8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

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

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
April 22, 2005

PETROQUEST ENERGY, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	72-1440714
(State of Incorporation)	(I.R.S. Employer Identification No.)
400 E. Kaliste Saloom Rd., Suite 6000
Lafayette, Louisiana	70508
(Address of principal executive offices)	(Zip code)

Commission File Number: 0-019020

Registrant’s telephone number, including area code: (337) 232-7028

      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:

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

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

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

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

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Item 1.01 Entry Into a Material Definitive Agreement.

Acquisition of Assets in Oklahoma

      On April 20, 2005, PetroQuest Energy, Inc. (the “Company”) effectively entered into four purchase and sale agreements to acquire various assets from Staab Holdings, L.L.C., MAKO Resources, LLC and Golden Gas Service Company for a gross purchase price of approximately $28.0 million in cash. The Company will acquire assets located primarily in Pittsburg and Haskell Counties in Oklahoma and include oil and gas properties with approximately 6.7 Bcfe of proved reserves (61% proved developed producing and 100% natural gas) as of the effective dates of each of the agreements, and five natural gas gathering systems (representing over 50 total line miles) with a combined capacity of approximately 7 Mmcfg per day and current throughput of approximately 5.4 Mmcfg per day. The acquired assets also include over 8,900 acres of net leasehold in approximately 190 sections of land, and include approximately 400 existing wells with more than 250 identified development drilling locations. The Company expects to record approximately $11.0 million of the purchase price to unevaluated leaseholds, and expects to spend approximately $15.0 million to develop the properties.

      The purchase price in each of agreements is subject to adjustment for, among other things, expected cash flows between the effective dates of each of the agreements and their respective closing dates. Two of the purchase and sale agreements relate to oil and gas properties and a gathering system located in the Haywood area in Pittsburg County, Oklahoma, and have effective dates of January 1, 2005. These two agreements are expected to close on or about May 6, 2005 and each is contingent upon the closing of the other agreement. The purchase and sale agreement relating to an additional four gathering systems located in Pittsburg and Haskell Counties in Oklahoma has an effective date of January 1, 2005. This agreement is expected to close on or about June 1, 2005. The remaining purchase and sale agreement relates to oil and gas properties located in various Oklahoma counties, including Pittsburg and Haskell Counties, has an effective date of October 1, 2004 and is expected to close on or about June 1, 2005. The closing of each of these two agreements is contingent upon the closing of the other agreement. In addition, any party to any of the four agreements may terminate any such agreement if the purchase price under such agreement is reduced by more than 10% of the base purchase price due to adjustments for title or environmental defects or for casualty loss.

      An initial adjustment to the purchase price in each of the agreements will be made at the closing of each agreement to the extent the results of operations since the applicable effective date are available, with a subsequent adjustment to such purchase price to be made after closing to reflect results of operations through the closing that were not available at the time the initial adjustment was made. As a result, the Company estimates that the final aggregate purchase price for the acquired assets, following all post-closing adjustments, will be approximately $27.0 million.

      The purchase and sale agreements are included herein as Exhibits 2.1, 2.2, 2.3 and 2.4 and are incorporated herein by reference. The forgoing descriptions of the purchase and sale agreements and the transactions contemplated therein do not purport to be complete and are qualified in their entirety by reference to such documents.

Severance Agreement and Release

      On March 31, 2005, Ralph J. Daigle resigned his position as a director and as Vice-Chairman of the Board of Directors of the Company. Mr. Daigle has also entered into a Severance Agreement and Release (the “Severance Agreement”) with the Company, effective as of April 8, 2005.

      The Severance Agreement terminates Mr. Daigle’s employment and termination agreements with the Company, except for provisions relating to confidential information and disclosure of information, and provides for the payment to Mr. Daigle of (i) $180,000, payable in 24 monthly installments commencing on April 15, 2005, and (ii) $5,000 representing accrued employment benefits payable to Mr. Daigle. In addition, the Company agreed to pay Mr. Daigle’s COBRA insurance premiums for up to 18 months, and also purchased from Mr. Daigle certain office furniture and files for $11,000. The Severance Agreement provides that Mr. Daigle will not compete with the Company in certain areas of interest for a period of one-year, and that the Company and Mr. Daigle will, within 60 days, negotiate in good faith for a consulting agreement regarding projects in certain geographical areas. The Severance Agreement also provided for a release of claims by the Company and Mr. Daigle.

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      The Severance Agreement is included herein as Exhibit 10.1 and is incorporated herein by reference. The forgoing description of the Severance Agreement and the transactions contemplated therein do not purport to be complete and are qualified in their entirety by reference to such document.

Item 7.01 Regulation FD Disclosure.

The Company has recently updated its business strategy as presented below.

Business Strategy

      Concentrate in Core Operating Areas and Build Scale. We plan to continue focusing our operations in the Gulf Coast Basin, East Texas and Arkoma Basin, and to continue to build scale, particularly in the longer life onshore regions, through drilling and complementary acquisition activities. Operating in concentrated areas helps us to better control our overhead by enabling us to manage a greater amount of acreage with fewer employees and minimize incremental costs of increased drilling and production. We have substantial geological and reservoir data, operating experience and partner relationships in these regions, which we believe provides us with a significant competitive advantage. We also believe that the existing infrastructure and favorable geologic conditions with multiple known oil and gas producing reservoirs in these regions will allow us to achieve attractive financial results.

      Pursue Balanced Growth and Portfolio Mix. We plan to pursue a risk-balanced approach to the growth and stability of our reserves, production, cash flows and earnings. We intend to engage in lower risk development and exploitation activities, higher risk and higher impact exploration activities and acquisitions. Pro forma for the previously disclosed acquisition of TDC Energy LLC on April 12, 2005 and the acquisition of assets located in the Arkoma Basin as described in Item 1.01 above (collectively, the “Acquisitions”), at December 31, 2004, approximately 44% of our reserves were located in longer life onshore regions such as East Texas and Arkoma and 56% were located in shorter life, high flow rate assets in the Gulf Coast Basin. We will continue to seek opportunities to achieve a balance between our longer life onshore reserves and our shorter life Gulf Coast reserves.

      Manage Our Risk Exposure. We plan to continue several programs to mitigate our operating risks. Since 2003, we have aligned the working interest we are willing to hold based on the risk level and cost exposure of each project. Our industry partners often agree to pay a disproportionate share of drilling costs relative to their interests, allowing us to allocate our capital spending to maximize our return and reduce the inherent risk in exploration, exploitation and development activities. For example, we typically reduce our working interest on higher risk exploration projects while retaining greater working interests in lower risk development projects. We also retain operating control of the majority of our properties to control costs and timing of expenditures. In addition, we expect to continue to actively hedge a significant portion of our future planned production to mitigate the impact of commodity price fluctuations and achieve more predictable cash flows.

      Target Underexploited Properties with Substantial Opportunity for Upside. We plan to continue using a rigorous prospect selection process that enables us to leverage our operating and technical experience in our core operating regions. We intend to target properties with an established production history that may benefit from the latest exploration, drilling, fracturing and operating techniques to more efficiently find, produce and develop oil and gas reserves. In addition, we plan to continue targeting properties with existing infrastructure that provide additional acreage for future development and exploitation opportunities.

      Maintain Our Financial Flexibility. We intend to maintain a disciplined approach to financial management and a strong capital structure to execute our business plan. Historically, key components of our financial discipline have typically included funding expected exploration and development activities with cash flows from operations, establishing appropriate leverage ratios given the volatility of commodity prices, maintaining an active commodity hedging program and accessing the equity capital markets as appropriate. From 1998 to 2004, our highest net debt to capitalization ratio was 38% in 2001. We may also consider opportunistically disposing of producing properties to provide capital for higher potential exploration and development properties that are more important to our long-term growth.

Company Strengths

      Successful Drilling History. We follow a disciplined, formal process prior to drilling any wells, which requires stringent geological and financial analysis and an agreement on the level of participation we are willing to accept on each project. Balancing our higher risk, shorter life offshore reserves with lower risk, longer life onshore reserves has increased our drilling success. Since January 2003, when we enhanced our risk management policies and began to diversify into longer life basins, we have achieved a 95% success rate drilling 59 total wells, of which 31 were exploratory and 28 were development.

      Large Inventory of Drilling Prospects. We have developed a significant inventory of future drilling locations in targeted areas. We have identified approximately 137 proved undeveloped drilling locations and over 300 potential locations that create additional reserve growth opportunities. Many of the locations are step-out or extension wells from existing production, which we consider to be lower risk. We expect to identify additional prospects as we continue to evaluate our geoscience and technical information. We expect to spend approximately $85 to $95 million to drill 74 wells in our 2005 drilling program, excluding the Acquisitions.

      Successful, Disciplined Acquisition Program. We have successfully increased our reserves and production by completing attractive acquisitions in negotiated transactions. We typically target offshore properties, which we believe are underexploited and have significant upside potential, and we often target onshore properties that may benefit from the introduction of technologies such as horizontal drilling and fracture stimulations. Our acquisition strategy has been to minimize our participation in broad auctions against larger acquisition-oriented oil and gas companies in favor of directly negotiating with small independent operators.

      Operational Control. In 2004, we operated approximately 65% of our proved reserves, and managed drilling and completion activities with respect to an additional 27% of other proved reserves. We prefer to retain operating control over our prospects rather than owning non-operated interests. As the operator, we can more efficiently manage our operating costs, capital expenditures, and the timing and method of development of our properties. Our significant operational control and expertise provide us with cost and competitive advantages that lower both our finding and development costs and production expenses.

      Experienced Management and Technical Teams and Incentivized Workforce. Our senior management team has an average of over 24 years of experience in acquiring, developing and operating oil and gas properties. We employ 12 technical professionals, including geophysicists, geologists, petroleum engineers, and production and reservoir engineers who have an average of 20 years of experience in their technical fields. Management and directors own approximately 13% of the company, and substantially all employees own common stock or options.

Pro Forma Estimated Proved Reserves and Production

      At December 31, 2004, pro forma for the Acquisitions, the Company had estimated proved reserves of 118.4 Bcfe with a PV-10 value of $374.6 million. Of these pro forma reserves, 70% are proved developed and 79% are natural gas or gas products. The following table summarizes the Company’s current properties by region, pro forma for the Acquisitions as of December 31, 2004:

	Estimated Proved Reserves									PV-10 Value
	Gas		Oil		Total		% of			Value
	(MMcfe)		(Mbbls)		(MMcfe)		Reserves			(Millions)		% Value
Gulf Coast Basin		42,312		3,947		65,994		56	%	$	279.0		74	%
Mid-Continent Region (1)		51,714		111		52,380		44	%		95.6		26	%
Total		94,026		4,058		118,374		100	%	$	374.6		100	%

(1) Represents acreage in East Texas and Oklahoma

      Our first quarter 2005 production for oil and natural gas, pro forma for the Acquisitions, was 217 Mbbl and 3,092 Mmcfe, respectively, resulting in total production of 4,394 Mmcfe for the quarter.

Updated Guidance

      On April 22, 2005, the Company issued a press release announcing second quarter and full year 2005 guidance. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

      The information furnished in this Item 7.01 and Exhibit 99.1 furnished in Item 9.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. Such information may only be incorporated by reference in another filing under the Exchange Act or the Securities Act, if such subsequent filing specifically references such information.

Item 8.01. Other Events.

      On April 22, 2005, the Company issued a press release announcing the acquisition of assets in Oklahoma. A copy of the press release is attached as Exhibit 99.2 to this Form 8-K and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(c)   Exhibits:

2.1*	Purchase and Sale Agreement, dated as of April 13, 2005, between Staab Holdings, L.L.C. and PetroQuest Energy, L.LC.
2.2*	Purchase and Sale Agreement, dated as of April 7, 2005, among MAKO Resources, LLC, Golden Gas Service Company and PetroQuest Energy, L.LC.
2.3*	Purchase and Sale Agreement, dated as of April 7, 2005, between Golden Gas Service Company and PetroQuest Energy, L.LC.

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2.4*	Purchase and Sale Agreement, dated as of April 7, 2005, between Golden Gas Service Company and PetroQuest Energy, L.LC.
10.1	Severance Agreement and Release, effective April 8, between Ralph J. Daigle and PetroQuest Energy, Inc.
99.1	Press Release dated April 22, 2005.
99.2	Press Release dated April 22, 2005.
*	Schedules and similar attachments to the Purchase and Sale Agreements have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

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SIGNATURE

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 thereunto duly authorized.

	PETROQUEST ENERGY, INC.
Date: April 22, 2005	/s/ Daniel G. Fournerat
	Daniel G. Fournerat
	Senior Vice President, General Counsel and Secretary

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INDEX TO EXHIBITS

Exhibit
Number	Description
2.1*	Purchase and Sale Agreement, dated as of April 13, 2005, between Staab Holdings, L.L.C. and PetroQuest Energy, L.LC.
2.2*	Purchase and Sale Agreement, dated as of April 7, 2005, among MAKO Resources, LLC, Golden Gas Service Company and PetroQuest Energy, L.LC.
2.3*	Purchase and Sale Agreement, dated as of April 7, 2005, between Golden Gas Service Company and PetroQuest Energy, L.LC.
2.4*	Purchase and Sale Agreement, dated as of April 7, 2005, between Golden Gas Service Company and PetroQuest Energy, L.LC.
10.1	Severance Agreement and Release, effective April 8, between Ralph J. Daigle and PetroQuest Energy, Inc.
99.1	Press Release dated April 22, 2005.
99.2	Press Release dated April 22, 2005.
*	Schedules and similar attachments to the Purchase and Sale Agreements have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

EX-2.1

Exhibit 2.1

PURCHASE AND SALE AGREEMENT
Non-Operated Properties

     This Purchase and Sale Agreement (this “Agreement”) dated as of the 13th day of April, 2005, executed by Staab Holdings, L.L.C., an Oklahoma limited liability company, (“Seller”), and PetroQuest Energy, L.L.C., a Louisiana limited liability company (the “Buyer”).

     In consideration of the mutual promises contained herein, the benefits to be derived by each party hereunder and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE I
INTENT AND DEFINED TERMS

     1.1 Intent. Through a distribution and assignment from TAG Team Resources, L.L.C. (“TAG Team”), Seller has acquired a non-operating, undivided fifty percent (50%) interest of TAG Team’s interest in certain Oklahoma properties located in Pittsburg and various other Oklahoma counties as set forth on Exhibit A and Exhibit A-1. Seller desires to sell and Buyer desires to buy all of Seller’s right, title and interest in such properties in accordance with the terms and conditions hereof. TAG Team shall retain the remaining undivided fifty percent (50%) interest in the properties (the “TAG Team Properties”). Seller intends to obtain a preferential right to purchase the TAG Team Properties and the preferential right shall be assigned unconditionally to Buyer at Closing.

     1.2 Defined Terms. Unless the context otherwise requires, the following terms used in this Agreement shall have the meanings assigned to them in this Section 1.2:

          “AFE(s)” means Authorizations for Expenditures.

          “Allocated Value” means the allocated value of each of the Assets as shown on Exhibit A and Exhibit A-1.

          “British Thermal Unit” or “Btu” shall mean the amount of heat required to raise the temperature of one pound of water one (1) degree from 59 to 60 degrees Fahrenheit. “MMBtu” shall mean 1,000,000 Btu’s.

          “Code” means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder by the Treasury Department of the United States.

          “Contracts” shall mean any and all existing operating agreements, unit agreements, gas purchase and sales contracts, oil sales contracts, gas transportation and processing contracts, farmin agreements, farmout agreements, exploration agreements, leasehold acquisition agreements (including associated area of mutual interest rights and provisions), joint venture agreements, saltwater disposal agreements, and all other agreements (i) related to or associated with the

Properties, and (ii) customary in the oil and gas exploration, development, production or extraction business or in the business of processing and/or marketing of hydrocarbons produced therefrom, including, without limitation, those set forth in Schedule 3.1(j) and Schedule 3.1(k) hereto.

          “Defect Date” shall mean 5:00 p.m., Central Standard Time on the fifth (5^th) calendar day prior to the Closing Date.

          “Defects” shall collectively refer to Title Defects and Environmental Defects asserted by Buyer pursuant to this Agreement.

          “Defect Threshold” shall mean, (i) for each individual Property, Defects asserted by Buyer that adversely affect such Property by an amount equal to or in excess of $10,000, and (ii) for the Assets taken as a whole, Defects asserted by Buyer that adversely affect Seller and/or the Assets by an amount equal to or in excess of $200,000.

          “Defensible Title” means such title of Seller that, subject to and except for the Permitted Encumbrances:

          (i) renders a Property free from reasonable doubt to the end that a prudent person engaged in the business of purchasing and owning, developing, and operating producing oil and gas properties with knowledge of all of the facts and their legal bearing would be willing to accept the same;

          (ii) entitles Seller to receive not less than the net revenue interest (“NRI”) set forth for each Property (e.g., well interest, unit interest or leasehold interest, as applicable) on Exhibit A, subject to the limitations as to depths or formations, if any, set forth in Exhibit A or Exhibit A-1;

          (iii) obligates Seller to bear costs and expenses relating to the maintenance, development, operation and the production of oil and gas from each Property (e.g., well interest, unit interest or leasehold interest, as applicable) in an amount not greater than the working interest (“WI”) therefor as set forth on Exhibit A without a corresponding increase in the NRI for such Property; and

          (iv) renders the Asset free and clear of encumbrances, liens and defects that would create a material impairment of use and enjoyment of or loss of interest in the affected Asset.

          “Effective Date” shall mean 12:01 a.m. on October 1, 2004.

          “Environmental Defect” shall mean that, with respect to the Asset in question, (i) any hazardous substances (as defined in 42 U.S.C.A. 9601(14) or 42 U.S.C.A. 69021(B)(2)) are present, stored or located on or in conjunction with an Asset in violation of Environmental Laws; or (ii) any Asset is in noncompliance with Environmental Laws, to the extent that any of the foregoing arise out of or pertain to operations conducted on, or ownership of, the Assets prior to the Closing Date.

          “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).

          “Interim Period” means the period of time between the execution of this Agreement and the Closing Date.

          “Material Adverse Effect” means, with respect to a Person, the occurrence of an event or the existence of a circumstance (other than general industry conditions, or matters of a general economic or political nature) that has a material adverse effect on such Person’s assets, business or financial condition, taken as a whole.

          “NRI” shall have the meaning given it in this Section 1.2 within the definition of Defensible Title.

          “Permitted Encumbrances” shall mean:

          (i) lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens, if the net cumulative effect of all such burdens does not operate to reduce the NRI for a particular Property below that set forth on Exhibit A;

          (ii) any preferential rights to purchase and required third party consents to assignments of contracts and similar agreements for which written waivers or consents are obtained prior to Closing;

          (iii) liens for taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

          (iv) all rights to consent by, required notices to, filings with, or other actions by federal, state or local entities in connection with the sale or conveyance of any Asset if the same are customarily obtained subsequent to such sale or conveyance;

          (v) easements, rights-of-way, servitudes, permits, surface Leases and other rights with respect to surface operations, on, over or in respect of any of the Assets or any restriction on access thereto and that do not materially interfere with the operation of the affected Assets;

          (vi) such Title Defects as Buyer has waived in writing or through its failure to timely assert the same, as herein provided;

          (vii) materialmens’, mechanics’, repairmens’, employees’, contractors’, operators’ or other similar liens or charges arising in the ordinary course of business incidental to construction, maintenance or operation of the Assets (i) if they have not been filed pursuant to law and the time for filing them has expired, (ii) if filed, they have not yet become due and payable or payment is being withheld as provided by law, or (iii) if their

validity is being contested in good faith by appropriate action and payment to discharge the same has been placed by Seller in escrow;

          (viii) rights reserved to or vested in any Governmental Entity to control or regulate any of the Assets in any manner, and all applicable laws, rules, regulations and orders of general applicability in the area;

          (ix) liens arising under operating agreements, unitization and pooling agreements and production sales contracts securing amounts not yet due or, if due, being contested in good faith in the ordinary course of business and payment to discharge the same has been placed by Seller in escrow;

          (x) division orders and sales contracts terminable without penalty upon no more than 90 days notice to the Buyer; and

          (xi) all other liens, charges, encumbrances, contracts, agreements, instruments, obligations, defects, and irregularities affecting the Assets to which they relate that, individually or in the aggregate:

               (a) do not reduce the interest of Seller with respect to the oil and gas produced from any unit or well to which a Property relates below the NRI set forth in Exhibit A for the Properties to which such unit or well relates; or

               (b) do not increase Seller’s portion of the costs and expenses relating to the operations on and the maintenance and development of the lands and depths included in any unit or well to which the Properties relate above the WI set forth in Exhibit A for the Properties to which such unit or well relates.

     “Person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, enterprise, unincorporated organization, or Governmental Entity.

     “Title Defect” means any encumbrance, encroachment, irregularity, defect in or objection to title in and to the Assets, or any portion thereof, excluding Permitted Encumbrances, that alone or in combination with other defects renders Seller’s title less than Defensible Title.

     “WI” shall have the meaning given it in this Section 1.2 within the definition of Defensible Title.

     1.3 Additional Definitions. The following terms are defined in the Section referenced below:

“AAA”	Section 9.11
“Arbitrator”	Section 9.11
“Assets”	Section 2.1

“Base Purchase Price”	Section 2.1
“Buyer Claims”	Section 8.2
“Buyer Group”	Section 8.2
“Casualty Losses”	Section 5.6
“Closing” and “Closing Date”	Section 7.1
“Consents”	Section 3.1(k)
“Environmental Laws”	Section 5.8
“Equipment”	Section 1.2
“Final Settlement Date”	Section 2.5
“Final Settlement Period”	Section 2.5
“Final Settlement Price”	Section 2.5
“Final Statement”	Section 2.5
“Imbalance Obligations”	Section 4.3
“Lands”	Section 2.1
“Leases”	Section 2.1
“Preferential Rights”	Section 3.1(l)
“Properties”	Section 2.1
“Purchase Price Adjustment Statement	Section 2.3
“Records”	Section 2.1
“Refund Obligations”	Section 4.3
“Seller Group”	Section 8.3
“TAG Team”	Section 1.1
“TAG Team Properties”	Section 1.1
“TAG Team Preferential Right”	Section 4.4
“Title Increases”	Section 5.5
“Units”	Section 2.1
“Wells”	Section 2.1

ARTICLE II
PURCHASE PRICE AND ALLOCATION

     2.1 Purchase Price. Seller shall sell and Buyer shall purchase, effective as of the Effective Date, for the sum of Seventeen Million and No/l00 Dollars ($17,000,000), subject to adjustments as provided or contemplated herein (the “Base Purchase Price”) all of Seller’s right, title, interest and estate in and to the following:

(a) All of Seller’s right, title and interest in and to the wells (the “Wells”) described in Exhibit A and the land and properties described in Exhibit A-1 (the “Lands”) attached hereto and made a part hereof for all purposes;

(b) Without limitation of the foregoing, all other right, title and interest (of whatever kind or character, whether legal or equitable, and whether vested or contingent) of Seller in and to the oil, gas and other minerals in and under or that may be produced from the Lands and the lands described in the instruments and documents listed on Exhibit A and Exhibit A-1 hereto and the wells located on such Lands or lands, including without limitation the Wells

described in Exhibit A (including interests in oil, gas and/or mineral leases covering all or a part of such Lands, lands and Wells (the “Leases”) and overriding royalties, production payments and net profits interests in such Lands, Leases and Wells, and fee mineral interests, mineral servitudes, fee royalty interests and other fee interests (such fee interests, the “Mineral Interests”) in such oil, gas and other minerals), whether such lands be described in a description set forth in Exhibit A or Exhibit A-1 or be described in such Exhibit A or Exhibit A-1 by reference to another instrument, even though Seller’s interest in such oil, gas and other minerals may be incorrectly described in, or omitted from, Exhibit A or Exhibit A-1;

(c) All rights, titles and interests of Seller in and to, or otherwise derived from, all oil, gas and/or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders (the “Units”) which apply to the Lands, whether or not expressly set forth on Exhibit A or Exhibit A-1 and in and to the properties covered and the units created thereby (including all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, voluntary unitization agreements, designations and/or declarations) relating to the properties described in paragraphs (a) and (b) above;

(d) Copies of all rights, titles and interests of Seller in and to all production sales (and sales related) Contracts, transportation and/or processing agreements, operating agreements, farmout agreements and other agreements and Contracts which relate to any of the properties described in paragraphs (a), (b) and (c) above, or which relate to the exploration, development, operation, or maintenance thereof or the treatment, transportation or marketing of production therefrom (or allocated thereto) including without limitation the agreements and Contracts which are set forth on Schedule 3.1(j) and Schedule 3.1(k);

(e) All rights, titles and interests of Seller in and to (i) all equipment, improvements and other personal property and fixtures (including but not by way of limitation, wellhead equipment, pumping units, flowlines, tanks, injection facilities, saltwater disposal facilities, compression facilities and other equipment) located on and used in connection with the Lands, Leases and/or Wells (the “Equipment”), and (ii) all easements, rights-of-way, surface leases and other surface rights, all permits and licenses, and all other appurtenances located on and used in connection with the Lands, Leases and/or Wells;

(f) At Buyer’s expense, copies of any and all of Seller’s lease files, abstracts and title opinions, production records, well files, accounting records (but not including general financial accounting records), seismic records and surveys, gravity maps, electric logs, geological or geophysical data, and other records, documents and files of every kind and description which relate to the properties described above; provided, however, the foregoing shall not include any files, records, data or information which is attorney work product or subject to attorney client privilege or any files, records, data or information which by agreement Seller is required to keep confidential except and to the extent a waiver in writing is obtained of any such confidentiality requirements (the “Records”). Seller shall assist Buyer in obtaining any and all such Records from TAG Team, being the holder of such Records; and

(g) The oil, gas, coalbed methane, casinghead gas, condensate, distillate, liquid hydrocarbon, and gaseous hydrocarbons produced on or after the Effective Date, products refined and manufactured therefrom, and the accounts and proceeds from the sale of the foregoing to the extent attributable to the Properties.

The properties and interests specified in the foregoing paragraphs (a), (b) and (c) are sometimes collectively referred to as the “Properties” and the total of the properties and interests specified in the foregoing paragraphs (a) through (g) are sometimes collectively referred to as the “Assets”.

     2.2 Adjustments to Base Purchase Price. The Base Purchase Price shall be subject to adjustment as follows:

     (a) Upward Adjustments. The Purchase Price shall be adjusted upward by the following:

     (i) The value of all merchantable, allowable oil in storage at the Effective Date allocable to the Properties, above the pipeline connection;

     (ii) The amount of all verifiable expenditures under Contracts, applicable operating agreements or other similar arrangements or agreements paid by Seller in connection with the operation of the Assets in accordance with this Agreement for work actually performed on or subsequent to the Effective Date;

     (iii) The amount of all capital expenditures made by Seller for the drilling of a new Well or recompletion, rework or other existing Well operation, incurred on or after the Effective Date and consented to by Buyer;

     (iv) An amount equal to the sum of all Imbalance Entitlements allocable to the Properties outstanding as of the Effective Date; and

     (v) Any other amount agreed upon by Seller and Buyer in writing.

     (b) Downward Adjustments. The Base Purchase Price shall be adjusted downward by the following:

     (i) Proceeds received by Seller from the sale of oil, gas or other hydrocarbons attributable to the Properties and which are produced on and after the Effective Date;

     (ii) An amount equal to all unpaid ad valorem, property, production, severance and similar taxes and assessments (but not including income taxes) based upon or measured by the ownership of Assets or the production of hydrocarbons or the receipt of proceeds therefrom accruing to the Assets prior to the Effective Date;

     (iii) An amount equal to all sums received by Seller with respect to Prepayment Obligations, Refund Obligations or Imbalance Obligations to the extent,

and only to the extent, that such sums apply to periods of ownership and/or production of the Assets on or after the Effective Date;

     (iv) Any reductions for Defects, allocable to the Assets, as provided in Article V, such reduction to be offset by any Title Increases pursuant to Section 5.5;

     (v) Any Casualty Losses allocable to the Assets as provided in Section 5.6;

     (vi) Any other amount agreed upon by Seller and Buyer in writing.

     2.3. Purchase Price Adjustment Statement. Seller shall submit a Closing statement (the “Purchase Price Adjustment Statement”) to Buyer not fewer than seven (7) business days prior to Closing, and shall afford Buyer access to any Records pertaining to the computations contained in the Purchase Price Adjustment Statement. At least two (2) full business days prior to Closing, Buyer shall deliver to Seller a written report containing such changes, if any, which Buyer proposes be made to the Purchase Price Adjustment Statement. Seller and Buyer shall each make every reasonable effort to agree prior to the Closing Date on a mutually agreed Purchase Price Adjustment Statement.

     2.4 Payment at Closing. After the Purchase Price Adjustment Statement has been agreed to by the parties, the Purchase Price due at Closing shall be tendered by Buyer to Seller, by wire transfer in accordance with Seller’s instructions. Seller shall provide Buyer wire transfer instructions not later than three (3) days prior to the Closing Date.

     2.5 Final Settlement. As soon as practicable after the Closing Date, but in any event within 120 calendar days thereafter (the “Final Settlement Period”), Buyer shall prepare and submit to Seller a proposed statement (herein called the “Final Statement”), which shall show the final calculation of the Purchase Price (herein called the “Final Settlement Price”). As soon as possible after receipt of the Final Statement, but in any event within 15 calendar days after receipt thereof, Seller shall deliver to Buyer a written report containing the changes, if any, which Seller proposes being made to the Final Statement. In the event no response is made by Seller within such 15-day period, it shall be conclusively presumed that the selling parties concur with the Final Statement, and such Final Statement shall be the basis for the Final Settlement Price. In the event that Seller submits a response, the parties shall exercise all reasonable efforts to agree upon a mutually acceptable Final Settlement Price and the calculation of the amount, if any, due in connection therewith not later than 150 calendar days after the Closing (herein called the “Final Settlement Date”). After agreement upon a Final Settlement Price setting forth the amount by which the Base Purchase Price shall be adjusted (either upward or downward) has been reached, the amount due shall be paid within five (5) business days thereafter by the party owing the same by confirmed wire transfer to a bank account or accounts to be designated by the appropriate party. In the event Buyer and Seller are unable to agree with respect to the amounts due pursuant to this Section 2.5 before the Final Settlement Date, then either Seller or Buyer may refer the issues in dispute to the Grant Thornton LLP, Tulsa, Oklahoma accounting firm (or such other recognized firm of public accountants as Seller and Buyer may mutually agree) and the resolution of such issues by such firm

shall be final and binding on all parties. The costs of such public accountants shall be borne equally by the Seller and Buyer.

