8-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K/A

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): September 2, 2004

Calpine Corporation

(A Delaware Corporation)

Commission file number: 001-12079

I.R.S. Employer Identification No. 77-0212977

50 West San Fernando Street

San Jose, California 95113

Telephone: (408) 995-5115

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

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

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

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

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

TABLE OF CONTENTS

	Section 1 -- Registrant’s Business and Operations
	Item 1.01. Entry into a Material Definitive Agreement
	Section 2 -- Financial Information
	Item 2.01. Completion of Acquisition or Disposition of Assets
	Item 2.05. Costs Associated with Exit or Disposal Activities
	Section 8 -- Other Events
	Item 8.01. Other Events
	Section 9 -- Financial Statements and Exhibits
	Item 9.01. Financial Statements and Exhibits
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3
EXHIBIT 99.4
EXHIBIT 99.5

Explanatory Note

      On September 8, 2004, Calpine Corporation (“Calpine”) filed a Current Report on Form 8-K to report the sale of its Rocky Mountain and Canadian gas reserves. Calpine is filing this Current Report on Form 8-K/A to amend Item 9.01(b) as reported in such previous Current Report to provide further information regarding the tax implications associated with the Canadian gas reserves sale.

Section 1 — Registrant’s Business and Operations

Item 1.01.     Entry into a Material Definitive Agreement

      Calpine Corporation (the “Registrant”) entered into three material definitive agreements in the aggregate; to dispose of a significant portion of its oil and gas assets not made in the ordinary course of business of the Registrant. These agreements are outlined below:

Agreement no. 1:

      Calpine Natural Gas L.P. (“CNG”) and the Registrant (collectively the “Seller”), entered into an agreement with Pogo Producing Company (“Pogo”), the buyer, effective July 1, 2004 (the “Effective Date”), to sell all of Seller’s right, title and interest in its oil and gas properties and associated assets in New Mexico, including all of Seller’s leases, minerals, overrides, easements, wells, contracts, and personal property (“New Mexico Properties”). The cash consideration was $83.1 million, which included a $3 million performance deposit. Although no purchase price adjustments were made prior to the closing on September 1, 2004, the Purchase and Sale Agreement with Pogo does provide for a post-closing settlement for: (1) certain title defects claimed by Pogo before Closing, provided that such defects cannot be resolved to the satisfaction of both parties, (2) adjustments if Seller is unable to obtain consents to assign certain New Mexico Properties, and (3) revenues and costs before and after the Effective Date.

      The New Mexico Properties were sold subject to certain warranties and representations that are customary in transactions of this type in the United States. As noted above, the Seller retains responsibility for curing (or making a purchase price adjustment for) certain title defects claimed by Pogo. In addition, the Seller has agreed to indemnify Pogo for up to one-half of the purchase price for claims: (1) related to pre-Effective Date liabilities (other than certain environmental and title defects) and (2) made on or before December 31, 2005. Pogo agrees to indemnify the Seller for all post-Effective Date liabilities.

      This agreement has been attached under Item 9.01(c) as Exhibit 99.1.

Agreement no. 2:

      CNG and the Registrant (collectively with CNG the “Seller”), entered into an agreement with Bill Barrett Corporation, the buyer, effective July 1, 2004 (the “Effective Date”), to sell all of the Seller’s right, title and interest in its oil and gas properties and associated assets in Colorado (except for CNG’s Kitzmiller property in the north-west part of the state which were retained by the seller), including leases, minerals, overrides, easements, wells, contracts, and personal property (“Colorado Properties”). The purchase price was $139.7 million, which included a $7.0 million performance deposit. Although no purchase price adjustments were made prior to the closing on September 1, 2004, the Purchase and Sale Agreement with Bill Barrett Corporation does provide for a post-closing settlement for: (1) certain environmental and title defects claimed by Bill Barrett Corporation before closing, provided that such defects cannot be resolved to the satisfaction of both parties, (2) adjustments if Seller is unable to obtain consents to assign for certain Colorado Properties and (3) revenues and costs before and after the Effective Date.

