U.S. regulators and law enforcement authorities by the Partnership and its Affiliates and agents of such information about such Purchaser as the Partnership reasonably deems necessary or appropriate to comply with applicable U.S. anti-money laundering, antiterrorist and asset control laws, regulations, rules and orders. If such Purchaser is a financial institution that is subject to the Patriot Act, Public Law No. 107-56 (Oct. 26, 2001) (the “Patriot Act”), such Purchaser represents that such Purchaser has met all of its respective obligations under the Patriot Act. Such Purchaser acknowledges that if, following the investment in the Partnership by such Purchaser, the Partnership reasonably believes that such Purchaser is a Prohibited Investor or is otherwise engaged in suspicious activity or refuses to provide promptly information that the Partnership requests, the Partnership has the right or may be obligated to prohibit additional investments, segregate the assets constituting the investment in accordance with applicable regulations or immediately require such Purchaser to transfer the Purchased Securities. Such Purchaser further acknowledges that such Purchaser will not have any claim against the Partnership or any of its Affiliates or agents for any form of damages as a result of any of the foregoing actions.

EACH PARTNERSHIP PARTY HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE III, NEITHER ANY PURCHASER

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NOR ANY OF ITS AFFILIATES, NOR ANY OF ITS OFFICERS, DIRECTORS, MANAGERS, MEMBERS, PARTNERS OR EMPLOYEES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF SUCH PURCHASER, OR ANY OF ITS ASSETS, LIABILITIES OR OPERATIONS.

ARTICLE V

OTHER AGREEMENTS OF THE PARTIES

5.1. Transfer Restrictions.

(a)Each Purchaser understands that the Purchased Securities are being offered in a transaction not involving a public offering within the meaning of the Securities Act and that the offer and sale of the Purchased Securities has not been registered under the Securities Act and, unless so registered, the Purchased Securities may not be sold except as permitted in the following sentence. Such Purchaser agrees that, if in the future Purchaser decides to offer, resell, pledge or otherwise transfer such Purchased Securities, such Purchased Securities may be offered, resold, pledged or otherwise transferred only (i) to the Partnership or a subsidiary thereof, (ii) pursuant to a registration statement that has been declared effective under the Securities Act, or (iii) pursuant to an available exemption from the registration requirements of the Securities Act, subject to compliance with any applicable securities laws of any jurisdiction. Each Purchaser understands that the Transfer Agent for the Common Units will not be required to accept for registration or transfer any Common Units acquired by such Purchaser hereunder, except upon presentation of evidence satisfactory to the Partnership and the Transfer Agent that the foregoing restrictions on transfer have been complied with. Such Purchaser acknowledges that the Partnership reserves the right prior to any offer, sale or other transfer of the Purchased Securities (except in the case of a transfer of the Purchased Securities to an Affiliate of such Purchaser) to require, if the American Stock Transfer & Trust Company, as transfer agent for the Partnership, reasonably requests, the delivery of an opinion of counsel (at the Partnership’s expense), certifications and/or other information reasonably satisfactory to the Partnership. Such Purchaser agrees not to engage in hedging transactions with regard to the Purchased Securities unless in compliance with the Securities Act.

(b)Each Purchaser agrees to the imprinting, so long as is required by this Section 5.1(b), of the following legend on any certificate evidencing Purchased Securities:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE

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MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

Certificates evidencing Purchased Securities shall not be required to contain such legend or any other legend following any sale of such Purchased Securities pursuant to an effective registration statement or Rule 144, or if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission).

(c)Removal of Legend. Each Purchaser may request the Partnership to remove the legend described in Section 5.1(b) from the certificates evidencing the Purchased Securities by submitting to the Partnership such certificates, together with an opinion of counsel reasonably satisfactory to the Partnership, which shall be provided by the Partnership (at the Partnership’s expense) upon the first transfer by such Purchaser or after the applicable restrictive periods have expired, to the effect that such legend is no longer required under the Securities Act or applicable state laws, as the case may be. The Partnership shall cooperate with such Purchaser to effect the removal of such legend.

5.2.Integration. The Partnership shall not and shall use its commercially reasonable efforts to ensure that none of the Partnership Parties shall sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Purchased Securities to Purchaser in a manner that would require the registration under the Securities Act of the sale of the Purchased Securities.