     2.6 Allocation of Purchase Price. The Allocated Value of Seller’s interest in each of the Properties is set forth on Exhibit A hereto. The Allocated Values are for purposes of adjustment of the Base Purchase Price. Buyer and Seller will each make their own allocation for tax purposes.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer and its subsidiaries or designees, if any, to whom the Assets are to be assigned at Closing, as follows.

     (a) Organization and Standing. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, is legally authorized to conduct business in each jurisdiction where it conducts business, and has all requisite power and authority to own and maintain the Assets and to carry on its business as such business is currently conducted.

     (b) Authorization and Enforceability. Seller has all requisite individual power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by Seller. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws relating to or affecting the enforcement of creditors rights generally and general principles of equity.

     (c) No Conflict. This Agreement and the execution and delivery hereof by Seller does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i)

Violate any provision of, require any filing, consent, authorization or approval under, any legal requirement applicable to or binding upon Seller;

(ii)

Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, (A) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or to which Seller is bound or to which any of the Assets are subject, or (B) any lease, license, contract or other agreement or instrument to which Seller is a party or by which it is bound or to which any of the Assets are subject; or

(iii)   Result in the creation or imposition of any lien, charge or other encumbrance upon any of the Assets.

     (d) No Default. Seller is not in default under, and no condition exists that with notice or lapse of time or both would constitute a default under (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or by which Seller is bound or to which any of the Assets are subject, or any other agreement, contract, lease, license, or other instrument, (ii) any order, judgment or decree of any court, commission, board, agency or other governmental body, or (iii) any law, statute, ordinance, decree, order, rule or regulation of any governmental authority.

     (e) Title to Assets. Seller has Defensible Title to the Properties, free and clear of all liens, mortgages, encumbrances and claims of any kind or character. Assignment of the Assets shall be by, through and under Seller, but not otherwise.

     (f) Regulatory Matters. Seller has not received any notice or order from any Governmental Entity which regulates or purports to regulate any of the Assets or Seller or any of his activities, except pertaining to usual and customary filing requirements applicable to assets of the types owned by Seller.

     (g) Taxes. There are no pending or threatened state, local or foreign tax liens upon any of the Assets. All taxes, assessments, fees and other charges of any Governmental Entity which have been assessed against the Assets and have become due and payable, have been paid. All ad valorem, gross production, severance, excise, or similar taxes relating to Seller’s ownership of any of the Properties prior to the Effective Date have been or will be timely paid by Seller.

     (h) Litigation. Except as and to the extent set forth in Schedule 3.1(h), there are no administrative and judicial actions and proceedings presently pending or threatened against or involving (i) Seller, or (ii) the Assets or any portion thereof.

     (i) Compliance with Laws. Except as and to the extent set forth in Schedule 3.1(i) hereto (i) to Seller’s knowledge, Seller is in compliance in all material respects with all applicable statutes, orders, rules and regulations promulgated or proposed by any federal, state or local governmental entity relating to the operation and conduct of the Assets, (ii) except for obligations to properly plug and abandon non-producing Wells, and related obligations, there are no such statutes, orders, rules or regulations which require material future actions or expenditures by or on behalf of Seller; (iii) Seller has not received any notice of alleged material violation of any such statute, order, rule or regulation; and (iv) all material business and other licenses, permits, performance bonds and other security and authorizations required by law for the ownership and/or operation of the Assets and/or Seller’s conduct of his business or operations respecting the Assets have been obtained and Seller is in material compliance with such licenses, permits, bonds, and other authorizations.

     (j) Contracts. Schedule 3.1(j) hereto is a list of all Contracts (written or oral) to which Seller is a party or by which Seller is bound, having a duration in excess of one (1) month or involving payments (or other value) in excess of $5,000. Seller has complied in all material respects with the provisions of all such Contracts, and is not in default thereunder in any manner which would permit any other party thereto to cancel or terminate such Contract; and, all such Contracts are in full force and effect and constitute legal, valid and binding obligations of Seller, and to Seller’s knowledge, are binding upon the other parties to such Contract in accordance with their terms; and, as of the date hereof, there is no claimed breach of contract by any party to any such Contract.

     (k) Production Sales Contracts; Future Sales Contracts. Except as set forth on Schedule 3.1(k) hereto, the Properties are not subject to any contracts for the sale of oil or gas attributable to periods from and after the Effective Date, other than agreements that are terminable, without penalty, upon not more than thirty (30) days’ notice. Seller is not under any obligation under any production sales contract, take-or-pay clause, or any similar arrangement, to deliver oil or gas from the Properties without receiving payment at the time of or subsequent to delivery. Seller has not entered into and is not subject to any obligation to deliver gas or oil in the future for which payment has already been received (e.g., a “forward” sale contract).

     (l) Preferential Purchase Rights and Consents. To Seller’s knowledge, except as set forth on Schedule 3.1(l), there are no consents to assign requiring a third party to consent to the assignment of the Assets (“Consents”) or preferential purchase rights providing an option or right to purchase any of the Assets (“Preferential Rights”).

     (m) Capital Commitments. Except as set forth on Schedule 3.1(m) hereto, Seller has not paid, incurred or otherwise committed to, from and after the Effective Date, any expenditures in excess of $25,000 for any single operation, net to the interest of Seller, for any purpose, to include the drilling, completion, recompletion, sidetracking or rework of any Well on the Properties, the acquisition of other oil and gas properties, or the acquisition of seismic or other technical data, and no such expenditures are pending and unapproved.

     (n) No Material Adverse Change. Except for matters for which downward adjustments to the Purchase Price are prescribed pursuant to this Agreement, there has not been and will not be during the period between the Effective Date and the Closing Date any Material Adverse Effect with respect to the Assets.

     (o) Environmental Matters. Seller has not received any notification of any pending or threatened investigation, claim, penalty, or action by any Governmental Entity or other Person relating to the environmental condition of the Assets, and Seller has no knowledge that (i) there has been a release or threat of release of any hazardous substance (as the term “release” and “hazardous substance” are defined under Environmental Laws) on or from any of the Assets, or as a consequence of Seller’s operations or activities respecting the Assets, or any of them, prior to the date of this Agreement, or (ii) a condition exists on or under any of the Assets as of the date of this Agreement which could have a Material Adverse Effect on the Assets.

     (p) Plugging and Abandonment Obligations. To Seller’s knowledge, except as set forth on Schedule 3.1(p) it has complied, to the extent compliance is required or appropriate as of the Effective Date, with all plugging and abandonment obligations associated with Wells in which it owns an interest, including plugging, abandonment, surface restoration, site clearance and disposal related waste materials, in compliance with all applicable contractual obligations and applicable rules and regulations of Governmental Entities having jurisdiction.

     (q) Payment of Burdens on Production. All delay rentals, shut-in payments, lease extension payments, royalties, excess royalties, overriding royalty interests, production payments, net profits interests and other payments due under or with respect to production from the Properties have been fully, properly and timely paid, except for those amounts in suspense and to Seller’s knowledge, all conditions necessary to maintain the Leases in force have been duly performed.

     (r) Imbalances and No Cash Balancing. To Seller’s knowledge, the gas imbalances affecting the Properties as of the Effective Time reflected on Schedule 4.3 are true and correct in all material respects. Except as provided on Schedule 4.3, as of the Effective Time, none of the Properties were subject to a gas balancing agreement containing a provision that would require a cash balancing payment upon the transfer of the affected Property through a transaction of the nature contemplated in this Agreement.

     (s) Affiliate Agreements. Except as set forth on Schedule 3.1(s), Seller is not subject to any agreement with an affiliate that cannot be terminated by Buyer after Closing without penalty, cost or liability. For purposes hereof, “Affiliate” for purposes of this subsection shall mean any Person within which 25% or more of the outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by Seller or any Person directly or indirectly controlled by Seller.

     (t) Wells. To Seller’s knowledge, except for matters which would not materially and adversely affect the operation or value of any material portion of the Assets (a) all of the Wells described on Exhibit A have been drilled and completed at approved legal locations within the boundaries of the appropriate Lands and Units; (b) all drilling and completion of the Wells and all development and operations of the Properties have been conducted in all respects in material compliance with applicable laws, ordinances, rules, regulations, permits, and judgments, orders and decrees of any court or governmental body or agency, including but not limited to Environmental Laws; (c) no Well is subject to penalties on allowables after the date hereof because of any production in violation of applicable laws, rules, regulations, permits or judgments, orders or decrees of any court or governmental entity which would prevent such Well from being entitled to its full legal and regular allowance from and after the date hereof as prescribed by any court or governmental entity.

     (u) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Seller and for which Buyer will have any obligation or liability. Seller shall indemnify and hold Buyer harmless from any and all claims, liabilities, damages, costs and expenses asserted against Buyer by any Person claiming to have acted on behalf of Seller, or to have been retained by Seller, as a broker in connection with the transaction contemplated by this Agreement.

     3.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that:

     (a) Organization and Good Standing. Buyer is a Louisiana limited liability company, duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Buyer is authorized to do business and is in good standing under the laws of the State of Oklahoma.

     (b) Authorization. Buyer has all requisite company power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

     (c) No Conflicting Agreements. This Agreement and the execution and delivery hereof by Buyer do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i) Conflict with, or require the consent of any Person under any of the terms, conditions, or provisions of the Articles of Organization of Buyer;

(ii) Violate any provision of, or require any filing, authorization or approval under, any legal requirement applicable to or binding upon Buyer; or

(iii) Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by or require any consent, authorization or approval under, (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Buyer is a party or by which Buyer is bound or to which any of its properties is subject or (ii) any lease, license, contract or other agreement or instrument to which Buyer is a party or by which it is bound or to which any of its properties is subject.

     (d) Litigation. There is no action, suit, proceeding or governmental investigation or inquiry pending or, to the knowledge of Buyer, threatened against Buyer or its affiliates or

any of its properties that might delay, prevent or hinder the consummation of the transactions contemplated hereby.

     (e) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Buyer and for which Seller will have any obligation or liability. Buyer shall indemnify and hold Seller harmless from any and all claims, liabilities, damages, costs and expenses asserted against Seller by any Person claiming to have acted on behalf of Buyer, or to have been retained by Buyer, as a broker in connection with the transaction contemplated by this Agreement.

ARTICLE IV
COVENANTS

     4.1 Covenants of Seller. Seller covenants and agrees with and to Buyer and its subsidiaries or designees, if any, to whom the Assets are assigned at Closing that:

     (a) Access to Records. Immediately upon execution of this Agreement and until the Closing Date, Seller will, during normal working hours, use their reasonable efforts to make and continue to make available to Buyer for examination at his offices in Tulsa, Oklahoma, the Records, accounting and other information respecting the Assets, title and other information relating to the Assets and will cooperate with Buyer in Buyer’s efforts to obtain, at Buyer’s expense, such additional information relating to the Assets as Buyer may reasonably desire. Seller shall permit Buyer, at Buyer’s expense, to inspect and photocopy such information and Records at any reasonable time but only to the extent, in each case, that Seller may do so without violating any contractual commitment to a third party.

     (b) New Agreements or Settlements. Without the prior written consent of Buyer, Seller shall not enter into any new agreements or commitments with respect to the Assets, or settle or compromise any claim or administrative or judicial proceeding.

     (c) Preferential Rights and Consents. Seller shall, with respect to the Assets, immediately make requests of third parties, in compliance with applicable agreements, that any required Consents be given or waived and that Preferential Rights (or any other preferential rights determined by Buyer during the Interim Period to exist) be waived.

     4.2 Conduct of Business Prior to Closing. Seller covenants and agrees that prior to Closing:

     (a) Negative Covenants. During the Interim Period, Seller shall not, except with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed:

          (i) sell, lease, dispose of or abandon any of the Assets, or allow any of the Assets to be subjected to any mortgage, pledge, lien, security interest or encumbrance of any kind which is not in existence as of the date hereof;

          (ii) elect not to participate (i.e., go “non-consent”) in any new Well, recompletion, rework, sidetrack or other Well operation proposed under applicable joint operating agreements or other Contracts with respect to the Properties or any of them.

     (b) Affirmative Covenants. Seller shall, throughout the Interim Period, cause the Assets to be owned, produced, maintained and (where applicable) operated in the ordinary course of business consistent with good industry practices. Seller shall promptly give Buyer notice of (i) any legal actions which to Seller’s knowledge have been initiated or threatened, by or against Seller whether by a Governmental Entity or other Person, and which relate to the Assets or the ability of Seller to proceed to Closing, (ii) to the extent material, any notice or other communication received by Seller, whether from a Governmental Entity or otherwise, in respect of any Asset or in connection with the transactions contemplated by this Agreement, including any notice from a person alleging that the consent of such person is or may be required in connection therewith, and (iii) the material damage or destruction of any part of the Assets.

     4.3 Imbalances, Prepayments and Refunds. The parties recognize that as of the Effective Date there may be (i) wellhead gas imbalances (“Imbalances”) with respect to production from or attributable to certain of the Properties, whether such Imbalances be instances of overproduction (“Imbalance Obligations”) or underproduction (“Imbalance Entitlements”), (ii) prepayment obligations due to monies received by Seller under production sales contracts or similar agreements containing “take-or-pay” clauses (or similar arrangements), whereby Seller is obligated to deliver oil or gas produced after the Effective Date with respect to a Property without receiving payment therefor in the ordinary course of business (“Prepayment Obligations”), or (iii) refund obligations arising from Seller’s sale of oil or gas produced from a Property prior to the Effective Date at prices exceeding the applicable maximum lawful prices (“Refund Obligations”). The parties agree that, from and after the date of this Agreement, they shall jointly attempt to ascertain prior to Closing all Imbalances, Prepayment Obligations and Refund Obligations affecting the Properties as of the Effective Date. The parties agree that they shall adjust the Purchase Price at Closing for all discovered Imbalances, Prepayment Obligations and Refund Obligations in accordance with the following procedures:

     (a) Imbalances. The value of discovered Imbalances allocable to the Properties existing as of the Effective Date shall be calculated by multiplying the overproduced or underproduced volumes by $4.00 per MMBtu, net of all royalty and severance tax burdens. At Closing or on the Final Settlement Date, as the case may be, the Purchase Price shall be adjusted upward for the aggregate value of all Imbalance Entitlements and downward for the aggregate value of all Imbalance Obligations, in each cost allocable to the Properties. As to Imbalances allocable to the Properties discovered after the Final Settlement Date, Buyer shall bear all obligations with respect to any overproduction liability and shall receive the benefit of and be credited with any underproduction credit, including overproduction and

underproduction attributable to periods of time prior to the Effective Date. If the Imbalance Obligation exceeds the Allocated Value of a Property, Seller may remove such Property from the Assets to be sold to Buyer and the Base Purchase Price shall be reduced by the Allocated Value of such Property. Buyer shall not assume any obligation of Seller with respect to pipeline gas imbalances as of the Effective Date that may be associated with the Properties. Any such pipeline gas imbalance shall remain with and continue as the sole responsibility of the Seller.

     (b) Prepayment Obligations. At Closing, the Purchase Price shall be adjusted downward by all amounts received by Seller prior to the Effective Date with respect to Prepayment Obligations allocable to the Properties. All amounts received by Seller after the Effective Date and prior to the Final Settlement Date due to Prepayment Obligations allocable to the Properties shall be credited to Buyer.

     (c) Refund Obligations. At Closing, the Purchase Price shall be adjusted downward by all amounts received by Seller prior to the Effective Date with respect to Refund Obligations allocable to the Properties. With respect to Refund Obligations allocable to the Properties not discovered by Closing, Seller will be liable for such Refund Obligations allocable to the Properties for a period expiring two (2) year after the Closing Date.

     4.4 TAG Team Preferential Right to Purchase. Seller shall seek to acquire from TAG Team a preferential right to purchase the TAG Team Properties (“TAG Team Preferential Right”). The TAG Team Preferential Right shall contain substantially the same language as that set forth in Exhibit F attached hereto and contain no conditions as to its assignment to Buyer. Seller shall unconditionally assign the TAG Team Preferential Right to Buyer at Closing.

     4.5 Audited Financials. After the date of this Agreement, Seller agrees to cooperate with and provide reasonable assistance to Buyer in the construction of audited financial statements respecting the Assets for the prior three fiscal years, at Buyer’s sole expense.

ARTICLE V
TITLE MATTERS AND CASUALTY LOSSES

     5.1 Title and Environmental Investigation. Buyer may conduct, at its cost, such title and environmental examination and investigation, and other examinations and investigations, as it may in its discretion choose to conduct with respect to the Assets in order to determine whether any Title Defects or Environmental Defects exist.

     5.2 Notice of Title Defects. Buyer shall give Seller written “Notice of Title Defects” as soon as possible but no later than 5:00 p.m., Central Time, on the Defect Date, provided that Buyer shall notify Seller of possible Title Defects as soon as reasonably practicable after Buyer becomes aware of the same. Such notice shall be in writing and inclusion of the following elements shall be a condition precedent to the effectiveness of the Notice of Title Defects: (i) a description of the Title Defect, (ii) the reasonable basis for the Title Defect, including reasonable documentation supporting the basis for the Title Defect, if available, (ii) the Allocated Value of the affected Asset, and (iv) the

Defect Value and the computations upon which Buyer’s belief is based. If Buyer does not deliver a timely Notice of Title Defects for a particular Asset, title to such Asset shall be deemed to be Defensible Title.

     5.3 Title Defect Adjustments and Exclusions. . Subject to this Section 5.3 and Section 5.7 respecting the Defect Threshold, if any Asset is affected by a Title Defect, the Base Purchase Price shall be reduced in accordance with Section 2.2(b)(iv) by the Defect Value (which reduction shall be called a “Defect Adjustment”) unless, (i) Buyer agrees in writing to waive the relevant Title Defect, (ii) the basis for treating such Asset as subject to a Title Defect has been removed by Seller at his sole cost and expense prior to the Closing Date, or (iii) Seller and Buyer reach a subsequent agreement regarding curative of the Title Defect prior to Closing. The Base Purchase Price shall be adjusted only if the Defect Threshold, i.e., the Defect Value respecting each individual Property is equal to or exceeds $10,000 and the aggregate Defect Value of all Title Defects and Environmental Defects exceeds $200,000, in which event, the Base Purchase Price shall be reduced by the amount of the total Defect Values (i.e., which amount is a threshold, not a deductible).

     5.4 Title Defect Value. In determining which portions of an Asset constitute a Title Defect, it is the intent of the parties to include, to the extent possible, only that portion of any affected Asset (whether a Well, unit or leasehold interest, as applicable) that is adversely affected by the defect. The Defect Value for a Title Defect shall not exceed the Allocated Value of the Asset and shall be determined by the parties in good faith taking into account all relevant factors, including, but not limited to, the following:

     (a) The Allocated Value of the affected Asset;

     (b) The potential or actual reduction in the warranted NRI of the affected Property, or the potential or actual increase in the warranted WI to the extent such increase is not accompanied by a corresponding increase in NRI;

     (c) If the Title Defect represents only a possibility of title failure, the probability that such failure will occur;

     (d) The legal effect of the Title Defect; and

     (e) If the Title Defect is a lien or encumbrance on an Asset, the cost of removing such lien or encumbrance.

     5.5 Title Increases. To the extent that same are discovered by Buyer prior to the Defect Date, Seller and Buyer acknowledge and agree that the Base Purchase Price shall be increased (a “Title Increase”) by an amount determined as follows:

     (a) any increase in Seller’s NRI above that NRI shown on Exhibit A for any Property without a corresponding increase in Seller’s WI above that WI shown on Exhibit A for such Property; or

     (b) any decrease in Seller’s WI below that shown on Exhibit A for any Property without a corresponding decrease in Seller’s NRI shown on Exhibit A for such Property, in each case with such values to be agreed upon by Seller and Buyer (taking into account the Allocated Value for such Property).

Title Increases shall be available to Seller only to the extent Buyer has asserted Title Defects and may be applied to set off decreases in the Base Purchase only after the total of Defects has exceeded the Defect Threshold. The intent is that there can be no net upward adjustment to the Base Purchase Price based upon Title Increases and that such increases are only available to Seller as a set off against reductions in the Purchase Price because of Title Defects.

     5.6 Casualty Loss. If, prior to Closing, a portion of an Asset is destroyed by fire or other casualty, is taken or threatened to be taken in condemnation or under the right of eminent domain (a “Casualty Loss”), the Asset shall be included in the sale for the Allocated Value of the affected Asset, reduced by the mutually agreed cost to repair such affected Asset (with equipment of similar utility) up to the Allocated Value thereof (the reduction being the “Net Casualty Loss”) and Seller shall retain all rights to any insurance payments, awards or other payments from third parties arising out of the Casualty Loss. Any dispute concerning the amount of a Net Casualty Loss shall be resolved through arbitration pursuant to Section 9.11 except the Arbitrator to be selected shall have a minimum of fifteen (15) years’ experience in oil and gas insurance matters rather than in oil and gas accounting.

     5.7 Environmental Defects. If (i) Buyer notifies Seller on or before the Defect Date of the existence of any environmental conditions on or underlying the Assets, or any portion thereof, that (A) constitutes a violation of Environmental Laws, or (B) poses a material risk of injury to human health or the environment, and (ii) the aggregate remediation costs of all such Environmental Defects for Properties when combined with all asserted Title Defects, exceeds the Defect Threshold, then the following shall occur:

     (a) Seller shall have the right to remediate any and all Environmental Defects on or before the Closing, provided such remediation can be completed to Buyer’s reasonable satisfaction; or

     (b) Buyer and Seller shall reach agreement upon an appropriate reduction to the Base Purchase Price which shall be based, in large part, upon the anticipated remediation costs for each such Environmental Defect; or

     (c) In the event Seller is unable to cure or otherwise remediate an Environmental Defect prior to Closing and the parties are unable to reach agreement on an appropriate reduction to the Base Purchase Price, the Asset affected by such Environmental Defect shall be removed from the sale and the Base Purchase Price shall be reduced by the Allocated Value therefor.

     5.8 Environmental Laws. As used herein, the term “Environmental Law” shall mean any and all laws, statutes, regulations, rules, orders, ordinances, permits, or determinations of any governmental authority pertaining to health or the environment in effect in any and all jurisdictions

in which the Assets are located, including, without limitation, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, the River and Harbor Act, as amended, the Safe Drinking Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act (RCRA), as amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act, as amended, and other federal, state, and local laws whose purpose is to conserve or protect health, the environment, wildlife, or natural resources. The terms hazardous substances, release, and threatened release shall have the meanings specified in CERCLA; provided, however, that (i) to the extent the laws of the state in which the Assets are located are applicable and have established a meaning for hazardous substances, release, threatened release, solid waste, hazardous waste, and disposal that is broader than that specified in CERCLA or RCRA, such broader meaning shall apply with respect to the matters covered by such laws, and (ii) the term solid waste shall include all oil and gas exploration, development and production wastes, even if such wastes are specifically exempt from classification as hazardous substances or hazardous wastes pursuant to CERCLA or RCRA, or the state analogues to those statutes.

     5.9 Mutual Right to Terminate. Notwithstanding anything contained herein to the contrary, either Seller or Buyer may terminate this Agreement, in their sole and absolute discretion, if the sum of all Defect Adjustments (less offsets for Title Increases), casualty losses, and anticipated remediation costs for Environmental Defects exceed ten percent (10%) of the Base Purchase Price. If, in such event, either Seller or Buyer elects to terminate this Agreement, this Agreement shall terminate and be of no further force or effect.

ARTICLE VI
CONDITIONS TO CLOSING

     6.1 Conditions to the Obligations of Buyer. The obligations of Buyer to proceed with the Closing contemplated hereby are subject to the satisfaction on or prior to the Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Buyer.

     (a) Warranties and Agreement of Seller. All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to any earlier date and to the extent that the information contained in exhibits and schedules hereto expressly relates to any earlier date, and Seller shall have performed and complied with all the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by Seller at or prior to the Closing Date; and, Buyer shall have received a certificate dated the Closing Date and signed by Seller to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates, instruments of transfer and other documents required to be delivered to Buyer hereunder shall be satisfactory to Buyer and its counsel in all reasonable respects.

     (c) Additional Information. Seller shall have furnished to Buyer and its counsel such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling them to pass upon the matters referred to in this Section 6.1.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Receipt of Documents. Buyer shall have received (i) certificate executed by the appropriate Person certifying as to (A) Seller’s good standing, (B) the requisite limited liability company approvals of the transactions contemplated hereby, and (C) the incumbency and authority of the Person executing any documents on behalf of Seller in connection with this Agreement, (ii) an affidavit that Seller is not a “foreign person” within the meaning of Section 1445 of the Code, and (iii) assignments, conveyances and bills of sale (in substantial form as the form of conveyance to be attached hereto as Exhibit B, conveying Seller’s interest in the Assets to Buyer.

     (f) TAG Team Preferential Right to Purchase. Seller shall have obtained the TAG Team Preferential Right to purchase the TAG Team Properties and furnished to Buyer an unconditional assignment of such right.

     (g) Closing of Gathering Systems Transaction. Conditions to the closing of the acquisition of certain gathering systems located in Pittsburg and Haskell Counties, Oklahoma, by Buyer from Golden Gas Service Company. (the “Gathering System Acquisition”) shall have been satisfied or waived and the Gathering System Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (h) Board Approval. Buyer shall have received the approval of its Board of Directors with respect to the transactions contemplated herein.

     (i) Termination. Seller has not elected to terminate this Agreement in accordance with Section 5.9.

     6.2 Conditions to the Obligations of Seller. The obligations of Seller to proceed with the Closing contemplated hereby are subject to the satisfaction at or prior to Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Seller.

     (a) Warranties and Agreements of Buyer; Officer’s Certificate. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such

representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to an earlier date, and Buyer shall have performed and complied with all of the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by it at or prior to the Closing Date; and Seller shall have received a certificate dated the Closing Date and signed by the President or a Vice President of Buyer to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates and other documents required to be delivered to Seller shall be satisfactory in all reasonable respects to Seller and his counsel.

     (c) Additional Information. Buyer shall have furnished to Seller such information, certificates and other documents as Seller shall have reasonably requested for the purpose of enabling Seller to pass upon the matters referred to in this Section 6.2.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Closing of Gathering Systems Transaction. Conditions to the closing of the acquisition of certain gathering systems located in Pittsburg and Haskell Counties, Oklahoma, by Buyer from Golden Gas Service Company. (the “Gathering System Acquisition”) shall have been satisfied or waived and the Gathering System Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (f) Termination. Buyer has not elected to terminate this Agreement in accordance with Section 5.9.

ARTICLE VII
CLOSING

     7.1 Closing Date. Subject to the terms and conditions of this Agreement, the closing hereunder (the “Closing”) shall take place at 10:00 a.m., local time, on June 1, 2005, at the offices of Seller, or at such other place and time as may be mutually agreed upon by the parties (the “Closing Date”).

     7.2 Records. At Closing, or a soon thereafter as practicable, Seller shall deliver to Buyer all of the Records. Transportation of the Records to Buyer’s offices shall be at the sole cost of Buyer.

ARTICLE VIII
AS IS — WHERE IS SALE; DISCLAIMER; INDEMNITY

     8.1 Disclaimer. IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES HERETO THAT, SUBJECT TO SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, THE ASSETS ARE ACQUIRED AS IS, WHERE IS, WITH ALL FAULTS AND DEFECTS, BOTH PATENT AND LATENT, AND WITHOUT WARRANTIES OF ANY KIND, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, REGARDLESS OF HOW SUCH FAULTS AND DEFECTS WERE CAUSED OR CREATED (BY SELLER’S NEGLIGENCE, ACTIONS, OMISSIONS, OR FAULT, OR OTHERWISE). BY CLOSING, BUYER ACKNOWLEDGES IT HAS HAD OR WILL HAVE HAD PRIOR TO CLOSING A REASONABLE OPPORTUNITY TO INSPECT AND EXAMINE THE CONDITION OF EACH AND EVERY ASSET AND, SUBJECT TO SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, BUYER IS AWARE OF AND ACCEPTS THE CONDITION OF EACH AND EVERY ASSET. ALTHOUGH SELLER HAS MADE, AND UNTIL CLOSING WILL MAKE, ALL OF ITS FILES AND RECORDS AVAILABLE TO BUYER, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT AS SET FORTH IN SECTION 3 OF THIS AGREEMENT, AS TO THE ACCURACY OR COMPLETENESS OF ANY TITLE OPINION, DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR MATERIALS NOW, HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, THE PRICING ASSUMPTIONS, THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, ANY OTHER MATTERS CONTAINED IN THE DATA, OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER. IN ENTERING INTO AND PERFORMING THIS AGREEMENT, BUYER HAS RELIED AND WILL RELY SOLELY UPON SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 3 OF THIS AGREEMENT AND UPON BUYER’S INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS AND PROPERTIES AND THEIR VALUE.

     8.2 Seller’s Limited Indemnity. Subject to the terms, conditions and limitations of this Section 8.2, Seller agrees and does hereby, to the fullest extent permitted by law, INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, MEMBERS, OFFICERS, EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, the “Buyer Group”) FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, STRICT LIABILITY CLAIMS, DEMANDS, LAWSUITS, JUDGMENTS, ORDERS, FINES, PENALTIES, DAMAGES, EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEYS’ FEES), COSTS AND EXPENSES OF ANY NATURE WHATSOEVER (collectively, “Seller Damages”), ASSERTED AGAINST, RESULTING TO, IMPOSED UPON OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM (A) ANY BREACH BY SELLER OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN ARTICLES III AND IV OF THIS AGREEMENT, OR (B) TITLE OWNERSHIP OR OPERATION OF THE ASSETS BY SELLER PRIOR TO THE EFFECTIVE DATE (collectively, “Buyer Claims”), PROVIDED THAT (i) ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS

AGREEMENT AND SELLER’S ACCOUNTABILITY FOR PERIODS PRIOR TO THE EFFECTIVE DATE SHALL TERMINATE AND BE OF NO FURTHER FORCE OR EFFECT TWO (2) YEARS FROM THE CLOSING DATE, AND BUYER CLAIMS MUST ARISE AND MUST BE COMMUNICATED IN WRITING TO SELLER PRIOR TO THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE, (ii) AND THE REPRESENTATIONS AND WARRANTIES OF SELLER IN SECTION 3.1(o) SHALL BE ASSERTABLE BY THE BUYER GROUP WITHOUT REGARD TO ANY KNOWLEDGE OR MATERIALITY QUALIFIERS SET FORTH IN SECTION 3.1(o), AND (iii) NO BUYER CLAIMS, IF ANY, MAY BE ASSERTED AFTER THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE.