      The Colorado Properties were sold subject to certain warranties and representations that are customary in transactions of this type in the United States. As noted above, the Seller retains responsibility for curing (or making a purchase price adjustment for) certain title defects claimed by Barrett. In addition, the Seller has agreed to indemnify Bill Barrett Corporation for up to one-half of the purchase price for claims: (1) related to pre-Effective Date liabilities (other than certain environmental and title defects) and (2) made on or before one year following the closing. Barrett agrees to indemnify Seller for all post-Effective Date liabilities.

      This agreement has been attached under Item 9.01(c) as Exhibit 99.2.

1

Agreement no. 3:

      Calpine Canada Natural Gas Partnership (“CCNGP”) and Calpine Energy Holdings Limited (“CEHL”), entered into an agreement with PrimeWest Gas Corp. and PrimeWest Energy Trust, the Buyer, to sell, effective July 1, 2004, all of CCNGP’s interest in oil and gas properties located in Canada and all of CEHL’s ownership interest in 6.8 million units of Calpine Natural Gas Trust (“CNGT”), for cash consideration of CND$825.0 million, or approximately US$625.0 million, less adjustments of CND$15.6 million, to reflect a September 2, 2004, closing date. The agreement contained standard terms and conditions relating to the sale of oil and gas properties in Alberta. The transaction closed on September 2, 2004.

      As a result of the sale of the trust units of CNGT, the Registrant’s obligations under various agreements with CNGT have been terminated. This included the Registrant’s obligations under the energy management agreement, the participation agreement (wherein the Registrant had agreed to offer 50% of any future acquisition of properties to the CNGT) and the call on production agreement (wherein the Registrant had the right to purchase all of the CNGT’s production at index pricing, secured by the trust units owned by the Registrant).

      This agreement has been attached under Item 9.01(c) as Exhibit 99.3.

Section 2 — Financial Information

Item 2.01.     Completion of Acquisition or Disposition of Assets

      Calpine Corporation (the “Registrant”) completed the disposition of a significant amount of its oil and gas assets outside the ordinary course of business. A description of the transactions that represent the disposition of a significant amount of assets is listed below.

      Calpine Natural Gas L.P. (“CNG”) and the Registrant, (collectively the “Seller”), entered into an agreement with Pogo Producing Company (“Pogo”), the buyer, effective July 1, 2004 (the “Effective Date”), to sell all of Seller’s right, title and interest in its oil and gas properties and associated assets in New Mexico, including all of Seller’s leases, minerals, overrides, easements, wells, contracts, and personal property (“New Mexico Properties”). The cash consideration was $83.1 million, which included a $3 million performance deposit. Although no purchase price adjustments were made prior to the closing on September 1, 2004, the Purchase and Sale Agreement with Pogo does provide for a post-closing settlement for: (1) certain title defects claimed by Pogo before the closing, provided that such defects cannot be resolved to the satisfaction of both parties, (2) adjustments if Seller is unable to obtain consents to assign certain New Mexico Properties, and (3) revenues and costs before and after the Effective Date. The New Mexico Properties were sold subject to certain warranties and representations that are customary in transactions of this type in the United States.

      CNG and the Registrant (collectively with CNG the “Seller”), entered into an agreement with Bill Barrett Corporation, the buyer, effective July 1, 2004 (the “Effective Date”), to sell all of the Seller’s right, title and interest in its oil and gas properties and associated assets in Colorado (except for CNG’s Kitzmiller property in the north-west part of the state which were retained by the Seller), including leases, minerals, overrides, easements, wells, contracts, and Colorado Properties. The purchase price was $139.7 million, which included a $7.0 million performance deposit. Although no purchase price adjustments were made prior to the closing on September 1, 2004, the Purchase and Sale Agreement with Bill Barrett Corporation does provide for a post-closing settlement for: (1) certain environmental and title defects claimed by Bill Barrett Corporation before closing, provided that such defects cannot be resolved to the satisfaction of both parties, (2) adjustments if Seller is unable to obtain consents to assign for certain Colorado Properties and (3) revenues and costs before and after the Effective Date. The Colorado Properties were sold subject to certain warranties and representations that are customary in transactions of this type in the United States.