5.3.Further Assurances. After the Closing, the Partnership Parties each agree to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the Purchasers for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement including, without limitation such further actions as may be necessary or appropriate to transfer and convey to the Operating Company all of the interests of Parent and its Affiliates in the Oil and Gas Properties intended to be transferred and conveyed in accordance with Schedule 3.17(a) and the Contribution Agreement or to correct any inaccuracy, incompleteness or omission in the description of any Oil and Gas Property.

5.4.Audited Financial Statements. On or prior to the 30^th day after the Closing Date, the Partnership will provide to the Purchasers audited, pro forma financial statements prepared in accordance with generally accepted accounting principles used in the United States, consistently applied, setting forth the financial position and results of operations relating to the Oil and Gas Properties as of December 31, 2006 and for the periods covered thereby prepared in accordance with the rules and regulations of the Commission.

5.5.Payment of Distributions. Prior to the consummation of the Initial Public Offering the Partnership shall not be a party to any agreement that restricts the ability of the Partnership to pay distributions of Available Cash except the Partnership Agreement and the Credit Agreement without the consent of the Initial Private Purchasers.

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ARTICLE VI

INDEMNIFICATION

6.1.Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the issuance and delivery of the Purchased Securities for a period of one year, with the exception that the representations and warranties set forth in Sections 3.1 through 3.7, 3.10, 3.13, 3.14, 3.21, 3.22, 3.29, 3.30 and 4.1 through 4.5 shall survive perpetually. The representation and warranty set forth in Section 3.18 shall survive for a period of three years from and after the date hereof. Upon the expiration of any representation and warranty pursuant to this Section 6.1, unless written notice of a claim based on such representation and warranty shall have been delivered to the Indemnifying Party prior to such expiration, no claim may be brought based on the breach of such representation and warranty.

6.2. Indemnification.

(a)(i) Indemnification by the Partnership Parties. The Parent and the General Partner shall, jointly and severally, indemnify and hold harmless the Partnership Group, the Purchasers, the officers, directors, partners, members, agents, investment advisors and employees of each of them, each Person who controls any Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by applicable Law, from and against any and all Losses, as incurred, arising out of or relating to (x) the breach of any representation or warranty of any Partnership Party contained herein, provided that such claim for indemnification relating to a breach of a representation or warranty is made prior to the expiration of such representation or warranty and (y) any breach by any Partnership Party of any covenant contained herein and (z) broker’s, finder’s, placement or other similar fees or commissions incurred by any Partnership Party or alleged to have been incurred by any Partnership Party in connection with the offering, issuance and sale of the Purchased Securities or the consummation of the transactions contemplated by this Agreement; provided, however, that the liability of the Parent and the General Partner for all claims hereunder shall not exceed the total Commitment Amount.

(ii)Materiality Qualifiers. For the purposes of Section 6.2(a)(i), all representations and warranties shall be deemed not qualified by any references therein to materiality or Material Adverse Effect, but the General Partner and the Parent shall not have any liability for Losses incurred as a result of breach of any such representation and warranty unless and until the cumulative Losses incurred by all Persons indemnified under Section 6.2(a) with respect to the representations and warranties that are so qualified exceed in the aggregate $500,000 at which time all Losses incurred by such Persons with respect to such representations and warranties may be recovered.

(b)Indemnification by Purchasers. Each Purchaser shall, severally and not jointly, indemnify and hold harmless the Partnership Parties, the directors, officers, agents and employees of each Partnership Party, each Person who controls a Partnership Party (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable Law, from and against all Losses (as determined by a court of competent

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jurisdiction in a final judgment not subject to appeal or review), as incurred, arising out of or relating to (i) the breach of any of the representations, warranties or covenants of such Purchaser contained herein, provided that such claim for indemnification relating to a breach of a representation or warranty is made prior to the expiration of such representation or warranty and (ii) broker’s, finder’s, placement or other similar fees or commissions incurred by such Purchaser or alleged to have been incurred by such Purchaser in connection with the purchase of the Purchased Securities or the consummation of the transactions contemplated by this Agreement, provided, however, that the liability of each Purchaser for all claims hereunder shall not exceed such Purchaser’s Commitment Amount opposite such Purchaser’s name on Schedule 1.