FROM AND AFTER THE CLOSING, THE SOLE AND EXCLUSIVE REMEDY OF BUYER WITH RESPECT TO ANY AND ALL CLAIMS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE PURSUANT TO THE INDEMNIFICATION PROVISIONS SET FORTH IN THIS SECTION 8.2. IN FURTHERANCE OF THE FOREGOING, AND SUBJECT TO THE PRECEDING SENTENCE, BUYER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, AND AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING OF ANY KIND, ANY AND ALL RIGHTS, CLAIMS AND CAUSES OF ACTION BUYER MAY NOW OR HEREAFTER HAVE AGAINST SELLER EXCEPT FOR CLAIMS FOR INDEMNIFICATION ASSERTED AS PERMITTED BY AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN THIS ARTICLE VIII.

     8.3 Buyer’s Indemnity; Environmental Matters. From and after the EFFECTIVE DATE, and to the fullest extent permitted by law, Buyer agrees, subject to Seller’s limited indemnity as set forth in Section 8.2 above, to INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLER AND SELLER’S RESPECTIVE DIRECTORS, SHAREHOLDERS, MEMBERS, OFFICERS, EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, “Seller Group”), from and against any and all liabilities, claims, strict liability claims, demands, lawsuits, judgments, orders, fines, penalties, damages, expenses (including but not limited to reasonable attorneys’ fees), costs, environmental assessment and clean-up costs and causes of action asserted by any Person (including, but not limited, to the employees of Seller or Buyer) for personal injury or death, for compliance with Environmental Laws, regulations, orders, or guidelines, or for loss or damage to Properties or the environment (collectively referred to hereinafter as “Liabilities/Claims”), arising from or relating to: (i) Buyer’s (and/or its contractors’) pre-Closing inspection of the Properties, REGARDLESS OF WHETHER SUCH LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS; (ii) the ownership, use, or operation of the Assets by Buyer or its assigns after Closing, or the express assumption of responsibilities hereunder by Buyer at Closing concerning the Assets (including, but not limited to, any Liabilities/Claims arising from or relating to leaks or releases of oil and gas from, or malfunctions of, the Assets after Closing), REGARDLESS OF WHETHER SUCH POST-CLOSING LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S PRE-CLOSING ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS RELATING TO THE

OPERATION, DESIGN, PHYSICAL CONDITION, OR MAINTENANCE STATUS OF THE ASSETS, BUT EXCLUDING SUCH POST-CLOSING LIABILITIES/CLAIMS TO THE EXTENT CAUSED BY THE NEGLIGENCE OF SELLER GROUP THAT OCCURS AFTER CLOSING; and/or (iii), subject to Seller’s environmental representation pursuant to Section 3.1(o) and Section 8.2 above, soil contamination, water contamination, and/or other types of environmental damage or contamination in, on, or under the Properties or arising from the Properties (collectively, “Environmental Contamination”), Buyer’s obligations under this Section 8.3 shall in no manner alter, diminish or adversely affect the limited indemnity obligations of Seller as provided in Section 8.2 above. BUYER EXPRESSLY ACKNOWLEDGES THAT BUYER HAS AGREED TO INDEMNIFY SELLER GROUP FOR ITS OWN ORDINARY NEGLIGENCE, SUBJECT TO AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS SECTION 8.3.

ARTICLE IX
GENERAL

     9.1 Survival of Representations and Warranties. All statements contained in this Agreement, the exhibits and schedules referred to herein, and any certificates or other instruments delivered pursuant to the express terms hereof by or on behalf of any party hereto shall be deemed representations and warranties hereunder by such party. All representations, warranties, covenants and agreements made by the parties to this Agreement or pursuant hereto shall survive any investigations made by or on behalf of the parties and shall survive the Closing to the extent provided herein, but not otherwise.

     9.2. Expenses. Each party hereto shall pay all expenses and disbursements incurred by it, its officers, employees and representatives, in connection with this Agreement and the performance of its obligations hereunder.

     9.3. Further Assurances. Seller will from time to time, upon the request of Buyer, execute and deliver to Buyer such further instruments, and take such other action as Buyer may reasonably request, in order to more effectively convey, assign, transfer and deliver, or place Buyer in possession and control of, the Assets or to enable Buyer to exercise and enjoy all rights and benefits with respect thereto. In addition, the Buyer shall only receive copies of the Records and TAG Team shall continue to have custody of the originals of the Records. Upon request of Buyer, Seller will use its best efforts to assist Buyer in gaining access to the originals of the Records and in obtaining copies of Records relating to the Assets not previously copied as Buyer may reasonably desire.

     9.4. Binding Agreement: Assignment; Parties in Interest. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that any assignment of this Agreement by any party hereto without the written consent of the other parties shall be void. Notwithstanding the foregoing, the rights and obligations of Buyer hereunder may be assigned to or performed by any other entity owned or controlled by Buyer, without the written consent of Seller provided that such assignment shall not relieve Buyer of its obligations hereunder. Except as provided herein, nothing in this Agreement,

express or implied, is intended or shall be construed to give to any Person other than the parties hereto any right, remedy or claim under or by reason of this Agreement.

     9.5. Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or transmitted by first-class registered or certified mail, postage prepaid, return receipt requested, or sent by prepaid overnight delivery service, or sent by facsimile transmission, to the parties at the following addresses (or at such other address as shall be specified by the parties by like notice):

If to Seller:

Staab Holdings, L.L.C.
c/o TAG Team Resources, L.L.C.
2120 East 15^th Street
Tulsa, Oklahoma 74104
Telephone: (918) 582-0139
Facsimile: (918) 582-6495

If to Buyer:

PetroQuest Energy, L.L.C.
400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508
Attn: Mr. Dalton F. Smith III
Telephone: (337) 232-7028
Facsimile: (337) 234-4699

     9.6. Publicity. All notices to third parties and other publicity concerning the transaction contemplated by this Agreement shall be jointly planned and coordinated by and between Seller and Buyer. Except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, neither party shall act unilaterally in this regard without the prior written approval of the others, provided, however, that such approval shall not be unreasonably withheld.

     9.7. Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Oklahoma.

     9.8. Exhibits and Schedules; Right to Terminate.

     (a) Exhibits and Schedules Incorporated in this Agreement. All exhibits and schedules referred to in this Agreement are attached hereto, incorporated herein and made an integral part hereof.

     b) Completion of Exhibits and Schedules; Termination. The Schedules and Exhibits are not complete as of the date of execution of this Agreement. Seller and Buyer

shall use their best efforts, in good faith, to prepare and agree upon all of the final Exhibits and Schedules on or before April 28, 2005. If mutual agreement is not reached as to the final Exhibits and Schedules by such date, or such mutually agreed extension of such date, either Seller or Buyer may terminate this Agreement in their sole discretion and this Agreement shall be of no further force or effect.

     9.9. Entire Agreement; Amendments; Waivers. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

     9.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.

     9.11 Arbitration. Any disagreement between Seller and Buyer with respect to the Final Settlement Statement shall be resolved pursuant to Section 2.5(a). With respect to any other dispute between Seller and Buyer arising under this Agreement, either Seller or Buyer may request binding arbitration of the Final Statement to be conducted before one arbitrator in Tulsa, Oklahoma, in accordance with the Uniform Arbitration Act, as adopted and then in effect in the State of Oklahoma, and in accordance with the rules promulgated by the American Arbitration Association (the “AAA”) (expedited procedures). The AAA shall be instructed to choose an arbitrator (the “Arbitrator”) who shall have a minimum of fifteen (15) years experience in the oil and gas industry, generally, and, specifically, in the area with respect to which the subject matter of the dispute pertains. Notice of a party’s election to submit a matter for arbitration shall be given to the other party if good faith negotiations to resolve such matter (for a period of at least 10 days) prove unsuccessful. Upon delivery of such notice by either party, each party shall have ten (10) calendar days to provide the Arbitrator (and the other party) with a statement of its position (with supporting documentation) regarding the matter or matters in dispute together with its best and final offer for settlement of the dispute. The failure to provide a statement of position within this period shall constitute a waiver of a party’s rights to have such materials considered by the Arbitrator. The Arbitrator shall consider the statements of position submitted by the parties and shall, within ten (10) business days after receipt of such materials, issue his or her decision adopting the best and final statement offer for settlement of the dispute either by Buyer or Seller. All determinations made by the Arbitrator shall be final, conclusive and binding on the parties. The expenses of such arbitration, including the fees of the Arbitrator, shall be divided equally between Buyer and the Seller Group, unless otherwise specified in the Arbitrator’s award. Further, the Seller Group and Buyer shall each pay all fees and expenses of its own witnesses and legal counsel, unless otherwise specified in the Arbitrator’s award.

     9.12 Substitution of Affiliates. Buyer shall have the right to substitute as purchaser hereunder any of its affiliates without otherwise altering the terms and conditions of this Agreement.

     9.13 Headings. The headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.

     9.14 Mutual Waiver of Certain Remedies. NO PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO ANY OTHER PARTY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES, AS TO ANY ACTION OR OMISSION, WHETHER CHARACTERIZED AS A CONTRACT BREACH OR TORT, WHICH ARISES OUT OF OR RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR NONPERFORMANCE.

     IN WITNESS WHEREOF the parties have executed or caused the Agreement to be executed as of the day and year first above written.

SELLER:
	Staab Holdings, L.L.C.
		/s/ Alan R. Staab
		Alan R. Staab
		President
BUYER:
	PetroQuest Energy, L.L.C.
	By:	/s/ Dalton F. Smith
		Dalton F. Smith, III
		Senior Vice President
		Business Development & Land

EX-2.2

Exhibit 2.2

PURCHASE AND SALE AGREEMENT
Haywood Area Properties

     This Purchase and Sale Agreement (this “Agreement”) dated as of the 7th day of April, 2005, executed by MAKO Resources, LLC, an Oklahoma limited liability company (“MAKO”), and Golden Gas Service Company , an Oklahoma corporation (“Golden Gas”) (sometimes referred to collectively as “Seller”), and PetroQuest Energy, L.L.C., a Louisiana limited liability company (the “Buyer”).

     In consideration of the mutual promises contained herein, the benefits to be derived by each party hereunder and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE I
INTENT AND DEFINED TERMS

     1.1 Intent. MAKO and Golden Gas are owners of certain oil and gas properties located in the Haywood area, Pittsburg County, Oklahoma as described on Exhibit A and Exhibit A-1 hereto. Seller desires to sell and Buyer desires to buy such properties on the terms and conditions set forth in this Agreement.

     1.2 Defined Terms. Unless the context otherwise requires, the following terms used in this Agreement shall have the meanings assigned to them in this Section 1.2:

          “AFE(s)” means Authorizations for Expenditures.

          “Affiliate” 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, such Person.

          “Allocated Value” means the allocated value of each of the Assets as shown on Exhibit A.

          “British Thermal Unit” or “Btu” shall mean the amount of heat required to raise the temperature of one pound of water one (1) degree from 59 to 60 degrees Fahrenheit. “MMBtu” shall mean 1,000,000 Btu’s.

          “Code” means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder by the Treasury Department of the United States.

          “Contracts” shall mean any and all existing operating agreements, unit agreements, gas purchase and sales contracts, oil sales contracts, gas transportation and processing contracts, farmin agreements, farmout agreements, exploration agreements, leasehold acquisition agreements (including associated area of mutual interest rights and provisions), joint venture agreements, saltwater disposal agreements, gathering and transportation agreements, compression agreements and

all other agreements related to or associated with the Properties, including, without limitation, those set forth in Schedule 3.1(j) and Schedule 3.1(k) hereto.

          “Defect Date” shall mean 5:00 p.m., Central Standard Time on the fifth (5^th) calendar day prior to the Closing Date.

          “Defects” shall collectively refer to Title Defects and Environmental Defects asserted by Buyer pursuant to this Agreement.

          “Defect Threshold” shall mean, (i) for each individual Property, Defects asserted by Buyer that adversely affect such Property by an amount equal to or in excess of $10,000, and (ii) for the Assets taken as a whole, Defects asserted by Buyer that adversely affect Seller and/or the Assets by an amount equal to or in excess of $60,000.

          “Defensible Title” means such title of Seller that, subject to and except for the Permitted Encumbrances:

          (i) renders a Property free from reasonable doubt to the end that a prudent person engaged in the business of purchasing and owning, developing, and operating producing oil and gas properties with knowledge of all of the facts and their legal bearing would be willing to accept the same;

          (ii) entitles Seller to receive not less than the net revenue interest (“NRI”) set forth for each Property (e.g., well interest, unit interest or leasehold interest, as applicable) on Exhibit A, subject to the limitations as to depths or formations, if any, set forth in Exhibit A or Exhibit A-1;

          (iii) obligates Seller to bear costs and expenses relating to the maintenance, development, operation and the production of oil and gas from each Property (e.g., well interest, unit interest or leasehold interest, as applicable) in an amount not greater than the working interest (“WI”) therefor as set forth on Exhibit A without a corresponding increase in the NRI for such Property; and

          (iv) renders the Asset free and clear of encumbrances, liens and defects that would create a material impairment of use and enjoyment of or loss of interest in the affected Asset.

          “Effective Date” shall mean 12:01 a.m. on January 1, 2005.

          “Environmental Defect” shall mean that, with respect to the Asset in question, (i) any hazardous substances (as defined in 42 U.S.C.A. 9601(14) or 42 U.S.C.A. 69021(B)(2)) are present, stored or located on or in conjunction with an Asset in violation of Environmental Laws; or (ii) any Asset is in noncompliance with Environmental Laws, to the extent that any of the foregoing arise out of or pertain to operations conducted on, or ownership of, the Assets prior to the Closing Date.

          “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).

          “Interim Period” means the period of time between the execution of this Agreement and the Closing Date.

          “Material Adverse Effect” means, with respect to a Person, the occurrence of an event or the existence of a circumstance (other than general industry conditions, or matters of a general economic or political nature) that has a material adverse effect on such Person’s assets, business or financial condition, taken as a whole.

          “NRI” shall have the meaning given it in this Section 1.2 within the definition of Defensible Title.

          “Permitted Encumbrances” shall mean:

          (i) lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens, if the net cumulative effect of all such burdens does not operate to reduce the NRI for a particular Property below that set forth on Exhibit A;

          (ii) any preferential rights to purchase and required third party consents to assignments of contracts and similar agreements for which written waivers or consents are obtained prior to Closing;

          (iii) liens for taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

          (iv) all rights to consent by, required notices to, filings with, or other actions by federal, state or local entities in connection with the sale or conveyance of any Asset if the same are customarily obtained subsequent to such sale or conveyance;

          (v) easements, rights-of-way, servitudes, permits, surface Leases and other rights with respect to surface operations, on, over or in respect of any of the Assets or any restriction on access thereto and that do not materially interfere with the operation of the affected Assets;

          (vi) such Title Defects as Buyer has waived in writing or through its failure to timely assert the same, as herein provided;

          (vii) materialmens’, mechanics’, repairmens’, employees’, contractors’, operators’ or other similar liens or charges arising in the ordinary course of business incidental to construction, maintenance or operation of the Assets (i) if they have not been filed pursuant to law and the time for filing them has expired, (ii) if filed, they have not yet become due and payable or payment is being withheld as provided by law, or (iii) if their

validity is being contested in good faith by appropriate action and payment to discharge the same has been placed by Seller in escrow;

          (viii) rights reserved to or vested in any Governmental Entity to control or regulate any of the Assets in any manner, and all applicable laws, rules, regulations and orders of general applicability in the area;

          (ix) liens arising under operating agreements, unitization and pooling agreements and production sales contracts securing amounts not yet due or, if due, being contested in good faith in the ordinary course of business and payment to discharge the same has been placed by Seller in escrow;

          (x) division orders and sales contracts terminable without penalty upon no more than 90 days notice to the Buyer; and

          (xi) all other liens, charges, encumbrances, contracts, agreements, instruments, obligations, defects, and irregularities affecting the Assets to which they relate that, individually or in the aggregate:

               (a) do not reduce the interest of Seller with respect to the oil and gas produced from any unit or well to which a Property relates below the NRI set forth in Exhibit A for the Properties to which such unit or well relates; or

               (b) do not increase Seller’s portion of the costs and expenses relating to the operations on and the maintenance and development of the lands and depths included in any unit or well to which the Properties relate above the WI set forth in Exhibit A for the Properties to which such unit or well relates.

     “Person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, enterprise, unincorporated organization, or Governmental Entity.

     “Records” means, collectively, (i) the Lease files, title opinions, production records, well files, maps, surveys, electric logs, seismic records, geological and geophysical data, together with all other land files, third-party contracts, documents and records, of Seller related to the Properties, and (ii) copies of accounting records of Seller relating to the Properties.

     “Title Defect” means any encumbrance, encroachment, irregularity, defect in or objection to title in and to the Assets, or any portion thereof, excluding Permitted Encumbrances, that alone or in combination with other defects renders Seller’s title less than Defensible Title.

     “WI” shall have the meaning given it in this Section 1.2 within the definition of Defensible Title.

     1.3 Additional Definitions. The following terms are defined in the Section referenced below:

“AAA”	Section 9.11
“Arbitrator”	Section 9.11
“Assets”	Section 2.1
“Base Purchase Price”	Section 2.1
“Buyer Claims”	Section 8.2
“Buyer Group”	Section 8.2
“Casualty Losses”	Section 5.6
“Closing” and “Closing Date”	Section 7.1
“Consents”	Section 3.1(l)
“Environmental Laws”	Section 5.8
“Equipment”	Section 1.2
“Final Settlement Date”	Section 2.5
“Final Settlement Period”	Section 2.5
“Final Settlement Price”	Section 2.5
“Final Statement”	Section 2.5
“Imbalance Obligations”	Section 4.3
“Lands”	Section 2.1
“Leases”	Section 2.1
“Preferential Rights”	Section 3.1(l)
“Properties”	Section 2.1
“Purchase Price Adjustment Statement	Section 2.3
“Refund Obligations”	Section 4.3
“Seller Group”	Section 8.3
“TAG Team”	Section 4.4
“Title Increases”	Section 5.5
“Units”	Section 2.1
“Wells”	Section 2.1

ARTICLE II
PURCHASE PRICE AND ALLOCATION

     2.1 Purchase Price for Assets. Seller shall sell and Buyer shall purchase, effective as of the Effective Date, for the sum of Five Million and No/l00 Dollars ($5,000,000), subject to adjustments as provided or contemplated herein (the “Base Purchase Price”) all of each Seller’s right, title, interest and estate in and to the following:

(a) All of Seller’s right, title and interest in and to the wells (the “Wells”) described in Exhibit A and the lands and properties (the “Lands”) described in Exhibit A-1 attached hereto and made a part hereof for all purposes;

(b) Without limitation of the foregoing, all other right, title and interest (of whatever kind or character, whether legal or equitable, and whether vested or contingent, except for overriding royalty interests of record as of the Effective Date) of Seller in and to the oil, gas and other minerals in and under or that may be produced from the Lands and the lands described in the instruments and documents listed on Exhibit A and Exhibit A-1 hereto and the wells located on such Lands or lands, including without limitation the Wells described in Exhibit A (including interests in oil, gas and/or mineral leases covering all or a part of such Lands, lands and Wells (the “Leases”) and production payments and net profits interests in such Lands, Leases and Wells, and fee mineral interests, mineral servitudes, fee royalty interests and other fee interests (such fee interests, the “Mineral Interests”) in such oil, gas and other minerals), whether such lands be described in a description set forth in Exhibit A or Exhibit A-1 or be described in such Exhibit A or Exhibit A-1 or by reference to another instrument, even though Seller’s interest in such oil, gas and other minerals may be incorrectly described in, or omitted from, Exhibit A or Exhibit A-1;

(c) All rights, titles and interests of Seller in and to, or otherwise derived from, all oil, gas and/or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders (the “Units”) which apply to the Lands, whether or not expressly set forth on Exhibit A or Exhibit A-1, in and to the properties covered and the units created thereby (including all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, voluntary unitization agreements, designations and/or declarations) relating to the properties described in paragraphs (a) and (b) above;

(d) All rights, titles and interests of Seller in and to all production sales (and sales related) Contracts, transportation and/or processing agreements, operating agreements, farmout agreements and other agreements and Contracts which relate to any of the properties described in paragraphs (a), (b) and (c) above, or which relate to the exploration, development, operation, or maintenance thereof or the treatment, transportation or marketing of production therefrom (or allocated thereto) including without limitation the agreements and Contracts which are set forth on Schedule 3.1(j) and Schedule 3.1(k);

(e) All rights, titles and interests of Seller in and to (i) all equipment, improvements and

other personal property and fixtures (including but not by way of limitation, wellhead equipment, pumping units, flowlines, tanks, injection facilities, saltwater disposal facilities, compression facilities and other equipment) located on and used in connection with the Lands, Leases and/or Wells (the “Equipment”), and (ii) all Easements, rights-of-way, surface leases and other surface rights, all permits and licenses, and all other appurtenances located on and used in connection with the Lands, Leases and/or Wells;

(f) All of Seller’s lease files, abstracts and title opinions, production records, well files, accounting records (but not including general financial accounting records), seismic records and surveys, gravity maps, electric logs, geological or geophysical data, and other Records, documents and files of every kind and description which relate to the properties described above; provided, however, the foregoing shall not include any files, records, data or information which is attorney work product or subject to attorney client privilege or any files, records, data or information which by agreement Seller is required to keep confidential except and to the extent a waiver in writing is obtained of any such confidentiality requirements; and

(g) The oil, gas, coalbed methane, casinghead gas, condensate, distillate, liquid hydrocarbon, and gaseous hydrocarbons produced on or after the Effective Date, products refined and manufactured therefrom, and the accounts and proceeds from the sale of the foregoing to the extent attributable to the Properties.

     The properties and interests specified in the foregoing paragraphs (a), (b) and (c) are sometimes collectively referred to as the “Properties” and the total of the properties and interests specified in the foregoing paragraphs (a) through (g) are sometimes collectively referred to as the “Assets”.

     2.2 Adjustments to Base Purchase Price. The Base Purchase Price shall be subject to adjustment as follows:

     (a) Upward Adjustments Respecting Properties. The Purchase Price for the Properties shall be adjusted upward by the following:

     (i) The value of all merchantable, allowable oil in storage at the Effective Date allocable to the Properties, above the pipeline connection;

     (ii) The amount of all verifiable expenditures under Contracts, applicable operating agreements or other similar arrangements or agreements paid by Seller in connection with the operation of the Assets in accordance with this Agreement for work actually performed on or subsequent to the Effective Date;

     (iii) The amount of all capital expenditures made by Seller for the drilling of a new Well or recompletion, rework or other existing Well operation, incurred on or after the Effective Date and consented to by Buyer;

     (iv) An amount equal to the sum of all Imbalance Entitlements allocable to the Properties outstanding as of the Effective Date; and

     (v) Any other amount agreed upon by Seller and Buyer in writing.

     (b) Downward Adjustments Respecting Properties. The Base Purchase Price for the Properties shall be adjusted downward by the following:

     (i) Proceeds received by Seller from the sale of oil, gas or other hydrocarbons attributable to the Properties and which are produced on and after the Effective Date;

     (ii) An amount equal to all unpaid ad valorem, property, production, severance and similar taxes and assessments (but not including income taxes) based upon or measured by the ownership of Assets or the production of hydrocarbons or the receipt of proceeds therefrom accruing to the Assets prior to the Effective Date;

     (iii) An amount equal to all sums received by Seller with respect to Prepayment Obligations, Refund Obligations or Imbalance Obligations to the extent, and only to the extent, that such sums apply to periods of ownership and/or production of the Assets on or after the Effective Date;

     (iv) Any reductions for Defects, allocable to the Properties, as provided in Article V, such reduction to be offset by any Title Increases pursuant to Section 5.5;

     (v) Any Casualty Losses allocable to the Properties as provided in Section 5.6;

     (vi) Any other amount agreed upon by Seller and Buyer in writing.

     2.3. Purchase Price Adjustment Statement. Seller shall each submit a Closing statement (the “Purchase Price Adjustment Statement”) respecting the Assets to Buyer not fewer than seven (7) business days prior to Closing. Buyer shall be afforded access by Seller, to any Records pertaining to the computations contained in the Purchase Price Adjustment Statement. At least two (2) full business days prior to Closing, Buyer shall deliver to Seller a written report containing such changes, if any, which Buyer proposes be made to the Purchase Price Adjustment Statements. Seller and Buyer shall each make every reasonable effort to agree prior to the Closing Date on mutually agreed Purchase Price Adjustment Statements.

     2.4 Payment at Closing. After the Purchase Price Adjustment Statements have been agreed to by the parties, Seller shall provide Buyer the specific amounts to be paid to each Seller as its allocated portion of the Purchase Price and the Purchase Price due at Closing shall be tendered by Buyer to Seller, by wire transfer in accordance with Seller’s instructions. Each Seller shall provide to Buyer wire transfer instructions not later than three (3) days prior to the Closing Date.

     2.5 Final Settlement. As soon as practicable after the Closing Date, but in any event within 120 calendar days thereafter (the “Final Settlement Period”), Buyer shall prepare and submit to Seller a proposed statement (herein called the “Final Statement”), which shall show the final calculation of the Purchase Price (herein called the “Final Settlement Price”). As soon as possible after receipt of the Final Statement, but in any event within 15 calendar days after receipt thereof, Seller shall deliver to Buyer a written report containing the changes, if any, which Seller proposes being made to the Final Statement. In the event no response is made by Seller within such 15-day period, it shall be conclusively presumed that Seller concurs with the Final Statement to which no response is made, and such Final Statement shall be the basis for the Final Settlement Price. In the event that Seller submits a response, the parties shall exercise all reasonable efforts to agree upon a mutually acceptable Final Settlement Price and the calculation of the amount, if any, due in connection therewith not later than 150 calendar days after the Closing (herein called the “Final Settlement Date”). After agreement upon a Final Settlement Price setting forth the amount by which the Base Purchase Price shall be adjusted (either upward or downward) has been reached, the amount due shall be paid within five (5) business days thereafter by the party owing the same by confirmed wire transfer to a bank account or accounts to be designated by the appropriate party. In the event Seller and Buyer are unable to agree with respect to the amounts due pursuant to this Section 2.5 before the Final Settlement Date, then either Seller or Buyer may refer the issues in dispute to the Grant Thornton LLP, Tulsa, Oklahoma accounting firm (or such other recognized firm of public accountants as the applicable parties may mutually agree) and the resolution of such issues by such firm shall be final and binding on all parties. The costs of such public accountants shall be borne equally by Seller and Buyer.

     2.6 Allocation of Purchase Price of Properties. The Allocated Value of Seller’s interest in each of the Properties is set forth on Exhibit A hereto. The Allocated Values are for purposes of adjustment of the Base Purchase Price. Buyer and Seller will each make their own allocation for tax purposes.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of Seller. Each Seller represents and warrants to Buyer and its Affiliates or designees, if any, to whom the Assets are assigned at Closing, to the extent such representations and warranties are applicable to such Seller’s respective interests in the Assets, as follows.

     (a) Organization and Standing. (i) MAKO is a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, is legally authorized to conduct business in each jurisdiction where it conducts business, and has all requisite power and authority to own and operate the Assets and to carry on its business as such business is currently conducted. (ii) Golden Gas is an Oklahoma corporation, duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, is legally authorized to conduct business in each jurisdiction where it conducts business, and has all requisite power and authority to own and operate the Assets and to carry on its business as such business is currently conducted

     (b) Authorization and Enforceability. Each Seller has all requisite power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by Seller. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws relating to or affecting the enforcement of creditors rights generally and general principles of equity.

     (c) No Conflict. This Agreement and the execution and delivery hereof by Seller do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i)	Violate any provision of, require any filing, consent, authorization or approval under, any legal requirement applicable to or binding upon Seller;
(ii)	Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, (A) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or to which Seller is bound or to which any of the Assets are subject, or (B) any lease, license, contract or other agreement or instrument to which Seller is a party or by which it is bound or to which any of the Assets are subject; or
(iii)	Result in the creation or imposition of any lien, charge or other encumbrance upon any of the Assets.

     (d) No Default. Neither Seller is in default under, and no condition exists that with notice or lapse of time or both would constitute a default under (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which either Seller is a party or by which such Seller is bound or to which any of the Assets are subject, or any other agreement, contract, lease, license, or other instrument, (ii) any order, judgment or decree of any court, commission, board, agency or other governmental body, or (iii) any law, statute, ordinance, decree, order, rule or regulation of any governmental authority.

     (e) Title to Assets. Each Seller has Defensible Title to the Properties, free and clear of all liens, mortgages, encumbrances and claims of any kind or character. Assignment of the Properties shall be by, through and under Seller, but not otherwise.

     (f) Regulatory Matters. Neither Seller has received any notice or order from any Governmental Entity which regulates or purports to regulate any of the Assets or Seller or

any of their activities, except pertaining to usual and customary filing requirements applicable to assets of the types owned by Seller.

     (g) Taxes. There are no pending or threatened state, local or foreign tax liens upon any of the Assets. All material taxes, assessments, fees and other charges of any Governmental Entity which have been assessed against the Assets and have become due and payable, have been paid. All ad valorem, gross production, severance, excise, or similar taxes relating to Seller’s ownership of any of the Assets prior to the Effective Date have been or will be timely paid by Seller.

     (h) Litigation. Except as and to the extent set forth in Schedule 3.1(h), there are no administrative and judicial actions and proceedings presently pending or threatened against or involving (i) either Seller, or (ii) the Assets or any portion thereof.

     (i) Compliance with Laws. Except as and to the extent set forth in Schedule 3.1(i) hereto (i) to Seller’s knowledge, each Seller is in compliance in all material respects with all applicable statutes, orders, rules and regulations promulgated or proposed by any federal, state or local governmental entity relating to the operation and conduct of the Assets, (ii) except for obligations to properly plug and abandon non-producing Wells, and related obligations, there are no such statutes, orders, rules or regulations which require material future actions or expenditures by or on behalf of either Seller; (iii) neither Seller has received any notice of alleged material violation of any such statute, order, rule or regulation; and (iv) all material business and other licenses, permits, performance bonds and other security and authorizations required by law for the ownership and/or operation of the Assets and/or Seller’s conduct of their business or operations respecting the Assets have been obtained and each Seller is in material compliance with such licenses, permits, bonds, and other authorizations.