      Calpine Canada Natural Gas Partnership (“CCNGP”) and Calpine Energy Holdings Limited (“CEHL”), entered into an agreement with PrimeWest Gas Corp. and PrimeWest Energy Trust, the Buyer, to sell, effective July 1, 2004, all of CCNGP’s interest in oil and gas properties located in Canada and all of CEHL’s ownership interest in 6.8 million units of Calpine Natural Gas Trust (“CNGT”), for cash

2

consideration of CND$825.0 million, or approximately US$625.0 million, less adjustments of CND $15.6 million, to reflect a September 2, 2004, closing date. The agreement contained standard terms and conditions relating to the sale of oil and gas properties in Alberta. The transaction closed on September 2, 2004.

Item 2.05.     Costs Associated with Exit or Disposal Activities

      On September 1, 2004, as further described in Items 1.01 and 2.01 of the Form 8-K, the Registrant along with CNG completed the sale of its Rocky Mountain gas reserves that are primarily concentrated in two geographic areas: the Colorado Piceance Basin and the New Mexico San Juan Basin. Together, these assets represent approximately 120 billion cubic feet equivalent (“Bcfe”) of proved gas reserves, producing approximately 16.3 million net cubic feet equivalent (“MMcfed”) per day of gas. On September 2, 2004, the Registrant completed the sale of its Canadian natural gas reserves and petroleum assets. These Canadian assets represent approximately 221 Bcfe of proved reserves, producing approximately 61 MMcfed. Included in this sale was the Registrant’s 25 percent interest in approximately 80 Bcfe of proved reserves (net of royalties) and 32 MMcfed of production owned by the Calpine Natural Gas Trust (“CNGT”). In connection with the Registrant’s sale of its Canadian and Rocky Mountain gas reserves, the Registrant will incur one-time future cash expenditures associated with the sale, consisting of employee severance and other related one-time termination benefits of approximately $4.9 million pre-tax, various other exit costs of approximately $0.6 million pre-tax and closing fees of approximately $4.6 million pre-tax, for total pre-tax exit activity costs of approximately $10.1 million ($6.1 million net of tax).

Section 8 — Other Events

Item 8.01.     Other Events

      On September 2, 2004, the Registrant issued a press release attached hereto as exhibit 99.4 announcing the sale of its Rocky Mountain gas reserves. Also, on September 2, 2004, the Registrant issued a press release attached hereto as exhibit 99.5 announcing the completion of the sale of its Canadian gas reserves.

Section 9 — Financial Statements and Exhibits

Item 9.01.     Financial Statements and Exhibits

      (a) Financial Statements of Businesses Acquired

      Not Applicable

      (b) Pro Forma Financial Information

      Calpine Natural Gas L.P. (“CNG”) and the Registrant, (collectively the “Seller”), entered into an agreement with Pogo Producing Company (“Pogo”), the buyer, effective July 1, 2004 (the “Effective Date”), to sell all of Seller’s right, title and interest in its oil and gas properties and associated assets in New Mexico, including all of Seller’s leases, minerals, overrides, easements, wells, contracts, and personal property (“Properties”). The cash consideration was $83.1 million, which included a $3 million performance deposit. Although no purchase price adjustments were made for operations prior to the closing on September 1, 2004, the Purchase and Sale Agreement (“PSA”) does provide for a post-closing settlement for: (1) certain environment and title defects claimed by Pogo before Closing, provided that such defects cannot be resolved to the satisfaction of both parties, (2) adjustments if Seller is unable to obtain consents to assign for certain Properties, and (3) revenues and costs before and after the Effective Date. The Properties were sold subject to certain warranties and representations that are customary in transactions of this type in the United States.

      CNG and the Registrant (collectively the “Seller”), entered into an agreement with Bill Barrett Corp. (“Barrett”), the buyer, effective July 1, 2004 (the “Effective Date”), to sell all of the Seller’s Effective Date right, title and interest in its oil and gas properties and associated assets in Colorado (except for CNG’s Kitzmiller property that was retained in the north-west part of the state), including leases, minerals, overrides, easements, wells, contracts, and Properties. The purchase price was $139.7 million, which included a $7.0 million performance deposit. Although no purchase price adjustments were made for operations prior to September 1, 2004, the closing date, the PSA does provide for a post-closing settlement for: (1) certain

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environment and title defects claimed by the Barrett before Closing, provided that such defects cannot be resolved to the satisfaction of both parties, (2) adjustments if Seller is unable to obtain consents to assign for certain Properties and (3) revenues and costs before and after the Effective Date. The Properties were sold subject to certain warranties and representations that are customary in transactions of this type in the United States.