(c) Conduct of Indemnification Proceedings.

(i)If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

(ii)An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, such counsel shall be at the expense of the Indemnifying Party). It being understood, however, that the Indemnifying Party shall not, in connection with any one such Proceeding, be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties, which firm shall be appointed by a majority of the Indemnified Parties; provided, however, that in the case a single firm of attorneys would be inappropriate due to actual or potential differing interests or conflicts between such Indemnified Parties and any other party represented by such counsel in such Proceeding or otherwise, then the Indemnifying Party shall be liable for the fees and expenses of one additional firm of attorneys with respect to such Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such

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Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not contain any admission of wrongdoing or illegal conduct.

(iii)All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder); provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder.

6.3.Exclusive Remedy. THE PARTNERSHIP PARTIES AND EACH PURCHASER HEREBY ACKNOWLEDGE AND AGREE THAT THE FOREGOING INDEMNIFICATION PROVISIONS IN THIS ARTICLE VI SHALL BE THE EXCLUSIVE REMEDY OF THE PARTNERSHIP PARTIES AND SUCH PURCHASER WITH RESPECT TO THIS AGREEMENT AND THE EVENTS GIVING RISE THERETO AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, PROVIDED THAT THIS SECTION 6.3 SHALL NOT APPLY TO CLAIMS FOR INTENTIONAL FRAUD, NOR SHALL IT PREVENT ANY PARTY FROM SEEKING INJUNCTIVE OR EQUITABLE RELIEF IN PURSUIT OF ITS INDEMNIFICATION CLAIMS UNDER THIS ARTICLE VI. THE PARTNERSHIP PARTIES AND EACH PURCHASER ACKNOWLEDGE THAT NEITHER IT, NOR ANY SUCCESSOR OR ASSIGN, SHALL HAVE ANY RIGHTS AGAINST THE OTHER PARTIES OR ITS AFFILIATES WITH RESPECT TO THE TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT OTHER THAN AS IS EXPRESSLY PROVIDED IN THIS AGREEMENT.

6.4.Limitation on Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL THE PARTNERSHIP PARTIES OR ANY OF THE PURCHASERS BE LIABLE TO THE OTHER UNDER THIS AGREEMENT FOR ANY EXEMPLARY, PUNITIVE, REMOTE, SPECULATIVE, CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES OR LOSS OF PROFITS. NO PAST, PRESENT OR FUTURE DIRECTOR, OFFICER, EMPLOYEE, INCORPORATOR, MEMBER, PARTNER OR EQUITYHOLDER OF ANY OF THE PARTNERSHIP PARTIES OR ANY PURCHASER SHALL HAVE ANY LIABILITY FOR ANY OBLIGATIONS OF THE PARTNERSHIP PARTIES UNDER THIS AGREEMENT OR THE TRANSACTION DOCUMENTS FOR ANY CLAIM BASED ON, IN RESPECT OF, BY REASON OF, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

6.5.Remedies. In addition to being entitled to exercise all rights provided herein or granted by Law, including recovery of damages, each Purchaser and the Partnership will be entitled to specific performance under this Agreement or the Registration Rights Agreement. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

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ARTICLE VII

MISCELLANEOUS

7.1.Entire Agreement. This Agreement, the Partnership Agreement, the Transaction Documents and the Parent Securities Purchase Agreement contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Partnership and the Purchasers hereto will execute and deliver to each other, such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under this Agreement, the Partnership Agreement and the Registration Rights Agreement.

7.2.Notices. Any notice, request, instruction, correspondence or other document to be given hereunder by either party to the other (herein collectively called “Notice”) shall be in writing and delivered in person or by courier service requiring acknowledgment of receipt of delivery or mailed by certified mail, postage prepaid and return receipt requested, or by telecopier, as follows:

If to the Partnership Parties, addressed to:

Abraxas Petroleum Corporation

500 N. Loop 1604 East, Suite 100

San Antonio, Texas 78232

(210) 490-8816 (fax)

If to a Purchaser, addressed to the address set forth on the applicable signature page hereto.

Notice given by personal delivery, courier service or mail shall be effective upon actual receipt. Notice given by telecopier shall be confirmed by appropriate answer back and shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address.