     (j) Contracts. Schedule 3.1(j) hereto is a list of all Contracts (written or oral) to which either Seller is a party or by which either of them is bound, having a duration in excess of one (1) month or involving payments (or other value) in excess of $5,000. Each Seller has complied in all material respects with the provisions of all such Contracts, and neither is in default thereunder in any manner which would permit any other party thereto to cancel or terminate such Contract; and, all such Contracts are in full force and effect and constitute legal, valid and binding obligations of each Seller, and to the knowledge of each Seller, are binding upon the other parties to such Contract in accordance with their terms; and, as of the date hereof, there is no claimed breach of contract by any party to any such Contract.

     (k) Production Sales Contracts; Future Sales Contracts. Except as set forth on Schedule 3.1(k) hereto, the Assets are not subject to any contracts for the sale of oil or gas attributable to periods from and after the Effective Date, other than agreements that are terminable, without penalty, upon not more than thirty (30) days’ notice. Neither Seller is under any obligation under any production sales contract, take-or-pay clause, or any similar arrangement, to deliver oil or gas from the Assets without receiving payment at the time of or subsequent to delivery. Seller has not entered into and is not subject to any obligation to

deliver gas or oil in the future for which payment has already been received (e.g., a “forward” sale contract).

     (l) Preferential Purchase Rights and Consents. To each Seller’s knowledge, except as set forth on Schedule 3.1(l), there are no consents to assign requiring a third party to consent to the assignment of the Assets (“Consents”) or preferential purchase rights providing an option or right to purchase any of the Assets (“Preferential Rights”).

     (m) Capital Commitments. Except as set forth on Schedule 3.1(m) hereto, neither Seller has paid, incurred or otherwise committed from and after the Effective Date to any expenditures in excess of $25,000 for any single operation, net to the interest of all parties comprising Seller, (i) for any purpose, to include the drilling, completion, recompletion, sidetracking or rework of any Well on the Properties, (ii) the acquisition of other oil and gas properties, or (iii) the acquisition of seismic or other technical data, and no such expenditures are pending and unapproved.

     (n) No Material Adverse Change. Except for matters for which downward adjustments to the Purchase Price are prescribed pursuant to this Agreement, there has not been and will not be during the period between the Effective Date and the Closing Date any Material Adverse Effect with respect to the Assets.

     (o) Environmental Matters. Neither Seller has received any notification of any pending or threatened investigation, claim, penalty, or action by any Governmental Entity or other Person relating to the environmental condition of the Assets, and Seller has no knowledge that (i) there has been a release or threat of release of any hazardous substance (as the term “release” and “hazardous substance” are defined under Environmental Laws) on or from any of the Assets, or as a consequence of Seller’s operations or activities respecting the Assets, or any of them, prior to the date of this Agreement, or (ii) a condition exists on or under any of the Assets as of the date of this Agreement which could have a Material Adverse Effect on the Assets.

     (p) Plugging and Abandonment Obligations. To Seller’s knowledge, except as set forth on Schedule 3.1(p), Seller has complied, to the extent compliance is required or appropriate as of the Effective Date, with all plugging and abandonment obligations associated with Wells in which Seller owns an interest, including plugging, abandonment, surface restoration, site clearance and disposal related waste materials, in compliance with all applicable contractual obligations and applicable rules and regulations of Governmental Entities having jurisdiction.

     (q) Payment of Burdens on Production. All delay rentals, shut-in payments, lease extension payments, royalties, excess royalties, overriding royalty interests, production payments, net profits interests and other payments due under or with respect to production from the Properties have been fully, properly and timely paid, except for those amounts in suspense, and to Seller’s knowledge, all conditions necessary to maintain the Leases in force have been duly performed.

     (r) Imbalances and No Cash Balancing. To each Seller’s knowledge, the gas Imbalances affecting the Properties as of the Effective Time reflected on Schedule 4.3 are true and correct in all material respects. Except as provided on Schedule 4.3, as of the Effective Time, none of the Properties were subject to a gas balancing agreement containing a provision that would require a cash balancing payment upon the transfer of the affected Property through a transaction of the nature contemplated in this Agreement.

     (s) Affiliate Agreements. Except as set for on Schedule 3.1(s), the Assets are not subject to any Contract or agreement with an Affiliate of either Seller that cannot be terminated by Buyer after Closing without penalty, cost or liability.

     (t) Wells. To Seller’s knowledge, except for matters which would not materially and adversely affect the operation or value of any material portion of the Assets (a) all of the Wells described on Exhibit A have been drilled and completed at approved legal locations within the boundaries of the appropriate Lands and Units; (b) all drilling and completion of the Wells and all development and operations of the Properties have been conducted in all respects in material compliance with applicable laws, ordinances, rules, regulations, permits, and judgments, orders and decrees of any court or governmental body or agency, including but not limited to Environmental Laws; and (c) no Well is subject to penalties on allowables after the date hereof because of any production in violation of applicable laws, rules, regulations, permits or judgments, orders or decrees of any court or governmental entity which would prevent such Well from being entitled to its full legal and regular allowance from and after the date hereof as prescribed by any court or governmental entity.

     (u) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Seller and for which Buyer will have any obligation or liability. Each Seller shall indemnify and hold Buyer harmless from any and all claims, liabilities, damages, costs and expenses asserted against Buyer by any Person claiming to have acted on behalf of Seller, or to have been retained by Seller, as a broker in connection with the transaction contemplated by this Agreement.

     3.2 Representations and Warranties of Buyer. Buyer represents and warrants to each Seller that:

     (a) Organization and Good Standing. Buyer is a Louisiana limited liability company, duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is authorized to do business and is in good standing under the laws of the State of Oklahoma.

     (b) Authorization. Buyer has all requisite company power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such

enforceability may be limited by bankruptcy, insolvency or other laws relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

     (c) No Conflicting Agreements. This Agreement and the execution and delivery hereof by Buyer do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i) Conflict with, or require the consent of any Person under, any of the terms, conditions, or provisions of the Articles of Organization of Buyer;

(ii) Violate any provision of, or require any filing, authorization or approval under, any legal requirement applicable to or binding upon Buyer; or

(iii) Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by; or require any consent, authorization or approval under (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Buyer is a party or by which Buyer is bound or to which any of its properties is subject or (ii) any lease, license, contract or other agreement or instrument to which Buyer is a party or by which it is bound or to which any of its properties is subject.

     (d) Litigation. There is no action, suit, proceeding or governmental investigation or inquiry pending or, to the knowledge of Buyer, threatened against Buyer or its Affiliates or any of its properties that might delay, prevent or hinder the consummation of the transactions contemplated hereby.

     (e) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Buyer and for which Seller will have any obligation or liability. Buyer shall indemnify and hold Seller harmless from any and all claims, liabilities, damages, costs and expenses asserted against Seller by any Person claiming to have acted on behalf of Buyer, or to have been retained by Buyer, as a broker in connection with the transaction contemplated by this Agreement.

ARTICLE IV
COVENANTS

     4.1 Covenants of Seller. Each Seller covenants and agrees with and to Buyer and its Affiliates or designees, if any, to whom the Assets are assigned at Closing, as follows:

     (a) Access to Records. Immediately upon execution of this Agreement and until the Closing Date, Seller will, during normal working hours, use their reasonable efforts to make and continue to make available to Buyer for examination at their offices in Tulsa,

Oklahoma, the Records, accounting and other information respecting the Assets, title and other information relating to the Assets and will cooperate with Buyer in Buyer’s efforts to obtain, at Buyer’s expense, such additional information relating to the Assets as Buyer may reasonably desire. Seller shall permit Buyer, at Buyer’s expense, to inspect and photocopy such information and Records at any reasonable time but only to the extent, in each case, that Seller S may do so without violating any contractual commitment to a third party.

     (b) New Agreements. Without the prior written consent of Buyer, neither Seller shall enter into any new agreements or commitments with respect to the Assets, or settle or compromise any claims or administrative or judicial actions respecting the Assets.

     (c) Preferential Rights and Consents. Each Seller shall immediately make requests of third parties, in compliance with applicable agreements, that any required Consents be given or waived and that Preferential Rights (or any other preferential rights determined by Buyer during the Interim Period to exist) be waived; with respect to any of the Assets.

     4.2 Conduct of Business Prior to Closing. Each Seller covenants and agrees that prior to Closing:

     (a) Negative Covenants. During the Interim Period, neither Seller shall, except with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed:

     (i) sell, lease, dispose of or abandon any of the Assets, or allow any of the Assets to be subjected to any mortgage, pledge, lien, security interest or encumbrance of any kind which is not in existence as of the date hereof; or

     (ii) elect not to participate (i.e., go “non-consent”) in any new Well, recompletion, rework, sidetrack or other Well operation proposed under applicable joint operating agreements or other Contracts with respect to the Properties or any of them.

     (b) Affirmative Covenants. Seller shall, throughout the Interim Period, cause the Assets to be owned, produced, maintained and (where applicable) operated in the ordinary course of business consistent with good industry practices. Seller shall promptly give Buyer notice of (i) any legal actions which to Seller’s knowledge have been initiated or threatened, by or against Seller whether by a Governmental Entity or other Person, and which relate to the Assets or the ability of Seller to proceed to Closing, (ii) to the extent material, any notice or other communication received by Seller, whether from a Governmental Entity or otherwise, in respect of any Asset or in connection with the transactions contemplated by this Agreement, including any notice from a person alleging that the consent of such person is or may be required in connection therewith, and (iii) the material damage or destruction of any part of the Assets.

     4.3 Imbalances, Prepayments and Refunds. The parties recognize that as of the Effective Date there may be (i) wellhead gas imbalances (“Imbalances”) with respect to production from or attributable to certain of the Properties, whether such Imbalances be instances of overproduction (“Imbalance Obligations”) or underproduction (“Imbalance Entitlements”), (ii) prepayment obligations due to monies received by either Seller under production sales contracts or similar agreements containing “take-or-pay” clauses (or similar arrangements), whereby such Seller is obligated to deliver oil or gas produced after the Effective Date with respect to a Property without receiving payment therefor in the ordinary course of business (“Prepayment Obligations”), or (iii) refund obligations arising from Seller’s sale of oil or gas produced from a Property prior to the Effective Date at prices exceeding the applicable maximum lawful prices (“Refund Obligations”). The parties agree that, from and after the date of this Agreement, they shall jointly attempt to ascertain prior to Closing all Imbalances, Prepayment Obligations and Refund Obligations affecting the Properties as of the Effective Date. The parties agree that they shall adjust the Purchase Price at Closing for all discovered Imbalances, Prepayment Obligations and Refund Obligations in accordance with the following procedures:

     (a) Imbalances. The value of discovered Imbalances allocable to the Properties existing as of the Effective Date shall be calculated by multiplying the overproduced or underproduced volumes by $4.00 per MMBtu, net of all royalty and severance tax burdens. At Closing or on the Final Settlement Date, as the case may be, the Purchase Price shall be adjusted upward for the aggregate value of all Imbalance Entitlements and downward for the aggregate value of all Imbalance Obligations, in each cost allocable to the Properties. As to Imbalances allocable to the Properties discovered after the Final Settlement Date, Buyer shall bear all obligations with respect to any overproduction liability and shall receive the benefit of and be credited with any underproduction credit, including overproduction and underproduction attributable to periods of time prior to the Effective Date. If the Imbalance Obligation exceeds the Allocated Value of a Property, Seller may remove such Property from the Assets to be sold to Buyer and the Base Purchase Price shall be reduced by the Allocated Value of such Property. Buyer shall not assume any obligation of either Seller with respect to pipeline gas imbalances as of the Effective Date that may be associated with the Assets. Any pipeline gas imbalance shall remain with and continue as the sole responsibility of the respective Seller.

     (b) Prepayment Obligations. At Closing, the Purchase Price shall be adjusted downward by all amounts received by Seller prior to the Effective Date with respect to Prepayment Obligations allocable to the Properties. All amounts received by Seller after the Effective Date and prior to the Final Settlement Date due to Prepayment Obligations allocable to the Properties shall be credited to Buyer.

     (c) Refund Obligations. At Closing, the Purchase Price shall be adjusted downward by all amounts received by Seller prior to the Effective Date with respect to Refund Obligations allocable to the Properties. With respect to Refund Obligations allocable to the Properties not discovered by Closing, Seller will be liable for such Refund Obligations allocable to the Properties for a period expiring two (2) years after the Closing Date.

     4.4 Operations Respecting Properties. Buyer shall be designated Operator of all of the

Properties which are operated by either, MAKO, Golden Gas or TAG Team Resources. L.L.C. (“TAG Team”), except for the Lenhard 1-19A and the Lenhard 2-19. Seller shall furnish and cause TAG Team to furnish to Buyer, as applicable, fully executed change of operator forms on all Wells (active or inactive) operated by either MAKO, Golden Gas or TAG Team (except for the Lenhard 1-19A and the Lenhard 2-19) relating to the Properties, as required by the applicable regulatory body in order to effect a change of operator for the Properties. Buyer shall be responsible for filing such forms with the applicable regulatory body following Closing. Each Seller shall use its best efforts to assist in Buyer’s designation as operator of the Properties under the applicable joint operating agreements and shall support Buyer’s designation as operator.

     4.5 Suspense Accounts. All suspended revenues which are held by either Seller or TAG Team, as Operator (or by a third-party designee on behalf of Seller), in suspense for third parties attributable to production from the Properties shall be transferred to Buyer at the Closing. A list of such suspended revenues is attached as Schedule 4.5. Buyer shall and does hereby assume responsibility for the payment of all suspended revenues to third parties entitled to the same and shall and does hereby hold Seller harmless from and against any loss, liability, cost or expense (other than those that may be attributed to Seller’s improper placement of such revenues in suspense) which might arise from claims of third parties asserted following transfer to Buyer of the suspended revenues pursuant to this Section 4.5.

     4.6 Audited Financials. After the date of this Agreement, Seller agrees to cooperate with and provide reasonable assistance to Buyer in the construction of audited financial statements respecting the Assets for the prior three fiscal years, at Buyer’s sole expense.

ARTICLE V
TITLE MATTERS AND CASUALTY LOSSES

     5.1 Title and Environmental Investigation. Buyer may conduct, at its cost, such title and environmental examination and investigation, and other examinations and investigations, as it may in its discretion choose to conduct with respect to the Assets in order to determine whether any Title Defects or Environmental Defects exist.

     5.2 Notice of Title Defects. Buyer shall give Seller written “Notice of Title Defects” as soon as possible but no later than 5:00 p.m., Central Time, on the Defect Date, provided that Buyer shall notify Seller of possible Title Defects as soon as reasonably practicable after Buyer becomes aware of the same. Such notice shall be in writing and inclusion of the following elements shall be a condition precedent to the effectiveness of the Notice of Title Defects: (i) a description of the Title Defect, (ii) the reasonable basis for the Title Defect, including reasonable documentation supporting the basis for the Title Defect, if available, (ii) the Allocated Value of the affected Asset, and (iv) the Defect Value and the computations upon which Buyer’s belief is based. If Buyer does not deliver a timely Notice of Title Defects for a particular Asset, title to such Asset shall be deemed to be Defensible Title.

     5.3 Title Defect Adjustments and Exclusions. Subject to this Section 5.3 and Section 5.7 respecting the Defect Threshold, the Base Purchase Price shall be reduced in accordance with

Section 2.2(b)(iv) by the Defect Value (which reduction shall be called a “Defect Adjustment”) unless, (i) Buyer agrees in writing to waive the relevant Title Defect, (ii) the basis for treating such Asset as subject to a Title Defect has been removed by Seller at his sole cost and expense prior to the Closing Date, or (iii) Seller and Buyer reach a subsequent agreement regarding curative of the Title Defect prior to Closing. The Base Purchase Price shall be adjusted only if the Defect Threshold, i.e., the Defect Value respecting each individual Property is equal to or exceeds $10,000 and the aggregate Defect Value of all Title Defects and Environmental Defects exceeds $60,000, in which event, the Base Purchase Price shall be reduced by the amount of the total Defect Values (i.e., which amount is a threshold, not a deductible).

     5.4 Title Defect Value. In determining which portions of an Asset constitute a Title Defect, it is the intent of the parties to include, to the extent possible, only that portion of any affected Asset (whether a Well, Unit or leasehold interest, as applicable) that is adversely affected by the defect. The Defect Value for a Title Defect shall not exceed the Allocated Value of the Asset and shall be determined by the parties in good faith taking into account all relevant factors, including, but not limited to, the following:

     (a) The Allocated Value of the affected Asset;

     (b) The potential or actual reduction in the warranted NRI of the affected Property, or the potential or actual increase in the warranted WI to the extent such increase is not accompanied by a corresponding increase in NRI;

     (c) If the Title Defect represents only a possibility of title failure, the probability that such failure will occur;

     (d) The legal effect of the Title Defect; and

     (e) If the Title Defect is a lien or encumbrance on a Asset, the cost of removing such lien or encumbrance.

     5.5 Title Increases. To the extent that same are discovered by Buyer prior to the Defect Date, Seller and Buyer acknowledge and agree that the Base Purchase Price shall be increased (a “Title Increase”) by an amount determined as follows:

     (a) any increase in Seller’s NRI above that NRI shown on Exhibit A for any Property without a corresponding increase in Seller’s WI above that WI shown on Exhibit A for such Property; or

     (b) any decrease in Seller’s WI below that shown on Exhibit A for any Property without a corresponding decrease in Seller’s NRI shown on Exhibit A for such Property, in each case with such values to be agreed upon by Seller and Buyer (taking into account the Allocated Value for such Property).

Title Increases shall be available to Seller only to the extent Buyer has asserted Title Defects and may be applied to set off decreases in the Base Purchase only after the total of Defects has exceeded

the Defect Threshold. The intent is that there can be no net upward adjustment to the Base Purchase Price based upon Title Increases and that such increases are only available to Seller as a set off against reductions in the Purchase Price because of Title Defects.

     5.6 Casualty Loss. If, prior to Closing, a portion of an Asset is destroyed by fire or other casualty, is taken or threatened to be taken in condemnation or under the right of eminent domain (a “Casualty Loss”), the Asset shall be included in the sale for the Allocated Value of the affected Asset, reduced by the mutually agreed cost to repair such affected Asset (with equipment of similar utility) up to the Allocated Value thereof (the reduction being the “Net Casualty Loss”) and Seller shall retain all rights to any insurance payments, awards or other payments from third parties arising out of the Casualty Loss. Any dispute concerning the amount of a Net Casualty Loss shall be resolved through arbitration pursuant to Section 9.11 except the Arbitrator to be selected shall have a minimum of fifteen (15) years’ experience in oil and gas insurance matters rather than in oil and gas accounting.

     5.7 Environmental Defects. If (i) Buyer notifies Seller on or before the Defect Date of the existence of any environmental conditions on or underlying the Assets, or any portion thereof, that (A) constitutes a violation of Environmental Laws, or (B) poses a material risk of injury to human health or the environment, and (ii) the aggregate remediation costs of all such Environmental Defects for Properties when combined with all asserted Title Defects, exceeds the Defect Threshold, then the following shall occur:

     (a) Seller shall have the right to remediate any and all Environmental Defects on or before the Closing, provided such remediation can be completed to Buyer’s reasonable satisfaction; or

     (b) Buyer and Seller shall reach agreement upon an appropriate reduction to the Base Purchase Price which shall be based, in large part, upon the anticipated remediation costs for each such Environmental Defect; or

     (c) In the event Seller is unable to cure or otherwise remediate an Environmental Defect prior to Closing and the parties are unable to reach agreement on an appropriate reduction to the Base Purchase Price, the Asset affected by such Environmental Defect shall be removed from the sale and the Base Purchase Price shall be reduced by the Allocated Value thereof.

     5.8 Environmental Laws. As used herein, the term “Environmental Law” shall mean any and all laws, statutes, regulations, rules, orders, ordinances, permits, or determinations of any governmental authority pertaining to health or the environment in effect in any and all jurisdictions in which the Assets are located, including, without limitation, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, the River and Harbor Act, as amended, the Safe Drinking Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act (RCRA), as amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act, as amended, and other federal, state, and local laws whose

purpose is to conserve or protect health, the environment, wildlife, or natural resources. The terms hazardous substances, release, and threatened release shall have the meanings specified in CERCLA; provided, however, that (i) to the extent the laws of the state in which the Assets are located are applicable and have established a meaning for hazardous substances, release, threatened release, solid waste, hazardous waste, and disposal that is broader than that specified in CERCLA or RCRA, such broader meaning shall apply with respect to the matters covered by such laws, and (ii) the term solid waste shall include all oil and gas exploration, development, and production wastes, even if such wastes are specifically exempt from classification as hazardous substances or hazardous wastes pursuant to CERCLA or RCRA, or the state analogues to those statues.

     5.9 Mutual Right to Terminate. Notwithstanding anything contained herein to the contrary, either Seller or Buyer may terminate this Agreement, in their sole and absolute discretion, if the sum of all Defect Adjustments (less offsets for Title Increases), casualty losses, and anticipated remediation costs for Environmental Defects exceed ten percent (10%) of the Base Purchase Price. If, in such event, any of the selling parties or Buyer elects to terminate this Agreement, this Agreement shall terminate and be of no further force or effect.

ARTICLE VI
CONDITIONS TO CLOSING

     6.1 Conditions to the Obligations of Buyer. The obligations of Buyer to proceed with the Closing contemplated hereby are subject to the satisfaction on or prior to the Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Buyer.

     (a) Warranties and Agreement of Seller. All representations and warranties of each Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to any earlier date and to the extent that the information contained in exhibits and schedules hereto expressly relates to any earlier date, and each Seller shall have performed and complied with all the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by them at or prior to the Closing Date; and, Buyer shall have received a certificate dated the Closing Date and signed by the President, Vice-President or Managing Member, as applicable, of each Seller to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates, instruments of transfer and other documents required to be delivered to Buyer hereunder shall be satisfactory to Buyer and its counsel in all reasonable respects.

     (c) Additional Information. Seller shall have furnished to Buyer and its counsel such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling them to pass upon the matters referred to in this Section 6.1.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Receipt of Documents. As to each Seller that is a corporation, partnership or limited liability company, Buyer shall have received (i) a certificate executed by the appropriate Person certifying as to (A) Seller’s good standing, (B) the requisite corporate, partnership or limited liability company approvals of the transactions contemplated hereby, and (C) the incumbency and authority of the Person executing any documents on behalf of Seller in connection with this Agreement, and (ii) an affidavit that such Seller is not a “foreign person” within the meaning of Section 1445 of the Code, (iii) assignments, conveyances and bills of sale (in substantial form as the form of conveyance to be attached hereto as Exhibit B-1, conveying Seller’s interest in the Properties, and (iv) completed change of operator form and letters-in-lieu of transfer orders.

     (f) Closing of Gathering System Transaction. Conditions to the closing of the acquisition of the Haywood Gathering System located in Pittsburg County, Oklahoma, by Buyer from Golden Gas Service Company. (the “Gathering System Acquisition”) shall have been satisfied or waived and the Gathering System Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (g) Board Approval. Buyer shall have received the approval of its Board of Directors with respect to the transactions contemplated herein.

     (h) Termination. Neither Seller has elected to terminate this Agreement in accordance with Section 5.9.

     6.2 Conditions to the Obligations of Seller. The obligations of each Seller to proceed with the Closing contemplated hereby are subject to the satisfaction at or prior to Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by such Seller.

     (a) Warranties and Agreements of Buyer. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to an earlier date, and Buyer shall have performed and complied with all of the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by it at or prior to the Closing Date; and Seller shall have received a certificate dated the Closing Date and signed by the President or a Vice President of Buyer to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates and other documents required to be delivered to each Seller shall be satisfactory in all reasonable respects to each Seller and its counsel.

     (c) Additional Information. Buyer shall have furnished to each Seller such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling Seller to pass upon the matters referred to in this Section 6.2.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Closing of Gathering System Transaction. Conditions to the closing of the acquisition of the Haywood Gathering System located in Pittsburg County, Oklahoma, by Buyer from Golden Gas Service Company. (the “Gathering System Acquisition”) shall have been satisfied or waived and the Gathering System Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (f) Termination. Buyer has not elected to terminate this Agreement in accordance with Section 5.9.

ARTICLE VII
CLOSING

     7.1 Closing Date. Subject to the terms and conditions of this Agreement, the closing hereunder (the “Closing”) shall take place at 10:00 a.m., local time, on May 6, 2005, at the offices of Seller, or at such other place and time as may be mutually agreed upon by the parties (the “Closing Date”).

     7.2 Records. At Closing, or a soon thereafter as practicable, Seller shall deliver to Buyer all of the Records. Transportation of the Records to Buyer’s offices shall be at the sole cost of Buyer.

ARTICLE VIII
AS IS — WHERE IS SALE; DISCLAIMER; INDEMNITY

     8.1 Disclaimer. IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES HERETO THAT, SUBJECT TO EACH SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, THE ASSETS ARE ACQUIRED AS IS, WHERE IS, WITH ALL FAULTS AND DEFECTS, BOTH PATENT AND LATENT, AND WITHOUT WARRANTIES OF ANY KIND, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, REGARDLESS OF HOW SUCH FAULTS AND DEFECTS WERE CAUSED OR CREATED (BY SELLER’S NEGLIGENCE, ACTIONS, OMISSIONS, OR FAULT, OR OTHERWISE). BY CLOSING, BUYER ACKNOWLEDGES IT HAS HAD OR WILL HAVE HAD PRIOR TO CLOSING A REASONABLE OPPORTUNITY TO INSPECT AND EXAMINE THE CONDITION OF EACH AND EVERY ASSET AND, SUBJECT TO EACH

SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, BUYER IS AWARE OF AND ACCEPTS THE CONDITION OF EACH AND EVERY ASSET. ALTHOUGH SELLER HAS MADE, AND UNTIL CLOSING WILL MAKE, ALL OF ITS FILES AND RECORDS AVAILABLE TO BUYER, NEITHER SELLER MAKES ANY WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT AS SET FORTH IN SECTION 3.1 OF THIS AGREEMENT, AS TO THE ACCURACY OR COMPLETENESS OF ANY TITLE OPINION, DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR MATERIALS NOW, HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, THE PRICING ASSUMPTIONS, THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, ANY OTHER MATTERS CONTAINED IN THE DATA, OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY EITHER SELLER. IN ENTERING INTO AND PERFORMING THIS AGREEMENT, BUYER HAS RELIED AND WILL RELY SOLELY UPON SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 3.1 OF THIS AGREEMENT AND UPON BUYER’S INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS AND PROPERTIES AND THEIR VALUE.

     8.2 Seller’s Limited Indemnity. Subject to the terms, conditions and limitations of this Section 8.2, Each Seller agrees and does hereby, to the fullest extent permitted by law, INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, MEMBERS, OFFICERS, EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, the “Buyer Group”) FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, STRICT LIABILITY CLAIMS, DEMANDS, LAWSUITS, JUDGMENTS, ORDERS, FINES, PENALTIES, DAMAGES, EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEYS’ FEES), COSTS AND EXPENSES OF ANY NATURE WHATSOEVER (collectively, “Seller Damages”), ASSERTED AGAINST, RESULTING TO, IMPOSED UPON OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM (A) ANY BREACH BY SELLER OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN ARTICLES III AND IV OF THIS AGREEMENT, OR (B) TITLE OWNERSHIP OR OPERATION OF THE ASSETS BY SELLER PRIOR TO THE EFFECTIVE DATE (collectively, “Buyer Claims”), PROVIDED THAT (i) ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND SELLER’S ACCOUNTABILITY FOR PERIODS PRIOR TO THE EFFECTIVE DATE SHALL TERMINATE AND BE OF NO FURTHER FORCE OR EFFECT TWO (2) YEARS FROM THE CLOSING DATE, AND BUYER CLAIMS MUST ARISE AND MUST BE COMMUNICATED IN WRITING TO SELLER PRIOR TO THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE, (ii) AND THE REPRESENTATIONS AND WARRANTIES OF SELLER IN SECTION 3.1(o) SHALL BE ASSERTABLE BY THE BUYER GROUP WITHOUT REGARD TO ANY KNOWLEDGE OR MATERIALITY QUALIFIERS SET FORTH IN SECTION 3.1(o), AND (iii) NO BUYER CLAIMS, IF ANY, MAY BE ASSERTED AFTER THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE.

FROM AND AFTER THE CLOSING, THE SOLE AND EXCLUSIVE REMEDY OF BUYER WITH RESPECT TO ANY AND ALL CLAIMS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE PURSUANT TO THE INDEMNIFICATION PROVISIONS SET FORTH IN THIS SECTION 8.2. IN FURTHERANCE OF THE FOREGOING, AND SUBJECT TO THE PRECEDING SENTENCE, BUYER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, AND AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING OF ANY KIND, ANY AND ALL RIGHTS, CLAIMS AND CAUSES OF ACTION BUYER MAY NOW OR HEREAFTER HAVE AGAINST SELLER EXCEPT FOR CLAIMS FOR INDEMNIFICATION ASSERTED AS PERMITTED BY AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN THIS ARTICLE VIII.

     8.3 Buyer’s Indemnity; Environmental Matters. From and after the EFFECTIVE DATE, and to the fullest extent permitted by law, Buyer agrees, subject to Seller’s limited indemnity as set forth in Section 8.2 above, to INDEMNIFY, DEFEND, AND HOLD HARMLESS EACH SELLER AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, MEMBERS, OFFICERS, EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, “Seller Group”), from and against any and all liabilities, claims, strict liability claims, demands, lawsuits, judgments, orders, fines, penalties, damages, expenses (including but not limited to reasonable attorneys’ fees), costs, environmental assessment and clean-up costs and causes of action asserted by any Person (including, but not limited, to the employees of Seller or Buyer) for personal injury or death, for compliance with Environmental Laws, regulations, orders, or guidelines, or for loss or damage to Properties or the environment (collectively referred to hereinafter as “Liabilities/Claims”), arising from or relating to: (i) Buyer’s (and/or its contractors’) pre-Closing inspection of the Properties, REGARDLESS OF WHETHER SUCH LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS; (ii) the ownership, use, or operation of the Assets by Buyer or its assigns after Closing, or the express assumption of responsibilities hereunder by Buyer at Closing concerning the Assets (including, but not limited to, any Liabilities/Claims arising from or relating to leaks or releases of oil and gas from, or malfunctions of, the Assets after Closing), REGARDLESS OF WHETHER SUCH POST-CLOSING LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S PRE-CLOSING ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS RELATING TO THE OPERATION, DESIGN, PHYSICAL CONDITION, OR MAINTENANCE STATUS OF THE ASSETS, BUT EXCLUDING SUCH POST-CLOSING LIABILITIES/CLAIMS TO THE EXTENT CAUSED BY THE NEGLIGENCE OF SELLER GROUP THAT OCCURS AFTER CLOSING; and/or (iii), subject to Seller’s environmental representation pursuant to Section 3.1(o) and Section 8.2 above, soil contamination, water contamination, and/or other types of environmental damage or contamination in, on, or under the Properties or arising from the Properties (collectively, “Environmental Contamination”), Buyer’s obligations under this Section 8.3 shall in no manner alter, diminish or adversely affect the limited indemnity obligations of Seller as provided in Section 8.2 above. BUYER EXPRESSLY ACKNOWLEDGES THAT BUYER HAS AGREED TO INDEMNIFY SELLER GROUP

FOR ITS OWN ORDINARY NEGLIGENCE, SUBJECT TO AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS SECTION 8.3.