      Calpine Canada Natural Gas Partnership (“CCNGP”) and Calpine Energy Holdings Limited (“CEHL”), entered into an agreement with PrimeWest Gas Corp. and PrimeWest Energy Trust, the Buyer, to sell, effective July 1, 2004, all of CCNGP’s interest in oil and gas properties located in Canada and all of CEHL’s ownership interest in 6.8 million units of Calpine Natural Gas Trust (“CNGT”), for cash consideration of CND$825.0 million, or approximately US$625.0 million, less adjustments of CND$15.6 million, to reflect a September 2, 2004, closing date. The agreement contained standard terms and conditions relating to the sale of oil and gas properties in Alberta. The transaction closed on September 2, 2004 Effective Date.

      In connection with the Registrant’s sale of its Canadian gas reserves, the Registrant will incur one-time future cash expenditures associated with the sale, consisting of employee severance and other related one-time termination benefits of approximately $4.9 million pre-tax, various other exit costs of approximately $0.6 million pre-tax and closing fees of approximately $4.6 million pre-tax, for total pre-tax exit activity costs of approximately $10.1 million ($6.1 million net of tax). These charges, which will be made in the third quarter of 2004, were not considered in the historical Pro-Forma Consolidated Condensed Statements of Operations presented below.

      Following the sale of oil and gas assets in Canada, $225 million has been repatriated to the United States from the net cash proceeds. This dividend triggers an additional U.S. tax provision of approximately $90 million in 2004, which will be recorded by Calpine in the third quarter of 2004. Additionally, as a result of the sale of the Canadian oil and gas assets, we expect that Calpine’s effective tax rate will be negatively impacted in 2004 and future periods due to the inability to realize certain tax benefits. These tax consequences were not considered in the Pro Forma Consolidated Condensed Statements of Operations presented below.

      The unaudited Pro-Forma Consolidated Condensed Statements of Operations are presented for the six months ended June 30, 2004 and the year ended December 31, 2003 and present the Registrant’s operations as if the transactions described above had occurred at January 1 of each of the periods presented. An unaudited Pro-Forma Consolidated Condensed Balance Sheet as of June 30, 2004, is also presented. The unaudited Pro-Forma Consolidated Condensed Balance Sheet presents the property sales described above, as if they had occurred at January 1, 2004.

      The unaudited Pro-Forma Consolidated Condensed Financial Statements should be read in conjunction with the Registrant’s Financial Statements and related Notes included in the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2004 and the Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.

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CALPINE CORPORATION AND SUBSIDIARIES