7.3.Additional Information. The Partnership may request from any Purchaser such additional information as the Partnership may deem necessary to evaluate the eligibility of such Purchaser to acquire the Purchased Securities, and may request from time to time such information as the Partnership may deem necessary to determine the eligibility of any Purchaser to hold the Purchased Securities or to enable the Partnership to determine the Partnership’s compliance with applicable regulatory requirements or tax status, and such Purchaser shall provide such information as may reasonably be requested.

7.4.Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Partnership

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and the Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

7.5.Equal Treatment of Purchasers. Without limiting the scope or effect of the provisions of Article XIII of the Partnership Agreement, no consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Partnership and negotiated separately by each Purchaser, and is intended for the Partnership to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of the Purchased Securities or otherwise.

7.6.Confidentiality and Non-Disclosure. Notwithstanding anything herein to the contrary, each Purchaser that has executed a confidentiality or non-disclosure agreement in favor of a Partnership Party with respect to the transactions contemplated hereunder (a “Confidentiality Agreement”) shall continue to be bound by such confidentiality agreement pursuant to the terms set forth in the Confidentiality Agreement.

7.7.Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

7.8.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Partnership may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers. All or any portion the Purchased Securities may be sold, assigned or pledged by any Purchaser, subject to compliance with applicable securities laws, the terms of this Agreement and the terms of the Partnership Agreement. All or any portion of the rights and obligations of the Purchasers under this Agreement may not be transferred by any Purchaser without the written consent of the Partnership, unless such transfer is to an Affiliate of such Purchaser or in connection with a total return swap or similar transaction with respect to the Purchased Securities, in which case written consent shall not be required.

7.9.No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Indemnified Party is an intended third party beneficiary of Section 6.2 and (in each case) may enforce the provisions of such Section directly against the parties with obligations thereunder.

7.10.Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of New York without regard to principles of conflicts of laws.

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7.11.Execution. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. In the event that this Agreement is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format date file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

7.12.Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

7.13.Expenses. The Partnership has agreed to reimburse the Purchasers in the amount of $100,000 for the legal fees and expenses of Vinson & Elkins L.L.P., counsel for the Purchasers. If any action at law or equity is necessary to enforce or interpret the terms of the Transaction Documents, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

7.14.Independent Nature of Purchaser’s Obligations and Rights. The obligations of each Purchaser under this Agreement or the Registration Rights Agreement are several and not joint with the obligations of any other present or subsequent purchaser of the Purchased Securities, and each Purchaser shall not be responsible in any way for the performance of the obligations of any other Purchaser under any agreement to purchase Purchased Securities. The decision of each Purchaser to purchase Purchased Securities pursuant to this Agreement has been made by such Purchaser independently of any other Purchaser of the Purchased Securities and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Partnership Parties that may have been made or given by any other Purchaser of the Purchased Securities or by any agent or employee of any such Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other Purchaser (or any other Person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein, in the Partnership Agreement or in the Registration Rights Agreement, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute such Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that such Purchaser is in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or the Registration Rights Agreement. Each Purchaser acknowledges that no other Purchaser of the Purchased Securities has acted as agent for such Purchaser in connection with making its investment hereunder and that no other Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment hereunder. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the Registration Rights Agreement, and it shall not be necessary for any other Purchaser of the Purchased Securities to be joined as an additional party in any proceeding for such purpose.

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Each Purchaser represents that it has been represented by its own separate legal counsel in its review and negotiations of this Agreement and the Registration Rights Agreement.

[Signature pages to follow]

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IN WITNESS WHEREOF, Purchaser has caused this Agreement to be executed by its duly authorized representative as of the date set forth below.

PARTNERSHIP

ABRAXAS ENERGY PARTNERS, L.P.

By: Abraxas General Partner, LLC,

its General Partner

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

GENERAL PARTNER

ABRAXAS GENERAL PARTNER, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

PARENT

ABRAXAS PETROLEUM CORPORATION

By: /s/ Chris E. Williford

Name: Chris E. Williford

Title: Executive Vice President, Chief Financial Officer and Treasurer

OPERATING COMPANY

ABRAXAS OPERATING, LLC

By: /s/ Barbara M. Stuckey

Name: Barbara M. Stuckey

Title: President and Chief Operating Officer

[Signature Page to Purchase Agreement]