ARTICLE IX
GENERAL

     9.1 Survival of Representations and Warranties. All statements contained in this Agreement, the exhibits and schedules referred to herein, and any certificates or other instruments delivered pursuant to the express terms hereof by or on behalf of any party hereto shall be deemed representations and warranties hereunder by such party. All representations, warranties, covenants and agreements made by the parties to this Agreement or pursuant hereto shall survive any investigations made by or on behalf of the parties and shall survive the Closing to the extent provided herein, but not otherwise.

     9.2. Expenses. Each party hereto shall pay all expenses and disbursements incurred by it, its officers, employees and representatives, in connection with this Agreement and the performance of its obligations hereunder.

     9.3. Further Assurances. Each Seller will from time to time upon the request of Buyer, execute and deliver to Buyer such further instruments, and take such other action as Buyer may reasonably request, in order to more effectively convey, assign, transfer and deliver, or place Buyer in possession and control of, the Assets or to enable Buyer to exercise and enjoy all rights and benefits with respect thereto.

     9.4. Binding Agreement: Assignment; Parties in Interest. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that any assignment of this Agreement by any party hereto without the written consent of the other parties shall be void. Notwithstanding the foregoing, the rights and obligations of Buyer hereunder may be assigned to or performed by any other entity owned or controlled by Buyer, without the written consent of Seller provided that such assignment shall not relieve Buyer of its obligations hereunder. Except as provided herein, nothing in this Agreement, express or implied, is intended or shall be construed to give to any Person other than the parties hereto any right, remedy or claim under or by reason of this Agreement.

     9.5. Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or transmitted by first-class registered or certified mail, postage prepaid, return receipt requested, or sent by prepaid overnight delivery service, or sent by facsimile transmission, to the parties at the following addresses (or at such other address as shall be specified by the parties by like notice):

If to MAKO:

MAKO Resources, LLC
2120 E. 15^th Street

Tulsa, OK 74104
Attn: Mr. Tom Nuding
Telephone: (918) 582-6494
Facsimile: (918) 582-6495

If to Golden Gas:

Golden Gas Service Company
2120 East 15^th Street
Tulsa, Oklahoma 74104
Attn: Mr. Alan R. Staab
Telephone: (918) 582-0139
Facsimile: (918) 582-6495

If to Buyer:

PetroQuest Energy, L.L.C.
400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508
Attn: Mr. Dalton F. Smith III
Telephone: (337) 232-7028
Facsimile: (337) 234-4699

     9.6. Publicity. All notices to third parties and other publicity concerning the transaction contemplated by this Agreement shall be jointly planned and coordinated by and between Seller and Buyer. Except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, neither party shall act unilaterally in this regard without the prior written approval of the other parties, provided, however, that such approval shall not be unreasonably withheld.

     9.7. Applicable Law. This Agreement shall be construed and enforced in accordance with the law of the State of Oklahoma.

     9.8. Exhibits and Schedules; Right to Terminate..

     (a) Exhibits and Schedules Incorporated in this Agreement. All exhibits and schedules referred to in this Agreement are attached hereto, incorporated herein and made an integral part hereof.

     b) Completion of Exhibits and Schedules; Termination. The Schedules and Exhibits are not complete as of the date of execution of this Agreement. Seller and Buyer shall use their best efforts, in good faith, to prepare and agree upon all of the final Exhibits and Schedules on or before April 20, 2005. If mutual agreement is not reached as to the final Exhibits and Schedules by such date, or such mutually agreed extension of such date, either Seller or Buyer may terminate this Agreement in their sole discretion and this Agreement shall be of no further force or effect.

     9.9. Entire Agreement; Amendments; Waivers. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

     9.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.

     9.11 Arbitration. Any disagreement between Seller and Buyer with respect to the Final Settlement Statement shall be resolved pursuant to Section 2.5 (a). With respect to any other dispute between Seller and Buyer arising under this Agreement, either Seller or Buyer may request binding arbitration of the Final Statement to be conducted before one arbitrator in Tulsa, Oklahoma, in accordance with the Uniform Arbitration Act, as adopted and then in effect in the State of Oklahoma, and in accordance with the rules promulgated by the American Arbitration Association (the “AAA”) (expedited procedures). The AAA shall be instructed to choose an arbitrator (the “Arbitrator”) who shall have a minimum of fifteen (15) years experience in the oil and gas industry, generally, and, specifically, in the area with respect to which the subject matter of the dispute pertains. Notice of a party’s election to submit a matter for arbitration shall be given to the other party if good faith negotiations to resolve such matter (for a period of at least 10 days) prove unsuccessful. Upon delivery of such notice by either party, each party shall have ten (10) calendar days to provide the Arbitrator (and the other party) with a statement of its position (with supporting documentation) regarding the matter or matters in dispute together with its best and final offer for settlement of the dispute. The failure to provide a statement of position within this period shall constitute a waiver of a party’s rights to have such materials considered by the Arbitrator. The Arbitrator shall consider the statements of position submitted by the parties and shall, within ten (10) business days after receipt of such materials, issue his or her decision adopting the best and final statement offer for settlement of the dispute either by Buyer or Seller. All determinations made by the Arbitrator shall be final, conclusive and binding on the parties. The expenses of such arbitration, including the fees of the Arbitrator, shall be divided equally between Buyer and the Seller Group, unless otherwise specified in the Arbitrator’s award. Further, the Seller Group and Buyer shall each pay all fees and expenses of its own witnesses and legal counsel, unless otherwise specified in the Arbitrator’s award.

     9.12 Substitution of Affiliates. Buyer shall have the right to substitute as purchaser hereunder any of its affiliates without otherwise altering the terms and conditions of this Agreement.

     9.13 Headings. The headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.

     9.14 Mutual Waiver of Certain Remedies. NO PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO ANY OTHER PARTY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES AS TO ANY ACTION OR OMISSION, WHETHER CHARACTERIZED AS A CONTRACT BREACH OR TORT, WHICH ARISES OUT OF OR RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR NONPERFORMANCE.

     IN WITNESS WHEREOF the parties have executed or caused the Agreement to be executed as of the day and year first above written.

SELLER:

MAKO Resources, LLC
	/s/ Tom Nuding
	Tom Nuding
	Managing Member
Golden Gas Service Company
	/s/ Alan R. Staab
	Alan R. Staab
	President

BUYER:

PetroQuest Energy, L.L.C.
By:	/s/ Dalton F. Smith
	Dalton F. Smith, III
	Senior Vice President
	Business Development & Land

EX-2.3

Exhibit 2.3

PURCHASE AND SALE AGREEMENT

Haywood Gathering System

     This Purchase and Sale Agreement (this “Agreement”) dated as of the 7th day of April, 2005, executed by Golden Gas Service Company, an Oklahoma corporation (“Seller”), and PetroQuest Energy, L.L.C., a Louisiana limited liability company (the “Buyer”).

     In consideration of the mutual promises contained herein, the benefits to be derived by each party hereunder and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE I
DEFINED TERMS

     1.1 Defined Terms. Unless the context otherwise requires, the following terms used in this Agreement shall have the meanings assigned to them in this Section 1.1:

          “Affiliate” 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, such Person.

          “Assets” means the Gathering System, including, the Facilities and Equipment, the Real Property, the Easements, the Contracts and the Records.

          “Code” means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder by the Treasury Department of the United States.

          “Contracts” means (a) all contracts and agreements pertaining to the purchase or sale of natural gas and the gathering, transportation, transmission, processing or exchange of natural gas; and (b) all other agreements and contracts (including, without limitation, compressor and equipment leases and service contracts) relating to the ownership, operation, repair, use or maintenance of the Assets; including, without limitation, the agreements and contracts listed in Schedule 3.1 (k) attached hereto.

          “Defect Date” shall mean 5:00 p.m., Central Standard Time on the fifth (5^th) calendar day prior to the Closing Date.

          “Defects” shall collectively refer to Title Defects and Environmental Defects asserted by Buyer pursuant to this Agreement.

          “Defect Threshold” shall mean, for the Assets taken as a whole, Defects asserted by Buyer that adversely affect Seller and/or the Assets by an amount equal to or in excess of $50,000.

          “Easements” mean all easements, rights-of-way, servitudes, rights of egress and ingress and other similar rights related to the use or enjoyment of the Assets (the “Easements”)

          “Effective Date” shall mean 12:01 a.m. on January 1, 2005.

          “Environmental Defect” shall mean that, with respect to the Asset in question, (i) any hazardous substances (as defined in 42 U.S.C.A. 9601(14) or 42 U.S.C.A. 69021(B)(2)) are present, stored or located on or in conjunction with an Asset in violation of Environmental Laws; or (ii) any Asset is in noncompliance with Environmental Laws, to the extent that any of the foregoing arise out of or pertain to operations conducted on, or ownership of, the Assets prior to the Closing Date.

          “Facilities and Equipment” means all items of personal property, fixtures and equipment which are used in connection with the ownership, operation, repair, use or maintenance of the Gathering System whether located on or under the Real Property or elsewhere, including, but not limited to all pipe, pipe racks, pipe inventory, connections, fittings, meters and metering facilities, measuring equipment and devices, compressors, pumps, gauges, valves, laterals, mains, tanks, heaters, dehydration units, storage facilities, tools, supplies, buildings, spare parts, field offices and other personal property which is used in connection with the ownership, operation, maintenance or repair of the Gathering System, excluding those items specifically set forth on Exhibit C hereto

          “Gathering System” shall mean that certain natural gas gathering system, known as the Haywood Gathering System, which includes pipelines and related compression, meters and other equipment and facilities located within Pittsburg County, Oklahoma, together with all Contracts, leases, rights-of-way and Easements, Facilities and Equipment, permits and licenses, as more specifically depicted on Exhibit A hereto.

          “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).

          “Interim Period” means the time between the Effective Date and the Closing Date.

          “Material Adverse Effect” means, with respect to a Person, the occurrence of an event or the existence of a circumstance (other than general industry conditions, or matters of a general, economic, or political nature) that has a material adverse effect on such Person’s assets, business or financial condition, taken as a whole.

          “Permitted Liens” means any of the following: (a) any liens for taxes and assessments not yet delinquent; (b) mechanics, materialmans and similar liens incurred in the ordinary course of business for sums not yet payable; (c) zoning restrictions; (d) any Liens created by a document or instrument made available to Buyer; and (e) any easements, licenses or reservations, or any other defects or irregularities of title, that do not, individually or in the aggregate, have a Material Adverse Effect on the business of Seller as currently conducted.

          “Person” means any individual, corporation, partnership, joint venture, association, limited liability Seller, joint-stock Seller, trust, enterprise, unincorporated organization, or Governmental Entity.

          “Real Property” means all parcels of real property, fixtures, leases of real property, easements, rights-of-way, tenements, rights of egress and ingress and all other rights in real property related to the Plant, including without limitation those items listed in Schedule 3.1(e) and Schedule 3.1(f) attached hereto and made a part hereof for all purposes.

          “Records” means, collectively, (i) the Easements and rights-of-way files, title opinions respecting surface and Easements, maps, sales agreements, purchase agreements, supply agreements, gathering, compression and transportation agreements, exchange agreements, equipment and maintenance files, and all other agreements, documents and records attributable to the Gathering System, (ii) all maps, plats, specifications, surveys, engineering, inspection or similar reports or data and any other means all drawings, technical descriptions relating to the Gathering System, and (iii) copies of accounting records pertaining to the Gathering System.

          “Title Defect” means any title gap, lien, encumbrance, burden, encroachment, irregularity, defect in of objection to title in and to the Assets, or any portion thereof, excluding Permitted Liens, that alone or in combination with other defects renders Seller’s title less than good and marketable.

     1.3 Additional Definitions. The following terms are defined in the Section referenced below:

“AAA”	Section 9.11
“Arbitrator”	Section 9.11
“Base Purchase Price”	Section 2.1
“Casualty Losses”	Section 5.6
“Closing” and “Closing Date”	Section 7.1
“Environmental Laws”	Section 5.8
“Final Settlement Date”	Section 2.5
“Final Settlement Period”	Section 2.5
“Final Settlement Price”	Section 2.5
“Final Statement”	Section 2.5
“Preferential Rights”	Section 3.1(m)
“Purchase Price Adjustment Statement	Section 2.3
“Buyer Claims”	Section 8.2
“Buyer Group”	Section 8.2
“Seller Group”	Section 8.3

ARTICLE II
PURCHASE PRICE AND ALLOCATION

     2.1 Purchase Price. Seller shall sell and Buyer shall purchase, effective as of the Effective Date, for the sum of One Million and No/l00 Dollars ($1,000,000), subject to adjustments as provided or contemplated herein (the “Base Purchase Price”) all of Seller’s right, title, interest and estate in and to the Assets, including the Facilities and Equipment, the Real Property, the Easements, the Contracts and the Records

     2.2 Adjustments to Base Purchase Price. The Base Purchase Price shall be subject to adjustment as follows:

     (a) Upward Adjustments. The Base Purchase Price shall be adjusted upward by the following:

     (i) The amount of all verifiable expenditures paid by Seller in connection with the operation of the Assets in accordance with this Agreement for work actually performed on or subsequent to the Effective Date;

     (ii) The amount of all capital expenditures made by Seller for the repair, maintenance or extension of the Assets, incurred on or after the Effective Date and consented to by Buyer;

     (iii) Any other amount agreed upon by Seller and Buyer in writing.

     (b) Downward Adjustments. The Base Purchase Price shall be adjusted downward by the following:

     (i) All revenues received by Seller attributable to the Assets and which are applicable to periods on and after the Effective Date;

     (ii) An amount equal to all unpaid ad valorem, property, and similar taxes and assessments (but not including income taxes) based upon or measured by the ownership of Assets and accruing to the Assets prior to the Effective Date;

     (iii) Any reductions for Defects, allocable to the Assets, as provided in Article V;

     (iv) Any Casualty Losses allocable to the Assets as provided in Section 5.6;

     (vi) Any other amount agreed upon by Seller and Buyer in writing.

     2.3. Purchase Price Adjustment Statement. Seller shall submit a Closing statement (the “Purchase Price Adjustment Statement”) to Buyer not fewer than seven (7) business days prior to Closing, and shall afford Buyer access to any Records pertaining to the computations contained in the Purchase Price Adjustment Statement. At least two (2) full business days prior to Closing, Buyer shall deliver to Seller a written report containing such changes, if any, which Buyer proposes be made to the Purchase Price Adjustment Statement. Seller and Buyer shall each make every reasonable effort to agree prior to the Closing Date on a mutually agreed Purchase Price Adjustment Statement.

     2.4 Payment at Closing. After the Purchase Price Adjustment Statement has been agreed to by the parties, the Purchase Price due at Closing shall be tendered by Buyer to Seller, by wire transfer. Seller shall provide Buyer wire transfer instructions not later than three (3) days prior to the Closing Date.

     2.5 Final Settlement. As soon as practicable after the Closing Date, but in any event within 120 calendar days thereafter (the “Final Settlement Period”), Buyer shall prepare and submit to Seller a proposed statement (herein called the “Final Statement”), which shall show the final calculation of the Purchase Price (herein called the “Final Settlement Price”). As soon as possible after receipt of the Final Statement, but in any event within 15 calendar days after receipt thereof, Seller shall deliver to Buyer a written report containing the changes, if any, which Seller proposes being made to the Final Statement. In the event no response is made by Seller within such 15-day period, it shall be conclusively presumed that the selling parties concur with the Final Statement, and such Final Statement shall be the basis for the Final Settlement Price. In the event that Seller submits a response, the parties shall exercise all reasonable efforts to agree upon a mutually acceptable Final Settlement Price and the calculation of the amount, if any, due in connection therewith not later than 150 calendar days after the Closing (herein called the “Final Settlement Date”). After agreement upon a Final Settlement Price setting forth the amount by which the Base Purchase Price shall be adjusted (either upward or downward) has been reached, the amount due shall be paid within five (5) business days thereafter by the party owing the same by confirmed wire transfer to a bank account or accounts to be designated by the appropriate party. In the event Buyer and Seller are unable to agree with respect to the amounts due pursuant to this Section 2.5 before the Final Settlement Date, then either Seller or Buyer may refer the issues in dispute to the Grant Thornton LLP, Tulsa, Oklahoma accounting firm (or such other recognized firm of public accountants as Seller and Buyer may mutually agree) and the resolution of such issues by such firm shall be final and binding on all parties. The costs of such public accountants shall be borne equally by the Seller and Buyer.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer and its subsidiaries or designees, if any, to whom the Assets are to be assigned at Closing, as follows.

     (a) Organization and Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, is legally authorized to conduct business in each jurisdiction where it conducts business, and has all requisite power and authority to own and operate the Assets and to carry on its business as such business is currently conducted.

     (b) Authorization and Enforceability. Seller has all requisite power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by each of them. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding obligation of Seller, enforceable against each of them in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws relating to or affecting the enforcement of creditors rights generally and general principles of equity.

     (c) No Conflict. This Agreement and the execution and delivery hereof by Seller do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i)	Conflict with, or require the consent of any Person under, any of the terms, conditions or provisions of Seller’s articles or certificate of incorporation or organization or bylaws, as applicable;
(ii)	Violate any provision of, require any filing, consent, authorization or approval under, any legal requirement applicable to or binding upon Seller;
(iii)	Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, (A) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or to which Seller is bound or to which any of the Assets are subject, or (B) any lease, license, contract or other agreement or instrument to which Seller is a party or by which it is bound or to which any of the Assets are subject; or
(iv)	Result in the creation or imposition of any lien, charge or other encumbrance upon any of the Assets.

     (d) No Default. Seller is not in default under, and no condition exists that with notice or lapse of time or both would constitute a default under (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or by which Seller is bound or to which any of the Assets are subject, or any other agreement, contract, lease, license, or other instrument, (ii)

any order, judgment or decree of any court, commission, board, agency or other governmental body, or (iii) any law, statute, ordinance, decree, order, rule or regulation of any governmental authority.

     (e) Real Property. Schedule 3.1(e) describes the Real Property related to the Gathering System. As of the Date of Closing, all of the Real Property owned by Seller, or held by lease, license or easement, in each case free and clear of all mortgages, pledges, options, deeds of trust, security agreements, charges, covenants, liens, security interests, and other encumbrances or claims. The transfer, conveyance and assignment of the Assets by Seller to Buyer will pass good and marketable title to the Real Property, other than as to the Easements, to Buyer and will entitle Buyer to the possession and quiet enjoyment thereof.

     (f) Easements. Schedule 3.1(f) describes all material easements, rights-of-way, servitudes, rights of egress and ingress and other similar rights related to the use or enjoyment of real property related to the Gathering System (the “Easements”). Seller validly occupies all such Easements. Each Easement is valid, existing, and enforceable; there has not been, and there currently is not any event that would result in the termination, impairment, or limitation of any Easement; except as set forth in Schedule 3.1(f) hereto, no future payments of any kind are due under any Easement in order to maintain its existence; the Real Property and the Easements as a group constitute all such ownership interests and rights necessary for the ownership or operation of the Gathering System; and the Gathering System is located entirely within the Easements.

     (g) Regulatory Matters. Seller has not received any notice or order from any Governmental Entity which regulates or purports to regulate any of the Assets or Seller or any of Seller’s activities, except pertaining to usual and customary filing requirements applicable to assets of the types owned by Seller.

     (h) Taxes. There are no pending or threatened state, local or foreign tax liens upon any of the Assets. All taxes, assessments, fees and other charges of any Governmental Entity which have been assessed against the Assets and have become due and payable, have been paid. All ad valorem, personal property, excise, or similar taxes relating to Seller’s ownership of the Assets prior to the Effective Date have been or will be timely paid by Seller.

     (i) Litigation. Except as and to the extent set forth in Schedule 3.1(i), there are no administrative and judicial actions and proceedings presently pending or threatened against or involving (i) Seller, or (ii) the Assets or any portion thereof.

     (j) Compliance with Laws. Except as and to the extent set forth in Schedule 3.1(j) hereto (i) to Seller’s knowledge, Seller is in compliance in all material respects with all applicable statutes, orders, rules and regulations promulgated or proposed by any federal, state or local governmental entity relating to the operation and conduct of the Assets, (ii) there are no such statutes, orders, rules or regulations which require material future actions or

expenditures by or on behalf of Seller; (iii) Seller has not received any notice of alleged material violation of any such statute, order, rule or regulation; and (iv) all material business and other licenses, permits, performance bonds and other security and authorizations required by law for the ownership and/or operation of the Assets and/or Seller’s conduct of Seller’s business or operations respecting the Assets have been obtained and Seller is in material compliance with such licenses, permits, bonds, and other authorizations.

     (k) Contracts. Schedule 3.1(k) hereto is a list of all Contracts (written or oral) to which Seller is a party or by which Seller is bound, having a duration in excess of one (1) month or involving payments (or other value) in excess of $5,000. Seller has complied in all material respects with the provisions of all such Contracts, and is not in default thereunder in any manner which would permit any other party thereto to cancel or terminate such Contract; and, all such Contracts are in full force and effect and constitute legal, valid and binding obligations of Seller, and to Seller’s knowledge, are binding upon the other parties to such Contract in accordance with their terms; and, as of the date hereof, there is no claimed breach of contract by any party to any such Contract.

     (l) Condition of Gathering System. Seller has operated the Gathering System only in the ordinary and usual course of business consistent with good industry practices and except for ordinary wear and tear, there has been no material adverse change in the condition, properties, rights, obligations, contractual or business relationships, operations or prospects of the Gathering System, or affecting the condition or transferability of the Gathering System.. The Gathering System has been preserved and maintained and will be preserved and maintained during the Interim Period in a good and workmanlike condition, normal wear and tear excepted. To Seller’s knowledge, no condition or circumstance exists that would materially impair the merchantability of the Gathering System or upon assignment to Buyer, interfere with Buyer’s possession and quiet enjoyment thereof.

     (m) No Prepayments or Refunds Respecting Gathering Systems. Except as set forth in Schedule 3.1(m), Seller has not received any prepayment, advance payment, deposit or similar payment, and has no refund obligation, with respect to any gas purchased, sold, gathered or transported through the Gathering System. Seller has not received any compensation for gathering services which would be subject to any refund or create any repayment obligation either by or to Seller, and Seller is not aware of any basis for a claim that a refund is due. Buyer will be entitled to receive the full contract price, as set forth in the Contracts, for all gas gathered and sold by Buyer or for Buyer’s account on and after the Effective Date.

     (n) Preferential Purchase Rights and Consents. To Seller’s knowledge, except as set forth on Schedule 3.1(k), there are no consents to assign requiring a third party to consent to the assignment of the Assets (“Consents”) or preferential purchase rights providing an option or right to purchase any of the Assets (“Preferential Rights”).

     (o) Capital Commitments. Except as set forth on Schedule 3.1(o) hereto, Seller has not paid, incurred or otherwise committed to, from and after the Effective Date, any expenditures in excess of $10,000 respecting the Assets for any purpose, to include the the extension, maintenance, operation, or repair of the Gathering System, and no such expenditures are pending and unapproved.

     (p) No Material Adverse Change. Except for matters for which downward adjustments to the Purchase Price are prescribed pursuant to this Agreement, there has not been and will not be during the period between the Effective Date and the Closing Date any Material Adverse Effect with respect to the Assets.

     (q) Environmental Matters. Seller has not received any notification of any pending or threatened investigation, claim, penalty, or action by any Governmental Entity or other Person relating to the environmental condition of the Assets, and Seller has no knowledge that (i) there has been a release or threat of release of any hazardous substance (as the term “release” and “hazardous substance” are defined under Environmental Laws) on or from any of the Assets, or as a consequence of Seller’s operations or activities respecting the Assets, or any of them, prior to the date of this Agreement, or (ii) a condition exists on or under any of the Assets as of the date of this Agreement which could have a Material Adverse Effect on the Assets.

     (r) Affiliate Agreements. Except as listed on Schedule 3.1(r), the Assets are not subject to any agreement with an Affiliate of Seller that cannot be terminated by Buyer after Closing without penalty, cost or liability.

     (s) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Seller and for which Buyer will have any obligation or liability. Seller shall indemnify and hold Buyer harmless from any and all claims, liabilities, damages, costs and expenses asserted against Buyer by any Person claiming to have acted on behalf of Seller, or to have been retained by Seller, as a broker in connection with the transaction contemplated by this Agreement.

     3.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that:

     (a) Organization and Good Standing. Buyer is a Louisiana limited liability company, duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Buyer is authorized to do business and is in good standing under the laws of the State of Oklahoma.

     (b) Authorization. Buyer has all requisite company power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

     (c) No Conflicting Agreements. This Agreement and the execution and delivery hereof by Buyer do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i) Conflict with, or require the consent of any Person under any of the terms, conditions, or provisions of the Articles of Organization of Buyer;

(ii) Violate any provision of, or require any filing, authorization or approval under, any legal requirement applicable to or binding upon Buyer; or

(iii) Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by or require any consent, authorization or approval under, (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Buyer is a party or by which Buyer is bound or to which any of its properties is subject or (ii) any lease, license, contract or other agreement or instrument to which Buyer is a party or by which it is bound or to which any of its properties is subject.

     (d) Litigation. There is no action, suit, proceeding or governmental investigation or inquiry pending or, to the knowledge of Buyer, threatened against Buyer or its affiliates or any of its properties that might delay, prevent or hinder the consummation of the transactions contemplated hereby.

     (e) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Buyer and for which Seller will have any obligation or liability. Buyer shall indemnify and hold Seller harmless from any and all claims, liabilities, damages, costs and expenses asserted against Seller by any Person claiming to have acted on behalf of Buyer, or to have been retained by Buyer, as a broker in connection with the transaction contemplated by this Agreement.

ARTICLE IV
COVENANTS

     4.1 Covenants of Seller. Seller covenants and agrees with and to Buyer and its subsidiaries or designees, if any, to whom the Assets are assigned at Closing that:

     (a) Access to Records. Immediately upon execution of this Agreement and until the Closing Date, Seller will, during normal working hours, use their reasonable efforts to make and continue to make available to Buyer for examination at his offices in Tulsa, Oklahoma, the Records, accounting and other information respecting the Assets, title and other information relating to the Assets and will cooperate with Buyer in Buyer’s efforts to obtain, at Buyer’s expense, such additional information relating to the Assets as Buyer may reasonably desire. Seller shall permit Buyer, at Buyer’s expense, to inspect and photocopy such information and Records at any reasonable time but only to the extent, in each case, that Seller may do so without violating any contractual commitment to a third party.

     (b) New Agreements or Settlements. Without the prior written consent of Buyer, Seller shall not enter into any new agreements or commitments with respect to the Assets, or settle or compromise any claim or administrative or judicial proceeding.

     (c) Preferential Rights and Consents. Seller shall, with respect to the Assets, immediately make requests of third parties, in compliance with applicable agreements, that any required Consents be given or waived and that Preferential Rights (or any other preferential rights determined by Buyer during the Interim Period to exist) be waived.

     4.2 Conduct of Business Prior to Closing. Seller covenants and agrees that prior to Closing:

     (a) Negative Covenants. During the Interim Period, Seller shall not, except with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed, sell, lease, dispose of or abandon any of the Assets, or allow any of the Assets to be subjected to any mortgage, pledge, lien, security interest or encumbrance of any kind which is not in existence as of the date hereof.:

     (b) Affirmative Covenants. Seller shall, throughout the Interim Period, cause the Assets to be owned, maintained and operated in the ordinary course of business consistent with good industry practices. Seller shall promptly give Buyer notice of (i) any legal actions which to Seller’s knowledge have been initiated or threatened, by or against Seller whether by a Governmental Entity or other Person, and which relate to the Assets or the ability of Seller to proceed to Closing, (ii) to the extent material, any notice or other communication received by Seller, whether from a Governmental Entity or otherwise, in respect of any Asset or in connection with the transactions contemplated by this Agreement, including any notice from a person alleging that the consent of such person is or may be required in connection therewith, and (iii) the material damage or destruction of any part of the Assets.

     4.3 Gas Imbalances. The parties recognize that as of the Effective Date there may be gas imbalances (“Imbalances”) with respect to receipts and deliveries from the Gathering System. Buyer shall not assume any obligations of Seller with respect to pipeline gas Imbalances as of the Effective Date that may be associated with the Gathering System. Any Imbalances shall remain with and continue as the sole responsibility of the Seller.

     4.4 Audited Financials. After the date of this Agreement, Seller agrees to cooperate with and provide reasonable assistance to Buyer in the construction of audited financial statements respecting the Assets for the prior three fiscal years, at Buyer’s sole expense.

ARTICLE V
TITLE MATTERS, CASUALTY LOSSES
AND LOST LEASE RIGHTS

     5.1 Title and Environmental Investigation. Buyer may conduct, at its cost, such title and environmental examination and investigation, and other examinations and investigations, as it may in its discretion choose to conduct with respect to the Assets in order to determine whether any Title Defects or Environmental Defects exist.

     5.2 Notice of Title Defects. Buyer shall give Seller, on behalf of Seller, written “Notice of Title Defects” as soon as possible but no later than 5:00 p.m., Central Time, on the Defect Date, provided that Buyer shall notify Seller of possible Title Defects as soon as reasonably practicable after Buyer becomes aware of the same. Such notice shall be in writing and inclusion of the following elements shall be a condition precedent to the effectiveness of the Notice of Title Defects: (i) a description of the Title Defect, (ii) the reasonable basis for the Title Defect, including reasonable documentation supporting the basis for the Title Defect, if available, and (iii) the Defect Value and the computations upon which Buyer’s belief is based. If Buyer does not deliver a timely Notice of Title Defects, title to the Assets shall be deemed to be good and marketable.

     5.3 Title Defect Adjustments and Exclusions. Subject to this Section 5.3 and Section 5.7 respecting the Defect Threshold, if any Asset is affected by a Title Defect, the Base Purchase Price shall be reduced in accordance with Section 2.2(b)(iv) by the Defect Value (which reduction shall be called a “Defect Adjustment”) unless, (i) Buyer agrees in writing to waive the relevant Title Defect, (ii) the basis the Title Defect has been removed by Seller at its sole cost and expense prior to the Closing Date, or (iii) Seller and Buyer reach a subsequent agreement regarding curative of the Title Defect prior to Closing. The Base Purchase Price shall be adjusted only if the aggregate of all Defect Values for Title Defects and Environmental Defects raised by Buyer exceed the Defect Threshold, in which event, the Base Purchase Price shall be reduced by the amount of the total Defect Values (i.e., which amount is a threshold, not a deductible).

     5.4 Title Defect Value. In determining which portion of the Assets constitute a Title Defect, it is the intent of the parties to include, to the extent possible, only that portion of the Assets

that is adversely affected by the defect. The Defect Value shall be determined by the parties in good faith taking into account all relevant factors, including, but not limited to, the following:

     (a) If the Title Defect represents only a possibility of title failure, the probability that such failure will occur;

     (b) The legal effect of the Title Defect; and

     (c) If the Title Defect is a lien or encumbrance on the Assets, the cost of removing such lien or encumbrance.

     5.6 Casualty Loss. If, prior to Closing, a portion of the Assets is destroyed by fire or other casualty, is taken or threatened to be taken in condemnation or under the right of eminent domain (a “Casualty Loss”), the Asset shall be included in the sale for the Allocated Value of the affected Asset, reduced by the mutually agreed cost to repair such affected Asset (with equipment of similar utility) up to the Allocated Value thereof (the reduction being the “Net Casualty Loss”) and Seller shall retain all rights to any insurance payments, awards or other payments from third parties arising out of the Casualty Loss. Any dispute concerning the amount of a Net Casualty Loss shall be resolved through arbitration pursuant to Section 9.11 except the Arbitrator to be selected shall have a minimum of fifteen (15) years’ experience in gas gathering insurance matters rather than in gas gathering accounting.

     5.7 Environmental Defects. If (i) Buyer notifies Seller on or before the Defect Date of the existence of any environmental conditions on or underlying the Assets, or any portion thereof, that (A) constitutes a violation of Environmental Laws, or (B) poses a material risk of injury to human health or the environment, and (ii) the aggregate remediation costs of all such Environmental Defects, when combined with all asserted Title Defects, exceeds the Defect Threshold, then the following shall occur:

     (a) Seller shall have the right to remediate any and all Environmental Defects on or before the Closing, provided such remediation can be completed to Buyer’s reasonable satisfaction; or

     (b) Buyer and Seller shall reach agreement upon an appropriate reduction to the Base Purchase Price which shall be based, in large part, upon the anticipated remediation costs for each such Environmental Defect; or

     (c) In the event Seller is unable to cure or otherwise remediate an Environmental Defect prior to Closing and the parties are unable to reach agreement on an appropriate reduction to the Base Purchase Price, the Buyer may, at its option, terminate this Agreement.

     5.8 Environmental Laws. As used herein, the term “Environmental Law” shall mean any and all laws, statutes, regulations, rules, orders, ordinances, permits, or determinations of any governmental authority pertaining to health or the environment in effect in any and all jurisdictions

in which the Assets are located, including, without limitation, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, the River and Harbor Act, as amended, the Safe Drinking Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act (RCRA), as amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act, as amended, and other federal, state, and local laws whose purpose is to conserve or protect health, the environment, wildlife, or natural resources. The terms hazardous substances, release, and threatened release shall have the meanings specified in CERCLA; provided, however, that (i) to the extent the laws of the state in which the Assets are located are applicable and have established a meaning for hazardous substances, release, threatened release, solid waste, hazardous waste, and disposal that is broader than that specified in CERCLA or RCRA, such broader meaning shall apply with respect to the matters covered by such laws, and (ii) the term solid waste shall include all oil and gas exploration, development, and production wastes, even if such wastes are specifically exempt from classification as hazardous substances or hazardous wastes pursuant to CERCLA or RCRA, or the state analogues to those statues.

     5.9 Mutual Right to Terminate. Notwithstanding anything contained herein to the contrary, either Seller or Buyer may terminate this Agreement, in their sole and absolute discretion, if the sum of all Defect Adjustments, casualty losses, and anticipated remediation costs for Environmental Defects exceed ten percent (10%) of the Base Purchase Price. If, in such event, either Seller or Buyer elects to terminate this Agreement, this Agreement shall terminate and be of no further force or effect.

ARTICLE VI
CONDITIONS TO CLOSING

     6.1 Conditions to the Obligations of Buyer. The obligations of Buyer to proceed with the Closing contemplated hereby are subject to the satisfaction on or prior to the Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Buyer:

     (a) Warranties and Agreement of Seller. All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to any earlier date and to the extent that the information contained in exhibits and schedules hereto expressly relates to any earlier date, and Seller shall have performed and complied with all the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by Seller at or prior to the Closing Date; and, Buyer shall have received a certificate dated the Closing Date and signed by the President or Vice-President of Seller to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates, instruments of transfer and other documents required to be delivered to Buyer hereunder shall be satisfactory to Buyer and its counsel in all reasonable respects.

     (c) Additional Information. Seller shall have furnished to Buyer and its counsel such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling them to pass upon the matters referred to in this Section 6.1.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Receipt of Documents. As to each Seller that is a corporation, partnership or limited liability company, Buyer shall have received (i) a certificate executed by the appropriate Person certifying as to (A) Seller’s good standing, (B) the requisite corporate, partnership or limited liability company approvals of the transactions contemplated hereby, and (C) the incumbency and authority of the Person executing any documents on behalf of Seller in connection with this Agreement, and (ii) an affidavit that such Seller is not a “foreign person” within the meaning of Section 1445 of the Code, and (iii) assignments, conveyances and bills of sale (in substantial form as the form of conveyance to be attached hereto as Exhibit B, conveying Seller’s interest in the Assets.

     (f) Closing of Properties Acquisition Transaction. Conditions to the closing of the acquisition of the Haywood area oil and gas properties located in Pittsburg County, Oklahoma, by Buyer from MAKO Resources, LLC and Golden Gas Service Company. (the “Properties System Acquisition”) shall have been satisfied or waived and the Properties Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (g) Board Approval. Buyer shall have received the approval of its Board of Directors with respect to the transactions contemplated herein.

     (h) Termination. Seller has not elected to terminate this Agreement in accordance with Section 5.9.

     6.2 Conditions to the Obligations of Seller. The obligations of Seller to proceed with the Closing contemplated hereby are subject to the satisfaction at or prior to Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Seller.

     (a) Warranties and Agreements of Buyer; Officer’s Certificate. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent

that such representations and warranties expressly relate to an earlier date, and Buyer shall have performed and complied with all of the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by it at or prior to the Closing Date; and Seller shall have received a certificate dated the Closing Date and signed by the President or a Vice President of Buyer to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates and other documents required to be delivered to Seller shall be satisfactory in all reasonable respects to Seller and his counsel.

     (c) Additional Information. Buyer shall have furnished to Seller such information, certificates and other documents as Seller shall have reasonably requested for the purpose of enabling Seller to pass upon the matters referred to in this Section 6.2.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Closing of Properties Acquisition Transaction. Conditions to the closing of the acquisition of the Haywood area oil and gas properties located in Pittsburg County, Oklahoma, by Buyer from MAKO Resources, LLC and Golden Gas Service Company. (the “Properties System Acquisition”) shall have been satisfied or waived and the Properties Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (f) Termination. Buyer has not elected to terminate this Agreement in accordance with Section 5.9.

ARTICLE VII
CLOSING

     7.1 Closing Date. Subject to the terms and conditions of this Agreement, the closing hereunder (the “Closing”) shall take place at 10:00 a.m., local time, on May 6, 2005, at the offices of Seller, or at such other place and time as may be mutually agreed upon by the parties (the “Closing Date”).

     7.2 Records. At Closing, or a soon thereafter as practicable, Seller shall deliver to Buyer all of the Records. Transportation of the Records to Buyer’s offices shall be at the sole cost of Buyer.

ARTICLE VIII
AS IS — WHERE IS SALE; DISCLAIMER; INDEMNITY

     8.1 Disclaimer. IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES HERETO THAT, SUBJECT TO SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, THE ASSETS ARE ACQUIRED AS IS, WHERE IS, WITH ALL FAULTS AND DEFECTS, BOTH PATENT AND LATENT, AND WITHOUT WARRANTIES OF ANY KIND, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, REGARDLESS OF HOW SUCH FAULTS AND DEFECTS WERE CAUSED OR CREATED (BY SELLER’S NEGLIGENCE, ACTIONS, OMISSIONS, OR FAULT, OR OTHERWISE). BY CLOSING, BUYER ACKNOWLEDGES IT HAS HAD OR WILL HAVE HAD PRIOR TO CLOSING A REASONABLE OPPORTUNITY TO INSPECT AND EXAMINE THE CONDITION OF EACH AND EVERY ASSET AND, SUBJECT TO SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, BUYER IS AWARE OF AND ACCEPTS THE CONDITION OF EACH AND EVERY ASSET. ALTHOUGH SELLER HAS MADE, AND UNTIL CLOSING WILL MAKE, ALL OF ITS FILES AND RECORDS AVAILABLE TO BUYER, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT AS SET FORTH IN SECTION 3 OF THIS AGREEMENT, AS TO THE ACCURACY OR COMPLETENESS OF ANY TITLE OPINION, DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR MATERIALS NOW, HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, THE PRICING ASSUMPTIONS, THE ENVIRONMENTAL CONDITION OF THE ASSETS, ANY OTHER MATTERS CONTAINED IN THE DATA, OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER. IN ENTERING INTO AND PERFORMING THIS AGREEMENT, BUYER HAS RELIED AND WILL RELY SOLELY UPON SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 3 OF THIS AGREEMENT AND UPON BUYER’S INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS AND THEIR VALUE.

     8.2 Seller’s Limited Indemnity. Subject to the terms, conditions and limitations of this Section 8.2, Seller agrees and does hereby, to the fullest extent permitted by law, INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, OFFICERS, EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, the “Buyer Group”) FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, STRICT LIABILITY CLAIMS, DEMANDS, LAWSUITS, JUDGMENTS, ORDERS, FINES, PENALTIES, DAMAGES, EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEYS’ FEES), COSTS AND EXPENSES OF ANY NATURE WHATSOEVER (collectively, “Seller Damages”), ASSERTED AGAINST, RESULTING TO, IMPOSED UPON OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM (A) ANY BREACH BY SELLER OF THE REPRESENTATIONS, WARRANTIES

AND COVENANTS CONTAINED IN ARTICLES III AND IV OF THIS AGREEMENT, OR (B) TITLE OWNERSHIP OR OPERATION OF THE ASSETS BY SELLER PRIOR TO THE EFFECTIVE DATE (collectively, “Buyer Claims”), PROVIDED THAT (i) ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND SELLER’S ACCOUNTABILITY FOR PERIODS PRIOR TO THE EFFECTIVE DATE SHALL TERMINATE AND BE OF NO FURTHER FORCE OR EFFECT TWO (2) YEARS FROM THE CLOSING DATE, AND BUYER CLAIMS MUST ARISE AND MUST BE COMMUNICATED IN WRITING TO SELLER PRIOR TO THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE, (ii) AND THE REPRESENTATIONS AND WARRANTIES OF SELLER IN SECTION 3.1(q) SHALL BE ASSERTABLE BY THE BUYER GROUP WITHOUT REGARD TO ANY KNOWLEDGE OR MATERIALITY QUALIFIERS SET FORTH IN SECTION 3.1(q), AND (iii) NO BUYER CLAIMS, IF ANY, MAY BE ASSERTED AFTER THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE.

FROM AND AFTER THE CLOSING, THE SOLE AND EXCLUSIVE REMEDY OF BUYER WITH RESPECT TO ANY AND ALL CLAIMS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE PURSUANT TO THE INDEMNIFICATION PROVISIONS SET FORTH IN THIS SECTION 8.2. IN FURTHERANCE OF THE FOREGOING, AND SUBJECT TO THE PRECEDING SENTENCE, BUYER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, AND AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING OF ANY KIND, ANY AND ALL RIGHTS, CLAIMS AND CAUSES OF ACTION BUYER MAY NOW OR HEREAFTER HAVE AGAINST SELLER EXCEPT FOR CLAIMS FOR INDEMNIFICATION ASSERTED AS PERMITTED BY AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN THIS ARTICLE VIII.

     8.3 Buyer’s Indemnity; Environmental Matters. From and after the EFFECTIVE DATE, and to the fullest extent permitted by law, Buyer agrees, subject to Seller’s limited indemnity as set forth in Section 8.2 above, to INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLER AND SELLER’S RESPECTIVE EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, “Seller Group”), from and against any and all liabilities, claims, strict liability claims, demands, lawsuits, judgments, orders, fines, penalties, damages, expenses (including but not limited to reasonable attorneys’ fees), costs, environmental assessment and clean-up costs and causes of action asserted by any Person (including, but not limited, to the employees of Seller or Buyer) for personal injury or death, for compliance with Environmental Laws, regulations, orders, or guidelines, or for loss or damage to Assets or the environment (collectively referred to hereinafter as “Liabilities/Claims”), arising from or relating to: (i) Buyer’s (and/or its contractors’) pre-Closing inspection of the Assets, REGARDLESS OF WHETHER SUCH LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS; (ii) the ownership, use, or operation of the Assets by Buyer or its assigns after Closing, or the express assumption of responsibilities hereunder by Buyer at Closing concerning the Assets (including, but not limited to, any

Liabilities/Claims arising from or relating to leaks or releases of oil and gas from, or malfunctions of, the Assets after Closing), REGARDLESS OF WHETHER SUCH POST-CLOSING LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S PRE-CLOSING ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS RELATING TO THE OPERATION, DESIGN, PHYSICAL CONDITION, OR MAINTENANCE STATUS OF THE ASSETS, BUT EXCLUDING SUCH POST-CLOSING LIABILITIES/CLAIMS TO THE EXTENT CAUSED BY THE NEGLIGENCE OF SELLER GROUP THAT OCCURS AFTER CLOSING; and/or (iii), subject to Seller’s environmental representation pursuant to Section 3.1(q) and Section 8.2 above, soil contamination, water contamination, and/or other types of environmental damage or contamination in, on, or under the Assets or arising from the Assets (collectively, “Environmental Contamination”), Buyer’s obligations under this Section 8.3 shall in no manner alter, diminish or adversely affect the limited indemnity obligations of Seller as provided in Section 8.2 above. BUYER EXPRESSLY ACKNOWLEDGES THAT BUYER HAS AGREED TO INDEMNIFY SELLER GROUP FOR ITS OWN ORDINARY NEGLIGENCE, SUBJECT TO AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS SECTION 8.3.

ARTICLE IX
GENERAL

     9.1 Survival of Representations and Warranties. All statements contained in this Agreement, the exhibits and schedules referred to herein, and any certificates or other instruments delivered pursuant to the express terms hereof by or on behalf of any party hereto shall be deemed representations and warranties hereunder by such party. All representations, warranties, covenants and agreements made by the parties to this Agreement or pursuant hereto shall survive any investigations made by or on behalf of the parties and shall survive the Closing to the extent provided herein, but not otherwise.

     9.2. Expenses. Each party hereto shall pay all expenses and disbursements incurred by it, its officers, employees and representatives, in connection with this Agreement and the performance of its obligations hereunder.

     9.3. Further Assurances. Seller will from time to time, upon the request of Buyer, execute and deliver to Buyer such further instruments, and take such other action as Buyer may reasonably request, in order to more effectively convey, assign, transfer and deliver, or place Buyer in possession and control of, the Assets or to enable Buyer to exercise and enjoy all rights and benefits with respect thereto.

     9.4. Binding Agreement: Assignment; Parties in Interest. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that any assignment of this Agreement by any party hereto without the written consent of the other parties shall be void. Notwithstanding the foregoing, the rights and

obligations of Buyer hereunder may be assigned to or performed by any other entity owned or controlled by Buyer, without the written consent of Seller provided that such assignment shall not relieve Buyer of its obligations hereunder. Except as provided herein, nothing in this Agreement, express or implied, is intended or shall be construed to give to any Person other than the parties hereto any right, remedy or claim under or by reason of this Agreement.

     9.5. Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or transmitted by first-class registered or certified mail, postage prepaid, return receipt requested, or sent by prepaid overnight delivery service, or sent by facsimile transmission, to the parties at the following addresses (or at such other address as shall be specified by the parties by like notice):

If to Seller:

Golden Gas Service Company
2120 East 15^th Street
Tulsa, Oklahoma 74104
Attn: Mr. Alan R. Staab
Telephone: (918) 582-0139
Facsimile: (918) 582-6495

If to Buyer:

PetroQuest Energy, L.L.C.
400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508
Attn: Mr. Dalton F. Smith III
Telephone: (337) 232-7028
Facsimile: (337) 234-4699

     9.6. Publicity. All notices to third parties and other publicity concerning the transaction contemplated by this Agreement shall be jointly planned and coordinated by and between Seller and Buyer. Except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, neither party shall act unilaterally in this regard without the prior written approval of the others, provided, however, that such approval shall not be unreasonably withheld.

     9.7. Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Oklahoma.

     9.8. Exhibits and Schedules; Right to Terminate..

     (a) Exhibits and Schedules Incorporated in this Agreement. All exhibits and schedules referred to in this Agreement are attached hereto, incorporated herein and made an integral part hereof.

     (b) Completion of Exhibits and Schedules; Termination. The Schedules and Exhibits are not complete as of the date of execution of this Agreement. Seller and Buyer shall use their best efforts, in good faith, to prepare and agree upon all of the final Exhibits and Schedules on or before April 20, 2005. If mutual agreement is not reached as to the final Exhibits and Schedules by such date, or such mutually agreed extension of such date, either Seller or Buyer may terminate this Agreement in their sole discretion and this Agreement shall be of no further force or effect.

     9.9. Entire Agreement; Amendments; Waivers. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

     9.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.

     9.11 Arbitration. Any disagreement between Seller and Buyer with respect to the Final Settlement Statement shall be resolved pursuant to Section 2.5(a). With respect to any other dispute between Seller and Buyer arising under this Agreement, either Seller or Buyer may request binding arbitration of the Final Statement to be conducted before one arbitrator in Tulsa, Oklahoma, in accordance with the Uniform Arbitration Act, as adopted and then in effect in the State of Oklahoma, and in accordance with the rules promulgated by the American Arbitration Association (the “AAA”) (expedited procedures). The AAA shall be instructed to choose an arbitrator (the “Arbitrator”) who shall have a minimum of fifteen (15) years experience in the gas gathering industry, generally, and, specifically, in the area with respect to which the subject matter of the dispute pertains. Notice of a party’s election to submit a matter for arbitration shall be given to the other party if good faith negotiations to resolve such matter (for a period of at least 10 days) prove unsuccessful. Upon delivery of such notice by either party, each party shall have ten (10) calendar days to provide the Arbitrator (and the other party) with a statement of its position (with supporting documentation) regarding the matter or matters in dispute together with its best and final offer for settlement of the dispute. The failure to provide a statement of position within this period shall constitute a waiver of a party’s rights to have such materials considered by the Arbitrator. The Arbitrator shall consider the statements of position submitted by the parties and shall, within ten (10) business days after receipt of such materials, issue his or her decision adopting the best and final statement offer for settlement of the dispute either by Buyer or Seller. All determinations made by the Arbitrator shall be final, conclusive and binding on the parties. The expenses of such arbitration, including the fees of the

Arbitrator, shall be divided equally between Buyer and the Seller Group, unless otherwise specified in the Arbitrator’s award. Further, the Seller Group and Buyer shall each pay all fees and expenses of its own witnesses and legal counsel, unless otherwise specified in the Arbitrator’s award.

     9.12 Substitution of Affiliates. Buyer shall have the right to substitute as the buyer hereunder any of its affiliates without otherwise altering the terms and conditions of this Agreement.

     9.13 Headings. The headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.

     9.14 Mutual Waiver of Certain Remedies. NO PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO ANY OTHER PARTY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES, AS TO ANY ACTION OR OMISSION, WHETHER CHARACTERIZED AS A CONTRACT BREACH OR TORT, WHICH ARISES OUT OF OR RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR NONPERFORMANCE.

     IN WITNESS WHEREOF the parties have executed or caused the Agreement to be executed as of the day and year first above written.

SELLER:

Golden Gas Services Company
By:	/s/ Alan R. Staab
	Alan R. Staab
	President

BUYER:	PetroQuest Energy, L.L.C.
	By:	/s/ Dalton F. Smith
		Dalton F. Smith, III
		Senior Vice President      Business Development & Land

EX-2.4

Exhibit 2.4

PURCHASE AND SALE AGREEMENT
Scipio Gathering System
Wildhorse Gathering System
Brooken Gathering System
Ashland Gathering System
Pittsburg and Haskell Counties, Oklahoma

     This Purchase and Sale Agreement (this “Agreement”) dated as of the 7th day of April, 2005, executed by Golden Gas Service Company, an Oklahoma corporation (“Seller”), and PetroQuest Energy, L.L.C., a Louisiana limited liability company (the “Buyer”).

     In consideration of the mutual promises contained herein, the benefits to be derived by each party hereunder and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE I
DEFINED TERMS

     1.1 Defined Terms. Unless the context otherwise requires, the following terms used in this Agreement shall have the meanings assigned to them in this Section 1.1:

          “Affiliate” 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, such Person.

          “Assets” means the Gathering Systems, including, the Facilities and Equipment, the Real Property, the Easements, the Contracts and the Records.

          “Code” means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder by the Treasury Department of the United States.

          “Contracts” means (a) all contracts and agreements pertaining to the purchase or sale of natural gas and the gathering, transportation, transmission, processing or exchange of natural gas; and (b) all other agreements and contracts (including, without limitation, compressor and equipment leases and service contracts) relating to the ownership, operation, repair, use or maintenance of the Assets; including, without limitation, the agreements and contracts listed in Schedule 3.1 (k) attached hereto.

          “Defect Date” shall mean 5:00 p.m., Central Standard Time on the fifth (5^th) calendar day prior to the Closing Date.

          “Defects” shall collectively refer to Title Defects and Environmental Defects asserted by Buyer pursuant to this Agreement.

          “Defect Threshold” shall mean, for the Assets taken as a whole, Defects asserted by Buyer that adversely affect Seller and/or the Assets by an amount equal to or in excess of $50,000.

          “Easements” mean all easements, rights-of-way, servitudes, rights of egress and ingress and other similar rights related to the use or enjoyment of the Assets (the “Easements”)

          “Effective Date” shall mean 12:01 a.m. on January 1, 2005.

          “Environmental Defect” shall mean that, with respect to the Asset in question, (i) any hazardous substances (as defined in 42 U.S.C.A. 9601(14) or 42 U.S.C.A. 69021(B)(2)) are present, stored or located on or in conjunction with an Asset in violation of Environmental Laws; or (ii) any Asset is in noncompliance with Environmental Laws, to the extent that any of the foregoing arise out of or pertain to operations conducted on, or ownership of, the Assets prior to the Closing Date.

          “Facilities and Equipment” means all items of personal property, fixtures and equipment which are used in connection with the ownership, operation, repair, use or maintenance of the Gathering Systems whether located on or under the Real Property or elsewhere, including, but not limited to all pipe, pipe racks, pipe inventory, connections, fittings, meters and metering facilities, measuring equipment and devices, compressors, pumps, gauges, valves, laterals, mains, tanks, heaters, dehydration units, storage facilities, tools, supplies, buildings, spare parts, field offices and other personal property which is used in connection with the ownership, operation, maintenance or repair of the Gathering Systems, excluding those items specifically set forth on Exhibit C hereto.

          “Gathering Systems” shall mean those certain natural gas gathering systems, known as the (i) Scipio Gathering System, Township 7N, Range 13E. Pittsburg County, Oklahoma (ii) Wildhorse Gathering System, Township 6N, Range 13E. Pittsburg County, Oklahoma (iii) Brooken Gathering System, Township 9N, Range 19E. Haskell County, Oklahoma and (iv) Ashland Gathering System, Township 3N, Range 12E. Pittsburg County, Oklahoma which includes the pipelines and related compression, meters and other equipment and facilities associated with each such Gathering System, which are located within Pittsburg Haskell Counties, Oklahoma, together with all Contracts, leases, rights-of-way and Easements, Facilities and Equipment, permits and licenses, as more specifically depicted on the plats of the Gathering Systems attached as Exhibit A-1, Exhibit A-2, Exhibit A-3, and Exhibit A-4 hereto.

          “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).

          “Interim Period” means the time between the Effective Date and the Closing Date.

          “Material Adverse Effect” means, with respect to a Person, the occurrence of an event or the existence of a circumstance (other than general industry conditions, or matters of a general, economic, or political nature) that has a material adverse effect on such Person’s assets, business or financial condition, taken as a whole.

          “Permitted Liens” means any of the following: (a) any liens for taxes and assessments not yet delinquent; (b) mechanics, materialmans and similar liens incurred in the ordinary course of business for sums not yet payable; (c) zoning restrictions; (d) any Liens created by a document or instrument made available to Buyer; and (e) any easements, licenses or reservations, or any other defects or irregularities of title, that do not, individually or in the aggregate, have a Material Adverse Effect on the business of Seller as currently conducted.

          “Person” means any individual, corporation, partnership, joint venture, association, limited liability Seller, joint-stock Seller, trust, enterprise, unincorporated organization, or Governmental Entity.

          “Real Property” means all parcels of real property, fixtures, leases of real property, easements, rights-of-way, tenements, rights of egress and ingress and all other rights in real property related to the Plant, including without limitation those items listed in Schedule 3.1(e) and Schedule 3.1(f) attached hereto and made a part hereof for all purposes.

          “Records” means, collectively, (i) the Easements and rights-of-way files, title opinions respecting surface and Easements, maps, sales agreements, purchase agreements, supply agreements, gathering, compression and transportation agreements, exchange agreements, equipment and maintenance files, and all other agreements, documents and records attributable to the Gathering Systems, (ii) all maps, plats, specifications, surveys, engineering, inspection or similar reports or data and any other means all drawings, technical descriptions relating to the Gathering Systems, and (iii) copies of accounting records pertaining to the Gathering Systems.

          “Title Defect” means any title gap, lien, encumbrance, burden, encroachment, irregularity, defect in of objection to title in and to the Assets, or any protion thereof, excluding Permitted Liens, that alone or in combination with other defects renders Seller’s title less than good and marketable.

     1.3 Additional Definitions. The following terms are defined in the Section referenced below:

“AAA”	Section 9.11
“Arbitrator”	Section 9.11
“Base Purchase Price”	Section 2.1
“Casualty Losses”	Section 5.6
“Closing” and “Closing Date”	Section 7.1
“Environmental Laws”	Section 5.8
“Final Settlement Date”	Section 2.5
“Final Settlement Period”	Section 2.5
“Final Settlement Price”	Section 2.5
“Final Statement”	Section 2.5
“Preferential Rights”	Section 3.1(m)
“Purchase Price Adjustment Statement	Section 2.3
“Buyer Claims”	Section 8.2
“Buyer Group”	Section 8.2

“Seller Group” Section 8.3

ARTICLE II
PURCHASE PRICE AND ALLOCATION

     2.1 Purchase Price. Seller shall sell and Buyer shall purchase, effective as of the Effective Date, for the sum of Five Million and No/l00 Dollars ($5,000,000), subject to adjustments as provided or contemplated herein (the “Base Purchase Price”) all of Seller’s right, title, interest and estate in and to the Assets, including the Facilities and Equipment, the Real Property, the Easements, the Contracts and the Records

     2.2 Adjustments to Base Purchase Price. The Base Purchase Price shall be subject to adjustment as follows:

     (a) Upward Adjustments. The Base Purchase Price shall be adjusted upward by the following:

     (i) The amount of all verifiable expenditures paid by Seller in connection with the operation of the Assets in accordance with this Agreement for work actually performed on or subsequent to the Effective Date;

     (ii) The amount of all capital expenditures made by Seller for the repair, maintenance or extension of the Assets, incurred on or after the Effective Date and consented to by Buyer;

     (iii) Any other amount agreed upon by Seller and Buyer in writing.

     (b) Downward Adjustments. The Base Purchase Price shall be adjusted downward by the following:

     (i) All revenues received by Seller attributable to the Assets and which are applicable to periods on and after the Effective Date;

     (ii) An amount equal to all unpaid ad valorem, property, and similar taxes and assessments (but not including income taxes) based upon or measured by the ownership of Assets and accruing to the Assets prior to the Effective Date;

     (iii) Any reductions for Defects, allocable to the Assets, as provided in Article V;

     (iv) Any Casualty Losses allocable to the Assets as provided in Section 5.6;

     (vi) Any other amount agreed upon by Seller and Buyer in writing.

     2.3. Purchase Price Adjustment Statement. Seller shall submit a Closing statement (the “Purchase Price Adjustment Statement”) to Buyer not fewer than seven (7) business days prior to Closing, and shall afford Buyer access to any Records pertaining to the computations contained in the Purchase Price Adjustment Statement. At least two (2) full business days prior to Closing, Buyer shall deliver to Seller a written report containing such changes, if any, which Buyer proposes be made to the Purchase Price Adjustment Statement. Seller and Buyer shall each make every reasonable effort to agree prior to the Closing Date on a mutually agreed Purchase Price Adjustment Statement.

     2.4 Payment at Closing. After the Purchase Price Adjustment Statement has been agreed to by the parties, the Purchase Price due at Closing shall be tendered by Buyer to Seller, by wire transfer. Seller shall provide Buyer wire transfer instructions not later than three (3) days prior to the Closing Date.

     2.5 Final Settlement. As soon as practicable after the Closing Date, but in any event within 120 calendar days thereafter (the “Final Settlement Period”), Buyer shall prepare and submit to Seller a proposed statement (herein called the “Final Statement”), which shall show the final calculation of the Purchase Price (herein called the “Final Settlement Price”). As soon as possible after receipt of the Final Statement, but in any event within 15 calendar days after receipt thereof, Seller shall deliver to Buyer a written report containing the changes, if any, which Seller proposes being made to the Final Statement. In the event no response is made by Seller within such 15-day period, it shall be conclusively presumed that the selling parties concur with the Final Statement, and such Final Statement shall be the basis for the Final Settlement Price. In the event that Seller submits a response, the parties shall exercise all reasonable efforts to agree upon a mutually acceptable Final Settlement Price and the calculation of the amount, if any, due in connection therewith not later than 150 calendar days after the Closing (herein called the “Final Settlement Date”). After agreement upon a Final Settlement Price setting forth the amount by which the Base Purchase Price shall be adjusted (either upward or downward) has been reached, the amount due shall be paid within five (5) business days thereafter by the party owing the same by confirmed wire transfer to a bank account or accounts to be designated by the appropriate party. In the event Buyer and Seller are unable to agree with respect to the amounts due pursuant to this Section 2.5 before the Final Settlement Date, then either Seller or Buyer may refer the issues in dispute to the Grant Thornton, LLP, Tulsa, Oklahoma accounting firm (or such other recognized firm of public accountants as Seller and Buyer may mutually agree) and the resolution of such issues by such firm shall be final and binding on all parties. The costs of such public accountants shall be borne equally by the Seller and Buyer.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer and its subsidiaries or designees, if any, to whom the Assets are to be assigned at Closing, as follows.

     (a) Organization and Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, is legally authorized to conduct business in each jurisdiction where it conducts business, and has all requisite power and authority to own and operate the Assets and to carry on its business as such business is currently conducted.

     (b) Authorization and Enforceability. Seller has all requisite power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by each of them. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding obligation of Seller, enforceable against each of them in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws relating to or affecting the enforcement of creditors rights generally and general principles of equity.

     (c) No Conflict. This Agreement and the execution and delivery hereof by Seller do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i)	Conflict with, or require the consent of any Person under, any of the terms, conditions or provisions of Seller’s articles or certificate of incorporation or organization or bylaws, as applicable;
(ii)	Violate any provision of, require any filing, consent, authorization or approval under, any legal requirement applicable to or binding upon Seller;
(iii)	Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, (A) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or to which Seller is bound or to which any of the Assets are subject, or (B) any lease, license, contract or other agreement or instrument to which Seller is a party or by which it is bound or to which any of the Assets are subject; or
(iv)	Result in the creation or imposition of any lien, charge or other encumbrance upon any of the Assets.

     (d) No Default. Seller is not in default under, and no condition exists that with notice or lapse of time or both would constitute a default under (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or by which Seller is bound or to which any of the Assets are subject, or any other agreement, contract, lease, license, or other instrument, (ii) any order, judgment or decree of any court, commission, board, agency or other

governmental body, or (iii) any law, statute, ordinance, decree, order, rule or regulation of any governmental authority.

     (e) Real Property. Schedule 3.1(e) describes the Real Property related to each of the Gathering Systems. As of the Date of Closing, all of the Real Property owned by Seller, or held by lease, license or easement, in each case free and clear of all mortgages, pledges, options, deeds of trust, security agreements, charges, covenants, liens, security interests, and other encumbrances or claims. The transfer, conveyance and assignment of the Assets by Seller to Buyer will pass good and marketable title to the Real Property, other than as to the Easements, to Buyer and will entitle Buyer to the possession and quiet enjoyment thereof.

     (f) Easements. Schedule 3.1(f) describes all material easements, rights-of-way, servitudes, rights of egress and ingress and other similar rights related to the use or enjoyment of real property related to each of the Gathering Systems (the “Easements”). Seller validly occupies all such Easements. Each Easement is valid, existing, and enforceable; there has not been, and there currently is not any event that would result in the termination, impairment, or limitation of any Easement; except as set forth in Schedule 3.1(f) hereto, no future payments of any kind are due under any Easement in order to maintain its existence; the Real Property and the Easements as a group constitute all such ownership interests and rights necessary for the ownership or operation of each of the Gathering System; and the Gathering Systems are each located entirely within the Easements.

     (g) Regulatory Matters. Seller has not received any notice or order from any Governmental Entity which regulates or purports to regulate any of the Assets or Seller or any of Seller’s activities, except pertaining to usual and customary filing requirements applicable to assets of the types owned by Seller.

     (h) Taxes. There are no pending or threatened state, local or foreign tax liens upon any of the Assets. All taxes, assessments, fees and other charges of any Governmental Entity which have been assessed against the Assets and have become due and payable, have been paid. All ad valorem, personal property, excise, or similar taxes relating to Seller’s ownership of the Assets prior to the Effective Date have been or will be timely paid by Seller.

     (i) Litigation. Except as and to the extent set forth in Schedule 3.1(i), there are no administrative and judicial actions and proceedings presently pending or threatened against or involving (i) Seller, or (ii) the Assets or any portion thereof.

     (j) Compliance with Laws. Except as and to the extent set forth in Schedule 3.1(j) hereto (i) to Seller’s knowledge, Seller is in compliance in all material respects with all applicable statutes, orders, rules and regulations promulgated or proposed by any federal, state or local governmental entity relating to the operation and conduct of the Assets, (ii) there are no such statutes, orders, rules or regulations which require material future actions or expenditures by or on behalf of Seller; (iii) Seller has not received any notice of alleged material violation of any such statute, order, rule or regulation; and (iv) all material business and other licenses, permits, performance bonds and other security and authorizations required

by law for the ownership and/or operation of the Assets and/or Seller’s conduct of Seller’s business or operations respecting the Assets have been obtained and Seller is in material compliance with such licenses, permits, bonds, and other authorizations.

     (k) Contracts. Schedule 3.1(k) hereto is a list of all Contracts (written or oral) to which Seller is a party or by which Seller is bound, having a duration in excess of one (1) month or involving payments (or other value) in excess of $5,000. Seller has complied in all material respects with the provisions of all such Contracts, and is not in default thereunder in any manner which would permit any other party thereto to cancel or terminate such Contract; and, all such Contracts are in full force and effect and constitute legal, valid and binding obligations of Seller, and to Seller’s knowledge, are binding upon the other parties to such Contract in accordance with their terms; and, as of the date hereof, there is no claimed breach of contract by any party to any such Contract.

     (l) Condition of Gathering Systems. Seller has operated the Gathering Systems only in the ordinary and usual course of business consistent with good industry practices and except for ordinary wear and tear, there has been no material adverse change in the condition, properties, rights, obligations, contractual or business relationships, operations or prospects to any of the Gathering Systems, or affecting the condition or transferability of the Gathering Systems. Each of the Gathering Systems has been preserved and maintained and will be preserved and maintained during the Interim Period in a good and workmanlike condition, normal wear and tear excepted. To Seller’s knowledge, no condition or circumstance exists that would materially impair the merchantability of the Gathering Systems or upon assignment to Buyer, interfere with Buyer’s possession and quiet enjoyment thereof.

     (m) No Prepayments or Refunds Respecting Gathering Systems. Except as set forth in Schedule 3.1(m), Seller has not received any prepayment, advance payment, deposit or similar payment, and has no refund obligation, with respect to any gas purchased, sold, gathered or transported through the Gathering Systems. Seller has not received any compensation for gathering services which would be subject to any refund or create any repayment obligation either by or to Seller, and Seller is not aware of any basis for a claim that a refund is due. Buyer will be entitled to receive the full contract price, as set forth in the Contracts, for all gas gathered and sold by Buyer or for Buyer’s account on and after the Effective Date.

     (n) Preferential Purchase Rights and Consents. To Seller’s knowledge, except as set forth on Schedule 3.1(k), there are no consents to assign requiring a third party to consent to the assignment of the Assets (“Consents”) or preferential purchase rights providing an option or right to purchase any of the Assets (“Preferential Rights”).

     (o) Capital Commitments. Except as set forth on Schedule 3.1(o) hereto, Seller has not paid, incurred or otherwise committed to, from and after the Effective Date, any expenditures in excess of $10,000 respecting the Assets for any purpose, to include the the extension, maintenance, operation, or repair of any of the Gathering Systems, and no such expenditures are pending and unapproved.

     (p) No Material Adverse Change. Except for matters for which downward adjustments to the Purchase Price are prescribed pursuant to this Agreement, there has not been and will not be during the period between the Effective Date and the Closing Date any Material Adverse Effect with respect to the Assets.

     (q) Environmental Matters. Seller has not received any notification of any pending or threatened investigation, claim, penalty, or action by any Governmental Entity or other Person relating to the environmental condition of the Assets, and Seller has no knowledge that (i) there has been a release or threat of release of any hazardous substance (as the term “release” and “hazardous substance” are defined under Environmental Laws) on or from any of the Assets, or as a consequence of Seller’s operations or activities respecting the Assets, or any of them, prior to the date of this Agreement, or (ii) a condition exists on or under any of the Assets as of the date of this Agreement which could have a Material Adverse Effect on the Assets.

     (r) Affiliate Agreements. Except as listed on Schedule 3.1(r), the Assets are not subject to any agreement with an Affiliate of Seller that cannot be terminated by Buyer after Closing without penalty, cost or liability.

     (s) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Seller and for which Buyer will have any obligation or liability. Seller shall indemnify and hold Buyer harmless from any and all claims, liabilities, damages, costs and expenses asserted against Buyer by any Person claiming to have acted on behalf of Seller, or to have been retained by Seller, as a broker in connection with the transaction contemplated by this Agreement.

     3.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that:

     (a) Organization and Good Standing. Buyer is a Louisiana limited liability company, duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Buyer is authorized to do business and is in good standing under the laws of the State of Oklahoma.

     (b) Authorization. Buyer has all requisite company power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

     (c) No Conflicting Agreements. This Agreement and the execution and delivery hereof by Buyer do not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(i) Conflict with, or require the consent of any Person under any of the terms, conditions, or provisions of the Articles of Organization of Buyer;

(ii) Violate any provision of, or require any filing, authorization or approval under, any legal requirement applicable to or binding upon Buyer; or

(iii) Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both), accelerate or permit the acceleration of the performance required by or require any consent, authorization or approval under, (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Buyer is a party or by which Buyer is bound or to which any of its properties is subject or (ii) any lease, license, contract or other agreement or instrument to which Buyer is a party or by which it is bound or to which any of its properties is subject.

     (d) Litigation. There is no action, suit, proceeding or governmental investigation or inquiry pending or, to the knowledge of Buyer, threatened against Buyer or its affiliates or any of its properties that might delay, prevent or hinder the consummation of the transactions contemplated hereby.

     (e) Brokers. No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Buyer and for which Seller will have any obligation or liability. Buyer shall indemnify and hold Seller harmless from any and all claims, liabilities, damages, costs and expenses asserted against Seller by any Person claiming to have acted on behalf of Buyer, or to have been retained by Buyer, as a broker in connection with the transaction contemplated by this Agreement.

ARTICLE IV
COVENANTS

     4.1 Covenants of Seller. Seller covenants and agrees with and to Buyer and its subsidiaries or designees, if any, to whom the Assets are assigned at Closing that:

     (a) Access to Records. Immediately upon execution of this Agreement and until the Closing Date, Seller will, during normal working hours, use their reasonable efforts to make and continue to make available to Buyer for examination at his offices in Tulsa, Oklahoma, the Records, accounting and other information respecting the Assets, title and other information relating to the Assets and will cooperate with Buyer in Buyer’s efforts to

obtain, at Buyer’s expense, such additional information relating to the Assets as Buyer may reasonably desire. Seller shall permit Buyer, at Buyer’s expense, to inspect and photocopy such information and Records at any reasonable time but only to the extent, in each case, that Seller may do so without violating any contractual commitment to a third party.

     (b) New Agreements or Settlements. Without the prior written consent of Buyer, Seller shall not enter into any new agreements or commitments with respect to the Assets, or settle or compromise any claim or administrative or judicial proceeding.

     (c) Preferential Rights and Consents. Seller shall, with respect to the Assets, immediately make requests of third parties, in compliance with applicable agreements, that any required Consents be given or waived and that Preferential Rights (or any other preferential rights determined by Buyer during the Interim Period to exist) be waived.

     4.2 Conduct of Business Prior to Closing. Seller covenants and agrees that prior to Closing:

     (a) Negative Covenants. During the Interim Period, Seller shall not, except with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed, sell, lease, dispose of or abandon any of the Assets, or allow any of the Assets to be subjected to any mortgage, pledge, lien, security interest or encumbrance of any kind which is not in existence as of the date hereof.:

     (b) Affirmative Covenants. Seller shall, throughout the Interim Period, cause the Assets to be owned, maintained and operated in the ordinary course of business consistent with good industry practices. Seller shall promptly give Buyer notice of (i) any legal actions which to Seller’s knowledge have been initiated or threatened, by or against Seller whether by a Governmental Entity or other Person, and which relate to the Assets or the ability of Seller to proceed to Closing, (ii) to the extent material, any notice or other communication received by Seller, whether from a Governmental Entity or otherwise, in respect of any Asset or in connection with the transactions contemplated by this Agreement, including any notice from a person alleging that the consent of such person is or may be required in connection therewith, and (iii) the material damage or destruction of any part of the Assets.

     4.3 Gas Imbalances. The parties recognize that as of the Effective Date there may be gas imbalances (“Imbalances”) with respect to receipts and deliveries from the Gathering Systems. Buyer shall not assume any obligations of Seller with respect to pipeline gas Imbalances as of the Effective Date that may be associated with the Gathering Systems. Any Imbalances shall remain with and continue as the sole responsibility of the Seller.

     4.4 Audited Financials. After the date of this Agreement, Seller agrees to cooperate with and provide reasonable assistance to Buyer in the construction of audited financial statements respecting the Assets for the prior three fiscal years, at Buyer’s sole expense.

ARTICLE V

TITLE MATTERS, CASUALTY LOSSES
AND LOST LEASE RIGHTS

     5.1 Title and Environmental Investigation. Buyer may conduct, at its cost, such title and environmental examination and investigation, and other examinations and investigations, as it may in its discretion choose to conduct with respect to the Assets in order to determine whether any Title Defects or Environmental Defects exist.

     5.2 Notice of Title Defects. Buyer shall give Seller, on behalf of Seller, written “Notice of Title Defects” as soon as possible but no later than 5:00 p.m., Central Time, on the Defect Date, provided that Buyer shall notify Seller of possible Title Defects as soon as reasonably practicable after Buyer becomes aware of the same. Such notice shall be in writing and inclusion of the following elements shall be a condition precedent to the effectiveness of the Notice of Title Defects: (i) a description of the Title Defect, (ii) the reasonable basis for the Title Defect, including reasonable documentation supporting the basis for the Title Defect, if available, and (iii) the Defect Value and the computations upon which Buyer’s belief is based. If Buyer does not deliver a timely Notice of Title Defects, title to the Assets shall be deemed to be good and marketable.

     5.3 Title Defect Adjustments and Exclusions. Subject to this Section 5.3 and Section 5.7 respecting the Defect Threshold, if any Asset is affected by a Title Defect, the Base Purchase Price shall be reduced in accordance with Section 2.2(b)(iv) by the Defect Value (which reduction shall be called a “Defect Adjustment”) unless, (i) Buyer agrees in writing to waive the relevant Title Defect, (ii) the basis the Title Defect has been removed by Seller at its sole cost and expense prior to the Closing Date, or (iii) Seller and Buyer reach a subsequent agreement regarding curative of the Title Defect prior to Closing. The Base Purchase Price shall be adjusted only if the aggregate of all Defect Values for Title Defects and Environmental Defects raised by Buyer exceed the Defect Threshold, in which event, the Base Purchase Price shall be reduced by the amount of the total Defect Values (i.e., which amount is a threshold, not a deductible).

     5.4 Title Defect Value. In determining which portion of the Assets constitute a Title Defect, it is the intent of the parties to include, to the extent possible, only that portion of the Assets that is adversely affected by the defect. The Defect Value shall be determined by the parties in good faith taking into account all relevant factors, including, but not limited to, the following:

     (a) If the Title Defect represents only a possibility of title failure, the probability that such failure will occur;

     (b) The legal effect of the Title Defect; and

     (c) If the Title Defect is a lien or encumbrance on the Assets, the cost of removing such lien or encumbrance.

     5.6 Casualty Loss. If, prior to Closing, a portion of the Assets is destroyed by fire or other casualty, is taken or threatened to be taken in condemnation or under the right of eminent domain (a “Casualty Loss”), the Asset shall be included in the sale for the Allocated Value of the affected Asset, reduced by the mutually agreed cost to repair such affected Asset (with equipment of

similar utility) up to the Allocated Value thereof (the reduction being the “Net Casualty Loss”) and Seller shall retain all rights to any insurance payments, awards or other payments from third parties arising out of the Casualty Loss. Any dispute concerning the amount of a Net Casualty Loss shall be resolved through arbitration pursuant to Section 9.11 except the Arbitrator to be selected shall have a minimum of fifteen (15) years’ experience in gas gathering insurance matters rather than in gas gathering accounting.

     5.7 Environmental Defects. If (i) Buyer notifies Seller on or before the Defect Date of the existence of any environmental conditions on or underlying the Assets, or any portion thereof, that (A) constitutes a violation of Environmental Laws, or (B) poses a material risk of injury to human health or the environment, and (ii) the aggregate remediation costs of all such Environmental Defects, when combined with all asserted Title Defects, exceeds the Defect Threshold, then the following shall occur:

     (a) Seller shall have the right to remediate any and all Environmental Defects on or before the Closing, provided such remediation can be completed to Buyer’s reasonable satisfaction; or

     (b) Buyer and Seller shall reach agreement upon an appropriate reduction to the Base Purchase Price which shall be based, in large part, upon the anticipated remediation costs for each such Environmental Defect; or

     (c) In the event Seller is unable to cure or otherwise remediate an Environmental Defect prior to Closing and the parties are unable to reach agreement on an appropriate reduction to the Base Purchase Price, the Buyer may, at its option, terminate this Agreement.

     5.8 Environmental Laws. As used herein, the term “Environmental Law” shall mean any and all laws, statutes, regulations, rules, orders, ordinances, permits, or determinations of any governmental authority pertaining to health or the environment in effect in any and all jurisdictions in which the Assets are located, including, without limitation, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, the River and Harbor Act, as amended, the Safe Drinking Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act (RCRA), as amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act, as amended, and other federal, state, and local laws whose purpose is to conserve or protect health, the environment, wildlife, or natural resources. The terms hazardous substances, release, and threatened release shall have the meanings specified in CERCLA; provided, however, that (i) to the extent the laws of the state in which the Assets are located are applicable and have established a meaning for hazardous substances, release, threatened release, solid waste, hazardous waste, and disposal that is broader than that specified in CERCLA or RCRA, such broader meaning shall apply with respect to the matters covered by such laws, and (ii) the term solid waste shall include all oil and gas exploration, development, and production wastes, even if such wastes are specifically exempt from classification as hazardous substances or hazardous wastes pursuant to CERCLA or RCRA, or the state analogues to those statues.

     5.9 Mutual Right to Terminate. Notwithstanding anything contained herein to the contrary, either Seller or Buyer may terminate this Agreement, in their sole and absolute discretion, if the sum of all Defect Adjustments, casualty losses, and anticipated remediation costs for Environmental Defects exceed ten percent (10%) of the Base Purchase Price. If, in such event, either Seller or Buyer elects to terminate this Agreement, this Agreement shall terminate and be of no further force or effect.

ARTICLE VI
CONDITIONS TO CLOSING

     6.1 Conditions to the Obligations of Buyer. The obligations of Buyer to proceed with the Closing contemplated hereby are subject to the satisfaction on or prior to the Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Buyer:

     (a) Warranties and Agreement of Seller. All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to any earlier date and to the extent that the information contained in exhibits and schedules hereto expressly relates to any earlier date, and Seller shall have performed and complied with all the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by Seller at or prior to the Closing Date; and, Buyer shall have received a certificate dated the Closing Date and signed by the President or Vice-President of Seller to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates, instruments of transfer and other documents required to be delivered to Buyer hereunder shall be satisfactory to Buyer and its counsel in all reasonable respects.

     (c) Additional Information. Seller shall have furnished to Buyer and its counsel such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling them to pass upon the matters referred to in this Section 6.1.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Receipt of Documents. As to each Seller that is a corporation, partnership or limited liability company, Buyer shall have received (i) a certificate executed by the appropriate Person certifying as to (A) Seller’s good standing, (B) the requisite corporate, partnership or limited liability company approvals of the transactions contemplated hereby, and (C) the incumbency and authority of the Person executing any documents on behalf of Seller in connection with this Agreement, and (ii) an affidavit that such Seller is not a

“foreign person” within the meaning of Section 1445 of the Code, and (iii) assignments, conveyances and bills of sale (in substantial form as the form of conveyance to be attached hereto as Exhibit B, conveying Seller’s interest in the Assets.

     (f) Closing of Staab Holdings, L.L.C. Transaction. Conditions to the closing of the acquisition of certain non-operated oil and gas properties by Buyer from Staab Holdings, L.L.C. shall have been satisfied or waived and the Property Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (g) Board Approval. Buyer shall have received the approval of its Board of Directors with respect to the transactions contemplated herein.

     (h) Termination. Seller has not elected to terminate this Agreement in accordance with Section 5.9.

     6.2 Conditions to the Obligations of Seller. The obligations of Seller to proceed with the Closing contemplated hereby are subject to the satisfaction at or prior to Closing of all of the following conditions, any one or more of which may be waived, in whole or in part, in writing by Seller.

     (a) Warranties and Agreements of Buyer; Officer’s Certificate. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to an earlier date, and Buyer shall have performed and complied with all of the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by it at or prior to the Closing Date; and Seller shall have received a certificate dated the Closing Date and signed by the President or a Vice President of Buyer to the foregoing effect.

     (b) Approval of Documentation. The form and substance of all certificates and other documents required to be delivered to Seller shall be satisfactory in all reasonable respects to Seller and his counsel.

     (c) Additional Information. Buyer shall have furnished to Seller such information, certificates and other documents as Seller shall have reasonably requested for the purpose of enabling Seller to pass upon the matters referred to in this Section 6.2.

     (d) No Suit or Action. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.

     (e) Closing of Staab Holdings, L.L.C. Transaction. Conditions to the closing of the acquisition of certain non-operated oil and gas properties by Buyer from Staab Holdings,

L.L.C. (the “Property Acquisition”) shall have been satisfied or waived and the Property Acquisition shall be closed simultaneously with the transactions contemplated herein.

     (f) Termination. Buyer has not elected to terminate this Agreement in accordance with Section 5.9.

ARTICLE VII
CLOSING

     7.1 Closing Date. Subject to the terms and conditions of this Agreement, the closing hereunder (the “Closing”) shall take place at 10:00 a.m., local time, on June 1, 2005, at the offices of Seller, or at such other place and time as may be mutually agreed upon by the parties (the “Closing Date”).

     7.2 Records. At Closing, or a soon thereafter as practicable, Seller shall deliver to Buyer all of the Records. Transportation of the Records to Buyer’s offices shall be at the sole cost of Buyer.

ARTICLE VIII
AS IS — WHERE IS SALE; DISCLAIMER; INDEMNITY

     8.1 Disclaimer. IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES HERETO THAT, SUBJECT TO SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, THE ASSETS ARE ACQUIRED AS IS, WHERE IS, WITH ALL FAULTS AND DEFECTS, BOTH PATENT AND LATENT, AND WITHOUT WARRANTIES OF ANY KIND, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, REGARDLESS OF HOW SUCH FAULTS AND DEFECTS WERE CAUSED OR CREATED (BY SELLER’S NEGLIGENCE, ACTIONS, OMISSIONS, OR FAULT, OR OTHERWISE). BY CLOSING, BUYER ACKNOWLEDGES IT HAS HAD OR WILL HAVE HAD PRIOR TO CLOSING A REASONABLE OPPORTUNITY TO INSPECT AND EXAMINE THE CONDITION OF EACH AND EVERY ASSET AND, SUBJECT TO SELLER’S LIMITED INDEMNITY PURSUANT TO SECTION 8.2 BELOW, BUYER IS AWARE OF AND ACCEPTS THE CONDITION OF EACH AND EVERY ASSET. ALTHOUGH SELLER HAS MADE, AND UNTIL CLOSING WILL MAKE, ALL OF ITS FILES AND RECORDS AVAILABLE TO BUYER, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT AS SET FORTH IN SECTION 3 OF THIS AGREEMENT, AS TO THE ACCURACY OR COMPLETENESS OF ANY TITLE OPINION, DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR MATERIALS NOW, HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, THE PRICING ASSUMPTIONS, THE ENVIRONMENTAL CONDITION OF THE ASSETS, ANY OTHER

MATTERS CONTAINED IN THE DATA, OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER. IN ENTERING INTO AND PERFORMING THIS AGREEMENT, BUYER HAS RELIED AND WILL RELY SOLELY UPON SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 3 OF THIS AGREEMENT AND UPON BUYER’S INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS AND THEIR VALUE.

     8.2 Seller’s Limited Indemnity. Subject to the terms, conditions and limitations of this Section 8.2, Seller agrees and does hereby, to the fullest extent permitted by law, INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, OFFICERS, EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, the “Buyer Group”) FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, STRICT LIABILITY CLAIMS, DEMANDS, LAWSUITS, JUDGMENTS, ORDERS, FINES, PENALTIES, DAMAGES, EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEYS’ FEES), COSTS AND EXPENSES OF ANY NATURE WHATSOEVER (collectively, “Seller Damages”), ASSERTED AGAINST, RESULTING TO, IMPOSED UPON OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM (A) ANY BREACH BY SELLER OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN ARTICLES III AND IV OF THIS AGREEMENT, OR (B) TITLE OWNERSHIP OR OPERATION OF THE ASSETS BY SELLER PRIOR TO THE EFFECTIVE DATE (collectively, “Buyer Claims”), PROVIDED THAT (i) ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND SELLER’S ACCOUNTABILITY FOR PERIODS PRIOR TO THE EFFECTIVE DATE SHALL TERMINATE AND BE OF NO FURTHER FORCE OR EFFECT TWO (2) YEARS FROM THE CLOSING DATE, AND BUYER CLAIMS MUST ARISE AND MUST BE COMMUNICATED IN WRITING TO SELLER PRIOR TO THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE, (ii) AND THE REPRESENTATIONS AND WARRANTIES OF SELLER IN SECTION 3.1(q) SHALL BE ASSERTABLE BY THE BUYER GROUP WITHOUT REGARD TO ANY KNOWLEDGE OR MATERIALITY QUALIFIERS SET FORTH IN SECTION 3.1(q), AND (iii) NO BUYER CLAIMS, IF ANY, MAY BE ASSERTED AFTER THE EXPIRATION OF TWO (2) YEARS FOLLOWING THE CLOSING DATE.

FROM AND AFTER THE CLOSING, THE SOLE AND EXCLUSIVE REMEDY OF BUYER WITH RESPECT TO ANY AND ALL CLAIMS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE PURSUANT TO THE INDEMNIFICATION PROVISIONS SET FORTH IN THIS SECTION 8.2. IN FURTHERANCE OF THE FOREGOING, AND SUBJECT TO THE PRECEDING SENTENCE, BUYER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, AND AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING OF ANY KIND, ANY AND ALL RIGHTS, CLAIMS AND CAUSES OF ACTION BUYER MAY NOW OR HEREAFTER HAVE AGAINST SELLER EXCEPT FOR CLAIMS FOR INDEMNIFICATION ASSERTED AS PERMITTED BY AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN THIS ARTICLE VIII.

     8.3 Buyer’s Indemnity; Environmental Matters. From and after the EFFECTIVE DATE, and to the fullest extent permitted by law, Buyer agrees, subject to Seller’s limited indemnity as set forth in Section 8.2 above, to INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLER AND SELLER’S RESPECTIVE EMPLOYEES, SUCCESSORS AND ASSIGNS (collectively, “Seller Group”), from and against any and all liabilities, claims, strict liability claims, demands, lawsuits, judgments, orders, fines, penalties, damages, expenses (including but not limited to reasonable attorneys’ fees), costs, environmental assessment and clean-up costs and causes of action asserted by any Person (including, but not limited, to the employees of Seller or Buyer) for personal injury or death, for compliance with Environmental Laws, regulations, orders, or guidelines, or for loss or damage to Assets or the environment (collectively referred to hereinafter as “Liabilities/Claims”), arising from or relating to: (i) Buyer’s (and/or its contractors’) pre-Closing inspection of the Assets, REGARDLESS OF WHETHER SUCH LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS; (ii) the ownership, use, or operation of the Assets by Buyer or its assigns after Closing, or the express assumption of responsibilities hereunder by Buyer at Closing concerning the Assets (including, but not limited to, any Liabilities/Claims arising from or relating to leaks or releases of oil and gas from, or malfunctions of, the Assets after Closing), REGARDLESS OF WHETHER SUCH POST-CLOSING LIABILITIES/CLAIMS ARE CAUSED BY OR ARISE FROM SELLER GROUP’S PRE-CLOSING ORDINARY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), ACTIONS, OR OMISSIONS RELATING TO THE OPERATION, DESIGN, PHYSICAL CONDITION, OR MAINTENANCE STATUS OF THE ASSETS, BUT EXCLUDING SUCH POST-CLOSING LIABILITIES/CLAIMS TO THE EXTENT CAUSED BY THE NEGLIGENCE OF SELLER GROUP THAT OCCURS AFTER CLOSING; and/or (iii), subject to Seller’s environmental representation pursuant to Section 3.1(q) and Section 8.2 above, soil contamination, water contamination, and/or other types of environmental damage or contamination in, on, or under the Assets or arising from the Assets (collectively, “Environmental Contamination”), Buyer’s obligations under this Section 8.3 shall in no manner alter, diminish or adversely affect the limited indemnity obligations of Seller as provided in Section 8.2 above. BUYER EXPRESSLY ACKNOWLEDGES THAT BUYER HAS AGREED TO INDEMNIFY SELLER GROUP FOR ITS OWN ORDINARY NEGLIGENCE, SUBJECT TO AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS SECTION 8.3.

ARTICLE IX
GENERAL

     9.1 Survival of Representations and Warranties. All statements contained in this Agreement, the exhibits and schedules referred to herein, and any certificates or other instruments delivered pursuant to the express terms hereof by or on behalf of any party hereto shall be deemed representations and warranties hereunder by such party. All representations, warranties, covenants and agreements made by the parties to this Agreement or pursuant hereto shall survive any investigations made by or on behalf of the parties and shall survive the Closing to the extent provided herein, but not otherwise.

     9.2. Expenses. Each party hereto shall pay all expenses and disbursements incurred by it, its officers, employees and representatives, in connection with this Agreement and the performance of its obligations hereunder.

     9.3. Further Assurances. Seller will from time to time, upon the request of Buyer, execute and deliver to Buyer such further instruments, and take such other action as Buyer may reasonably request, in order to more effectively convey, assign, transfer and deliver, or place Buyer in possession and control of, the Assets or to enable Buyer to exercise and enjoy all rights and benefits with respect thereto.

     9.4. Binding Agreement: Assignment; Parties in Interest. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that any assignment of this Agreement by any party hereto without the written consent of the other parties shall be void. Notwithstanding the foregoing, the rights and obligations of Buyer hereunder may be assigned to or performed by any other entity owned or controlled by Buyer, without the written consent of Seller provided that such assignment shall not relieve Buyer of its obligations hereunder. Except as provided herein, nothing in this Agreement, express or implied, is intended or shall be construed to give to any Person other than the parties hereto any right, remedy or claim under or by reason of this Agreement.

     9.5. Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or transmitted by first-class registered or certified mail, postage prepaid, return receipt requested, or sent by prepaid overnight delivery service, or sent by facsimile transmission, to the parties at the following addresses (or at such other address as shall be specified by the parties by like notice):

If to Seller:

Golden Gas Service Company
2120 East 15^th Street
Tulsa, Oklahoma 74104
Attn: Mr. Alan R. Staab
Telephone: (918) 582-0139
Facsimile: (918) 582-6495

If to Buyer:

PetroQuest Energy, L.L.C.
400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508
Attn: Mr. Dalton F. Smith III
Telephone: (337) 232-7028
Facsimile: (337) 234-4699

     9.6. Publicity. All notices to third parties and other publicity concerning the transaction contemplated by this Agreement shall be jointly planned and coordinated by and between Seller and Buyer. Except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, neither party shall act unilaterally in this regard without the prior written approval of the others, provided, however, that such approval shall not be unreasonably withheld.

     9.7. Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Oklahoma.

     9.8. Exhibits and Schedules; Right to Terminate..

     (a) Exhibits and Schedules Incorporated in this Agreement. All exhibits and schedules referred to in this Agreement are attached hereto, incorporated herein and made an integral part hereof.

     (b) Completion of Exhibits and Schedules; Termination. The Schedules and Exhibits are not complete as of the date of execution of this Agreement. Seller and Buyer shall use their best efforts, in good faith, to prepare and agree upon all of the final Exhibits and Schedules on or before April 20, 2005. If mutual agreement is not reached as to the final Exhibits and Schedules by such date, or such mutually agreed extension of such date, either Seller or Buyer may terminate this Agreement in their sole discretion and this Agreement shall be of no further force or effect.

     9.9. Entire Agreement; Amendments; Waivers. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

     9.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.

     9.11 Arbitration. Any disagreement between Seller and Buyer with respect to the Final Settlement Statement shall be resolved pursuant to Section 2.5(a). With respect to any other dispute between Seller and Buyer arising under this Agreement, either Seller or Buyer may request binding arbitration of the Final Statement to be conducted before one arbitrator in Tulsa, Oklahoma, in accordance with the Uniform Arbitration Act, as adopted and then in effect in the State of Oklahoma, and in accordance with the rules promulgated by the American Arbitration Association (the “AAA”) (expedited procedures). The AAA shall be instructed to choose an arbitrator (the “Arbitrator”) who shall have a minimum of fifteen (15) years experience in the gas gathering industry, generally, and, specifically, in the area with respect to which the subject matter of the dispute pertains. Notice of a party’s election to submit a matter for arbitration shall be given to the other party if good faith

negotiations to resolve such matter (for a period of at least 10 days) prove unsuccessful. Upon delivery of such notice by either party, each party shall have ten (10) calendar days to provide the Arbitrator (and the other party) with a statement of its position (with supporting documentation) regarding the matter or matters in dispute together with its best and final offer for settlement of the dispute. The failure to provide a statement of position within this period shall constitute a waiver of a party’s rights to have such materials considered by the Arbitrator. The Arbitrator shall consider the statements of position submitted by the parties and shall, within ten (10) business days after receipt of such materials, issue his or her decision adopting the best and final statement offer for settlement of the dispute either by Buyer or Seller. All determinations made by the Arbitrator shall be final, conclusive and binding on the parties. The expenses of such arbitration, including the fees of the Arbitrator, shall be divided equally between Buyer and the Seller Group, unless otherwise specified in the Arbitrator’s award. Further, the Seller Group and Buyer shall each pay all fees and expenses of its own witnesses and legal counsel, unless otherwise specified in the Arbitrator’s award.

     9.12 Substitution of Affiliates. Buyer shall have the right to substitute as the buyer hereunder any of its affiliates without otherwise altering the terms and conditions of this Agreement.

     9.13 Headings. The headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.

     9.14 Mutual Waiver of Certain Remedies. NO PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO ANY OTHER PARTY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES, AS TO ANY ACTION OR OMISSION, WHETHER CHARACTERIZED AS A CONTRACT BREACH OR TORT, WHICH ARISES OUT OF OR RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR NONPERFORMANCE.

     IN WITNESS WHEREOF the parties have executed or caused the Agreement to be executed as of the day and year first above written.

SELLER:

Golden Gas Services Company
By:	/s/ Alan R. Staab
	Alan R. Staab
	President

BUYER:	PetroQuest Energy, L.L.C.
	By:	/s/ Dalton F. Smith
		Dalton F. Smith, III
		Senior Vice President      Business Development & Land

EX-10.1

Exhibit 10.1

SEVERANCE AGREEMENT AND RELEASE

     This Severance Agreement and Release (the “Agreement”) is effective on the date described in Section 17. This Agreement is made as a mutually agreed compromise among the Parties for the complete and final settlement of all claims, differences, and causes of action existing between them as of the Effective Date of this Agreement.

Parties

     The parties to this Agreement are PetroQuest Energy, Inc., a Delaware corporation (the “Company”) and Ralph J. Daigle, an individual (“Employee”). Employee and the Company are collectively referred to as the “Parties.”

Preamble

     WHEREAS, Employee previously served as a director of the Company and was previously employed as an officer and employee of the Company, to perform work at the Company’s workplace in Lafayette, Louisiana and Houston, Texas, pursuant to an Employment Agreement dated September 1, 1998, and subsequently amended (the “Employment Agreement”);

     WHEREAS, Employee and the Company also entered into a Termination Agreement dated December 16, 1998, and subsequently amended (the “Termination Agreement”);

     WHEREAS, Employee and the Company also entered into an Indemnification Agreement dated December 16, 1998 (the “Indemnification Agreement”);

     WHEREAS, Employee held certain other positions as an employee, officer or director of certain subsidiaries and affiliates of the Company;

     WHEREAS, Employee desires to resign from the Company and/or its Affiliates effective March 31, 2005;

     WHEREAS, the Parties intend that this Agreement shall govern all issues related to Employee’s employment with and separation from the Company and/or its Affiliates;

     WHEREAS, Employee has had at least 21 days to consider this Agreement;

     WHEREAS, the Company has advised Employee in writing to consult with a lawyer;

     WHEREAS, Employee has had an opportunity to consult with independent counsel with respect to the terms, meaning and effect of this Agreement; and

     WHEREAS, Employee understands that the Company regards the above representations as material and that the Company is relying on these representations in entering into this Agreement.

Agreement

     NOW THEREFORE in consideration of the mutual promises exchanged in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

     1. Definitions. When used in this Agreement, “Company and/or its Affiliates” shall mean and include PetroQuest Energy, Inc., a Delaware corporation, and all of its predecessors, successors, parents, subsidiaries, divisions or other affiliated companies, partners, partnerships, assigns, present and former officers, directors, employees, shareholders, agents, employee benefit plans and plan fiduciaries, whether in their individual or official capacities.

     2. Termination Date. Employee’s employment with the Company ended effective March 31, 2005 (the “Termination Date”). Employee hereby resigns all positions he holds as an employee, officer or director of the Company and/or its Affiliates, effective as of the Termination Date, and agrees to provide a letter of resignation to the Company in the form attached as Exhibit “A”.

     3. Pay Through Termination Date. Not later than thirty (30) days after the Effective Date, the Company will pay Employee the sum of $5,000.00. Employee agrees that this payment includes all accrued employment benefits payable to Employee, including without limitation all salary, wages, and accrued and unpaid vacation leave, sick time or other paid time off earned before the Termination Date.

     4. Severance Pay. As consideration for Employee’s release, the Company further agrees to pay Employee, his successors and assigns the sum of $180,000.00 (the “Severance Pay”), representing twelve (12) months’ pay. The Company will pay this additional amount, commencing April 15, 2005, in equal payments over twenty-four (24) months, at the same time and in the same manner that the Company pays its other employees as part of its normal payroll process. Employee agrees that the Severance Pay is in addition to anything of value to which Employee already is entitled from the Company, and that the Severance Pay is in satisfaction of any claim for unpaid, deferred or reduced salary, wages or compensation of any sort, including without limitation any agreements by Employee with the Company, whether oral or written, to forego salary and bonuses payable to Employee under the Employment Agreement or otherwise in 2003 and prior years.

     5. Additional Severance Benefits. As additional consideration for Employee’s release, and provided that Employee is eligible for and timely elects COBRA continuation coverage, the Company will pay 100% of applicable COBRA insurance premiums for the benefit of Employee and Employee’s spouse under Employee’s current group plan election (the “Additional Severance Benefits”), until the earlier of (a) eighteen (18) months after the Termination Date; or (b) the date Employee obtains other employment and becomes eligible for benefits through such subsequent employment; or (c) the date any such group plan is terminated. As further consideration for this Agreement, Employee will receive from the Company the furniture and equipment identified on Exhibit “B-1”.

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     6. Office Furniture and Files. Employee, for and in consideration of the sum of $11,000.00 hereby sells and delivers to the Company the office furniture listed on Exhibit B-2 hereto and Employee hereby transfers and quitclaims to the Company any other furniture, furnishings or equipment of Employee in the Company’s possession. Files, data and other materials of Employee remaining with the Company after the Termination Date and not removed by Employee will be maintained by the Company for a period for one (1) year after the Termination Date and available to the Employee for copying; thereafter, such materials shall be surrendered by the Employee and shall become the property of the Company. The Company will have no obligation to keep or maintain such files and materials thereafter

     7. Withholding. All amounts paid pursuant to this Agreement will be reduced by withholdings required, in the Company’s reasonable discretion, by applicable local, state or federal law.

     8. Release by Employee. (a) In consideration of the Severance Pay and the Additional Severance Benefits, all described above, Employee, individually and on behalf of Employee’s spouse, life partner, heirs, administrators, executors, guardians, assigns and agents, irrevocably, unconditionally, fully and forever waives, releases, discharges, agrees to hold harmless, and promises not to sue the Company and/or its Affiliates, from and for any claim, action or right of any sort, known or unknown, arising on or before the Effective Date.

     (a) This release includes, but is not limited to, any claim arising out of or related to the following: any claim for any wages, salary, compensation, sick time, vacation time, paid leave or other remuneration of any kind; any claim for additional or different compensation or benefits of any sort, including any participation in any severance pay plan; any claim of discrimination or retaliation on the basis of race, sex, religion, marital status, sexual preference, national origin, handicap or disability, veteran status, or special disabled veteran status; any claim arising under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act of 1938, the Louisiana Employment Discrimination Law, the Louisiana Wage Payment Law, the Texas Commission on Human Rights Act, Chapter 451 of the Texas Labor Code, or the Texas Payday Law, as such statutes may be amended from time to time; any other claim based on any statutory prohibition; any claim arising out of or related to an express or implied employment contract, any other contract affecting terms and conditions of employment, or a covenant of good faith and fair dealing; any tort claim or other claim for personal injury, death or property damage or loss; any claim for fraud or misrepresentation; and any personal gain with respect to any claim arising under any whistleblower or qui tam provisions of any state or federal law.

     (b) Employee represents that Employee has read and understands this release provision and that (i) rights and claims under the Age Discrimination in Employment Act of 1967 are among the rights and claims against the Company and/or its Affiliates that Employee is releasing and (ii) Employee is not releasing any rights or claims arising after the Effective Date.

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     (c) Notwithstanding anything to the contrary in this Section, Employee is not releasing any right to (i) any vested benefit under any employee benefit plan, as defined by the Employee Retirement Income Security Act of 1974, as amended, (ii) any rights to COBRA continuation coverage, (iii) any rights provided in the Indemnification Agreement, which shall continue in effect in accordance with its terms, or (iv) any rights provided in this Agreement.

     9. Termination of Previous Agreements. The Parties agree that the Employment Agreement is hereby terminated and of no further force and effect as of the Termination Date, except that the following identified portions of the Employment Agreement shall survive termination, in accordance with their terms: Section 8 (regarding Employee’s Confidentiality Obligation), Section 9 (regarding Disclosure of Information, etc.), Section 10 (regarding Ownership of Information, etc.), Subsection 12.7 (regarding Injunctive Relief). The Parties further agree that the Termination Agreement is hereby terminated and of no further force and effect as of the Termination Date.

     10. Non-Competition. In consideration of the Severance Pay and the Additional Severance Benefits, as described above, Employee and the Company agree to terminate Section 11 of the Employment Agreement, regarding Employee’s Non-Competition Obligation, and replace it with the following:

     (a) The Company is engaged in the business of generating, developing acquiring and operating oil and gas properties onshore and offshore in the United States Gulf coast region, East Texas and the Arkoma Basin (the “Business”). The Company presently carries on business in the parishes, municipalities and geographic areas included on Exhibit “C” hereto (the “Areas of Interest”):

     (b) In order to maintain its competitive advantage relative to others in the Business, the Company gathers, keeps and maintains certain Confidential Information (as defined in Section 8 of the Employment Agreement). Employee acknowledges and agrees that Employee has learned such Confidential Information during his employment with the Company.

     (c) Employee acknowledges that the Company could not protect the Confidential Information against unauthorized use or disclosure and could not readily insure compliance with this Agreement and the surviving provisions of the Employment Agreement if Employee held any interest in a competitor in the Business or enabled the Company’s personnel or customers to become personnel or customers of a competitor in the Business.

     (d) In order to protect against unauthorized disclosure, and in addition to the other rights of the Company created or retained hereunder with respect to the Confidential Information, Employee agrees that, for a period of one (1) year following the Termination Date, Employee shall not, acting alone or in conjunction with others, without prior written notice to the Company and an offer by Employee to the Company for the Company to participate with Employee in such activities on the same basis and terms as Employee, unless agreed otherwise, directly or indirectly, in any of the Areas of

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Interest in which the Company and/or its Affiliates is presently or at the Termination Date carrying on Business, (i) acquire or secure the right to acquire any mineral rights, interests or oil and gas properties or operate any oil and gas properties within the Areas of Interest unless it is by, through or under the Company or for the benefit of the Company, or (ii) invest or engage, directly or indirectly, in any business which is similar to that of the Company’s Business or accept employment with or render services to such a similar business as a director, officer, agent, employee, consultant, independent contractor or otherwise, or (iii) take any action inconsistent with the fiduciary relationship of an employee to his employer; provided, however, that the beneficial ownership by Employee of up to three percent of the voting stock of any corporation subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, shall not violate this Section 10.

     (e) Within sixty (60) days of the Effective Date, the Parties agree to negotiate in good faith for a consulting agreement between the Company and Employee providing for an arrangement whereby Employee, under terms to be provided therein, originates and develops projects within the geographical areas listed on Exhibit “D” hereto and provides the Company with a right of first refusal with respect to those projects. In the event the Parties execute such consulting agreement with respect to the geographical areas listed on Exhibit “D”, the areas listed on Exhibit “D” will be excluded from Section 10(d) of this Agreement and the terms of the consulting agreement will control.

     (f) In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that, for a period of one year following the Termination Date, Employee shall not at any time, directly or indirectly, (i) induce, entice or solicit any employee of the Company and/or its Affiliates to leave such employment, (ii) without the express prior written consent of the Company, pursue, solicit, participate in, invest in, operate or otherwise acquire any interest or rights whatsoever in any oil and gas prospect or acquisition prospect or opportunity presented to or considered by the Company and/or its Affilitates prior to the Termination Date, or (iii) in any other manner use any printed or electronic material or other information of the Company and/or its Affilitates relating thereto, whether or not such information is Confidential Information.

     (g) The Parties agree that the provisions of this Section are reasonable in time, geographic scope and scope of activity restrained and are intended to protect the Confidential Information, the Business, business goodwill and other business interests of the Company. In the event that any court or other tribunal of competent jurisdiction finds that any limitation contained in this Section 10 as to time, geographic area or scope of activity restrained is overbroad under applicable law, such court or tribunal shall reform the affected covenant to have the broadest limitation possible to enforce any affected provision of this Section 10.

     11. Future Employment. Employee acknowledges that the Company and/or its Affiliates are not obligated to offer employment to Employee, now or in the future.

     12. No Other Claims. Employee represents that Employee has not filed or authorized the filing of any complaints, charges or lawsuits against the Company and/or its Affiliates with

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any federal, state or local court, governmental agency, or administrative agency, and that if, unbeknownst to Employee, any such complaint has been filed on Employee’s behalf, Employee will use Employee’s best efforts to cause it to be withdrawn immediately and dismissed with prejudice.

     13. Confidentiality. Employee shall keep strictly confidential all the terms and conditions, including amounts, in the Agreement and shall not disclose them to any person other than Employee’s spouse and legal and/or financial advisors (who are informed by Employee of this confidentiality provision and agree to abide by it), government officials who seek such information in the course of their official duties, or individuals at the Company responsible for implementing the Agreement, unless compelled to do so by law or regulation, or business necessity (including U.S. Securities and Exchange Commission or tax reporting obligations). Nothing in this Section is intended to prevent Employee from disclosing the fact that he was employed by the Company and/or its Affiliates or from describing his employment duties. If any person or entity requests or demands, by subpoena or otherwise, that Employee disclose or produce this Agreement, any terms or conditions in it, or any other information designated confidential in this Section, then Employee shall immediately notify the Company in writing. Employee shall provide the Company an opportunity to respond to such notice before taking any action or making any decision in connection with such request or subpoena. In the event of such notice, the Company may assert all applicable rights and privileges with regard to this Agreement, at its sole discretion, and this paragraph does not require the Company to assert any such rights or privileges.

     14. Litigation Support. In the event and for so long as the Company and/or its Affiliates is actively contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand brought against (a) the Company and/or its Affiliates or (b) the Employee in his capacity of employee, director or officer of the Company and/or its Affiliates in connection with any fact, situation, circumstance, status, condition, activity practice, plan, occurrence, event, incident, action, failure to act, or transaction involving the Company and/or its Affiliates, then Employee will reasonably cooperate with the Company and/or its Affiliates or their counsel in the contest or defense, and provide such testimony and access to his books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole cost and expense of the Company. Employee further agrees to not provide assistance of any kind, other than as required by law, to any party to assist in pursuing any currently pending or threatened claim, litigation, arbitration, mediation, administrative hearing or other legal proceedings against the Company and/or its Affiliates.

     15. Remedies for Breach. The Company and the Employee agree that a breach of any term of this Agreement by the Employee would cause irreparable damage to the Company and that, in the event of such breach, the Company shall have, in addition to any and all remedies of law, the right to any injunction, specific performance, and other equitable relief to prevent or to redress the violation of the Employee’s obligations hereunder. In the event of a breach of this Agreement by the Employee, the Company shall have the right, at its option, to terminate or suspend the payment of Severance Pay.

     16. No Oral Representations; Authority. The Parties warrant that no representations have been made other than those contained in the written provisions of this Agreement, and that

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they do not rely on any representations not stated in this Agreement. The Parties further warrant that they or their undersigned representatives are legally competent and fully authorized to execute and deliver this Agreement.

     17. Revocation of Agreement; Effective Date. Employee, at Employee’s sole discretion, may revoke this Agreement on or before the expiration of seven calendar days after signing it. Revocation shall be in writing and effective upon dispatch to the Company at the address specified in Section 19(h). If Employee elects to revoke the Agreement, all of the provisions of the Agreement shall be void and unenforceable. If Employee does not so elect, the Agreement shall become effective at the expiration of the revocation period (i.e., on the eighth day after Employee signs the Agreement) (the “Effective Date”).

     18. Return of Company Materials. Employee agrees to deliver promptly to the Company all originals and copies of any information, data or materials (whether in written, electronic or other form) in the Employee’s possession, custody, or control containing confidential information of the Company.

     19. Miscellaneous.

     (a) This Agreement, the surviving paragraphs of the Employment Agreement, and agreements and documents related to stock options, and other benefit plans constitute the entire agreement between the Parties. This Agreement may be executed in identical counterparts, each of which shall constitute an original and all of which shall constitute one and the same agreement.

     (b) The Parties further warrant that they or their undersigned representatives are legally competent and fully authorized to execute and deliver this Agreement.

     (c) The Parties confirm they have had the opportunity to have this Agreement explained to them by attorneys of their choice, and that they execute this Agreement freely, knowingly and voluntarily. The Company is relying on its own judgment and on the advice of its attorneys and not upon any recommendation of Employee or his agents, attorneys or other representatives. Likewise, Employee is relying on his own judgment and on the advice of his attorneys, and not upon any recommendation of the Company or its directors, officers, employees, agents, attorneys or other representatives. By voluntarily executing this Agreement, both Parties confirm their competence to understand and do hereby accept the terms of this Agreement as resolving fully all differences, disputes and claims that may exist within the scope of this Agreement.

     (d) This Agreement may not be modified or amended except by a writing signed by all Parties. No waiver of this Agreement or of any of the promises, obligations, terms, or conditions contained in it shall be valid unless it is in writing signed by the Party against whom the waiver is to be enforced.

     (e) If any part or any provision of this Agreement shall be finally determined to be invalid or unenforceable under applicable law by a court of competent jurisdiction, that part shall be ineffective to the extent of such invalidity or unenforceability only,

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without in any way affecting the remaining parts of said provision or the remaining provisions of the Agreement.

     (f) The Parties have cooperated in the preparation of this Agreement. Hence, the Agreement shall not be interpreted or construed against or in favor of any Party by virtue of the identity, interest, or affiliation of its preparer.

     (g) This Agreement is made and shall be enforced pursuant to the laws of the State of Louisiana, without regard to its law governing conflicts of law.

     (h) All notices and other communications required or permitted by this Agreement or necessary or convenient in connection with it shall be in writing and shall be deemed to have been given when delivered by hand or mailed by registered or certified mail, return receipt requested, as follows:

To the Company:	To Employee:
PetroQuest Energy, Inc.
Attn: General Counsel	Ralph J. Daigle
400 E. Kaliste Saloom Road, Suite 6000	106 Running Deer
Lafayette, Louisiana 70508	Lafayette, Louisiana 70503

Either Party may change his or its name or address for notice in the manner specified in this Section 19(h).

     20. Dispute Resolution. Any dispute arising out of or relating to this Agreement, or any breach thereof, shall be resolved by binding arbitration in Lafayette, Louisiana, in accordance with the Employment Arbitration Rules of the American Arbitration Association then in effect, as amended by this Agreement, and judgment on the award rendered by the arbitrator may be entered in any court of competent jurisdiction. The Parties agree that the arbitrator shall have no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement. The arbitrator’s decision shall follow the plain meaning of the relevant documents, apply Louisiana law, and shall be final and binding. The location of such arbitration in Lafayette, Louisiana, shall be selected by the Company in its sole and absolute discretion. All costs and expenses, including attorneys’ fees, relating to the resolution of any such dispute shall be borne by the party incurring such costs and expenses. Notwithstanding anything in this Section 20 to the contrary, the Parties acknowledge that either of them may seek emergency or temporary injunctive relief, but absolutely no other relief, in any court of competent jurisdiction. All other disputes, claims and remedies shall be settled by arbitration in accordance with this Section.

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RALPH J. DAIGLE		PETROQUEST ENERGY, INC.
(“Employee”)		(“Company”)
By:	/s/ Ralph J. Daigle	By:	/s/ Charles T. Goodson
Printed Name: Ralph J. Daigle		Printed Name: Charles T. Goodson
		Title:	Chairman, Chief Executive Officer &
Date: March 31, 2005			President
		Date:	March 31, 2005

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION

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Exhibit “A”

Resignation Letter

March 31, 2005

PetroQuest Energy, Inc.
Attn: Chairman of the Board
400 E. Kaliste Saloom Road, Suite 6000
Lafayette, Louisiana 70508

Gentlemen:

     Please accept this letter as notice of my resignation from all positions as an employee, officer and director of PetroQuest Energy, Inc., and all its subsidiaries (including without limitation, PetroQuest Energy, L.L.C., PetroQuest Oil & Gas, L.L.C. and Pittrans, Inc.), effective March 31, 2005.

Sincerely,

Ralph J. Daigle

EXHIBIT “B-1”

Dell Latitude C800 - laptop computer

Docking Station

HP 2230 Printer

View Sonic LCD Monitor

EXHIBIT “B-2”

Desk

Credenza

Large desk chair

EXHIBIT “C”

     (a) in Louisiana, the parishes of Acadia, Ascension, Caddo, Calcasieu, Cameron, Claiborne, DeSoto, East Feliciana, Iberia, Iberville, Jefferson, Lafayette, Lafourche, Plaquemines, Pointe Coupee, St. Bernard, St. Charles, St. Helena, St. Martin, St. Mary, Tangipahoa, Terrebonne and Vermilion;

     (b) the Federal Outer Continental Shelf of the Gulf of Mexico adjacent to the states of Texas, Louisiana, Mississippi and Alabama, specifically including but not limited to those areas that are offshore and adjacent to the following Louisiana parishes: St. Bernard, Plaquemines, Jefferson, Lafourche, St. Mary, Terrebonne, Iberia, Vermilion and Cameron, and those that are offshore and adjacent to the following Texas counties: Jefferson, Chambers, Galveston, Harris, Brazoria, Matagorda, Calhoun, Aransas, Nueces, Kleberg; Kenedy, Willacy and Cameron, and those that are offshore and adjacent to the following Mississippi counties: Hancock, Harrison and Jackson;

     (c) in Texas, the counties of Anderson, Cherokee, DeWitt, Matagorda, Panola, Freestone and Shelby; and

     (d) in Oklahoma, the counties of Atoka, McClain, McIntosh and Pittsburg, Coal, Haskell, Hughes, Latimer, LeFlore, McIntosh, Pittsburg and Pushmataha.

EXHIBIT “D”

In Louisiana, the parishes of Acadia, Iberia, Iberville, Lafayette, Lafourche, St. Martin, St. Mary, Terrebonne and Vermilion.

EX-99.1

Exhibit 99.1

NEWS RELEASE

For further information, contact:	W. Todd Zehnder, Director — Corporate Communications & Marketing
	(337) 232-7028, www.petroquest.com

PETROQUEST ENERGY ANNOUNCES SECOND QUARTER AND FULL YEAR 2005 GUIDANCE

LAFAYETTE, LA — April 22, 2005 — PetroQuest Energy, Inc. (NASDAQ: PQUE) announced today the following guidance ranges for the second quarter and full year of 2005:

The following updates guidance for the second quarter of 2005:

	Guidance for
Description	2nd Quarter 2005
Production volumes (MMcfe/d)	47 - 52
Percent gas	65%
Expenses:
Lease operating expenses (per Mcfe)	$1.20 - $1.30
Production taxes (per Mcfe)	$0.09 - $0.11
Depreciation, depletion and amortization (per Mcfe)	$2.50 - $2.60
General and administrative (in millions)	$1.55 - $1.65
Interest expense (in millions)	$5.5 - $6.0(1)
Effective tax rate (all deferred)	35%

(1) Includes a $3.4 million pre-tax, non-cash charge related to the write-off of deferred financing costs.

The following initiates guidance for the year ended December 31, 2005:

Description	Guidance for 2005
Production volumes (MMcfe/d)	52.0 - 57.5
Percent gas	70%
Expenses:
Lease operating expenses (per Mcfe)	$1.00 - $1.10
Production taxes (per Mcfe)	$0.12 - $0.14
Depreciation, depletion and amortization (per Mcfe)	$2.50 - $2.60
General and administrative (in millions)	$6 - $7
Interest expense (in millions)	$13 - $14
Effective tax rate (all deferred)	35%

The Company is also estimating 2005 capital expenditures to be approximately $85 to $95 million. During 2005, the Company has drilled 16 wells and achieved a 100% success rate.

About the Company
PetroQuest Energy, Inc. is an independent energy company engaged in the exploration, development, acquisition and production of oil and natural gas reserves in the Arkoma Basin, East Texas, South Louisiana and the shallow waters of the Gulf of Mexico. PetroQuest trades on the Nasdaq National Market under the ticker symbol “PQUE.”

Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions and in projecting future rates of production, the timing of development expenditures and drilling of wells, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.

EX-99.2

Exhibit 99.2

NEWS RELEASE

For further information, contact:	W. Todd Zehnder, Director — Corporate Communications & Marketing
	(337) 232-7028, www.petroquest.com

PETROQUEST ENERGY TO ACQUIRE ARKOMA BASIN NATURAL GAS RESERVES

LAFAYETTE, LA — April 22, 2005 — PetroQuest Energy, Inc. (NASDAQ: PQUE) announced today that the Company has executed agreements to acquire from private companies their interests in natural gas properties located in the Arkoma Basin of Oklahoma for an aggregate amount of approximately $22 million in cash. The Company expects to allocate approximately 50% of the purchase price to unevaluated acreage. PetroQuest estimates it is acquiring approximately 6.7 Bcf of proved reserves, of which 61% are proved developed producing and 100% are natural gas. Development costs for the proved undeveloped reserves are estimated at $0.88 per Mcf. The acquisitions are expected to add approximately 2 MMcf per day to the Company’s production.

In related transactions, the Company is also acquiring five separate systems that gather and transport gas from the properties for an aggregate of approximately $6 million in cash. These systems currently generate throughput fees from third parties in the area.

The purchase prices for the transactions are subject to adjustment for, among other things, expected cash flows between the effective dates of the transactions and their respective closing dates. As a result, we estimate that the final aggregate purchase price for the transactions, following all post-closing adjustments, will be approximately $27.0 million. The transactions are scheduled to close by June 1, 2005.

“These acquisitions expand our existing operations in the Arkoma Basin, adding approximately 8,900 net acres in close proximity to our current acreage position and approximately 50 miles of pipeline and gathering infrastructure in the basin. This will bring our total ownership to approximately 21,000 net acres and 108 miles of pipeline in the area. We have to date identified approximately 250 development locations on the acquired properties,” said Charles T. Goodson, Chairman, Chief Executive Officer and President. “We are excited about the activity in this core area and our continued success in the basin during 2005. These acquisitions allow us to move from one rig in January 2005 to three rigs by the end of the second quarter in the Arkoma Basin.”

About the Company
PetroQuest Energy, Inc. is an independent energy company engaged in the exploration, development, acquisition and production of oil and natural gas reserves in the Arkoma Basin, East Texas, South Louisiana and the shallow waters of the Gulf of Mexico. PetroQuest trades on the Nasdaq National Market under the ticker symbol “PQUE.”

Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to

fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions and in projecting future rates of production, the timing of development expenditures and drilling of wells, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.