PRO-FORMA CONSOLIDATED CONDENSED BALANCE SHEET

June 30, 2004

					Canadian			Rocky Mountain			New Mexico
			Actual		Gas Assets(1)			Gas Assets(1)			Gas Assets(1)			Pro-Forma
			(In thousands, except share and per share amounts)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	844,031	$	—		$	—		$	—		$	844,031
	Accounts receivable, net			1,170,130		—			—			—			1,170,130
	Margin deposits and other prepaid expense			406,741		—			—			—			406,741
	Inventories			144,913		(1,838	)		—			—			143,075
	Restricted cash			317,833		—			—			—			317,833
	Current derivative assets			338,805		—			—			—			338,805
	Current assets held for sale			—		1,838			—			—			1,838
	Other current assets			72,117		—			—			—			72,117
		Total current assets		3,294,570		—			—			—			3,294,570
Restricted cash, net of current portion				191,695		—			—			—			191,695
Notes receivable, net of current portion				225,396		—			—			—			225,396
Project development costs				151,084		—			—			—			151,084
Investments in power projects and oil and gas properties				417,303		(24,558	)		—			—			392,745
Deferred financing costs				423,499		—			—			—			423,499
Prepaid lease, net of current portion				383,940		—			—			—			383,940
Property, plant and equipment, net				21,031,174		(456,668	)		(65,654	)		(47,286	)		20,461,566
Goodwill, net				45,160		—			—			—			45,160
Other intangible assets, net				89,411		—			—			—			89,411
Long-term derivative assets				561,328		—			—			—			561,328
Long-term assets held for sale				—		481,226			65,654			47,286			594,166
Other assets				627,202		—			—			—			627,202
		Total assets	$	27,441,762	$	—		$	—		$	—		$	27,441,762
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	1,160,600		—			—			—		$	1,160,600
	Accrued payroll and related expense			72,644		—			—			—			72,644
	Accrued interest payable			362,497		—			—			—			362,497
	Income taxes payable			5,680		—			—			—			5,680
	Notes payable and borrowings under lines of credit, current portion			239,289		—			—			—			239,289
	Preferred interests, current portion			8,758		—			—			—			8,758
	Capital lease obligation, current portion			8,466		—			—			—			8,466
	CCFC I financing, current portion			3,208		—			—			—			3,208
	Construction/project financing, current portion			57,256		—			—			—			57,256
	Senior notes and term loans, current portion			14,500		(2,000	)		—			—			12,500
	Current derivative liabilities			383,097		—			—			—			383,097
	Current liabilities held for sale			—		4,330			—			—			4,330
	Other current liabilities			271,589		(2,330	)		—			—			269,259
		Total current liabilities		2,587,584		—			—			—			2,587,584
Notes payable and borrowings under lines of credit, net of current portion				861,424		—			—			—			861,424
Notes payable to Calpine Capital Trusts				1,153,500		—			—			—			1,153,500
Preferred interests, net of current portion				142,064		—			—			—			142,064
Capital lease obligation, net of current portion				283,005		—			—			—			283,005
CCFC I financing, net of current portion				784,661		—			—			—			784,661
CalGen/ CCFC II financing				2,448,907		—			—			—			2,448,907
Construction/project financing, net of current portion				1,723,040		—			—			—			1,723,040
Convertible Senior Notes Due 2006				72,126		—			—			—			72,126
Convertible Senior Notes Due 2023				900,000		—			—			—			900,000
Senior notes and term loans, net of current portion				9,370,936		(218,529	)		(48,949	)		(29,022	)		9,074,436
Deferred income taxes, net				1,185,712		—			—			—			1,185,712
Deferred revenue				110,087		—			—			—			110,087
Long-term derivative liabilities				599,495		—			—			—			599,495
Long-term liabilities held for sale				—		234,014			49,091			29,193			312,298
Other liabilities				267,769		(15,485	)		(142	)		(171	)		251,971
		Total liabilities		22,490,310		—			—			—			22,490,310
Minority interests				350,561		—			—			—			350,561
Stockholders’ equity:
	Preferred stock, $.001 par value per share; authorized 10,000,000 shares; none issued and outstanding in 2004 and 2003			—		—			—			—			—
	Common stock, $.001 par value per share; authorized 1,000,000,000 shares at December 31, 2003, and 2,000,000,000 shares at June 30, 2004; issued and outstanding 439,326,249 shares in 2004 and 415,010,125 shares in 2003			439		—			—			—			439
	Additional paid-in capital			3,109,778		—			—			—			3,109,778
	Retained earnings			1,468,619		—			—			—			1,468,619
	Accumulated other comprehensive income			22,055		—			—			—			22,055
		Total stockholders’ equity		4,600,891		—			—			—			4,600,891
		Total liabilities and stockholders’ equity	$	27,441,762	$	—		$	—		$	—		$	27,441,762

(1)  Assumes sale by Calpine Corporation on June 30, 2004.

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CALPINE CORPORATION AND SUBSIDIARIES

PRO-FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS(1)(2)

Six Months Ended June 30, 2004

									Canadian			Rocky Mountain			New Mexico
						Actual			Gas Assets			Gas Assets			Gas Assets			Pro-Forma
						(In thousands, except per share amounts)
						(Unaudited)
Revenue:
	Electric generation and marketing revenue
		Electricity and steam revenue				$	2,558,678		$	—		$	—		$	—		$	2,558,678
		Sales of purchased power for hedging and optimization					876,680			—			—			—			876,680
			Total electric generation and marketing revenue				3,435,358			—			—			—			3,435,358
	Oil and gas production and marketing revenue
		Oil and gas sales					50,651			(19,108	)		(374	)		(1,384	)		29,785
		Sales of purchased gas for hedging and optimization					834,708			—			—			—			834,708
			Total oil and gas production and marketing revenue				885,359			(19,108	)		(374	)		(1,384	)		864,493
	Mark-to-market activities, net						(10,086	)		—			—			—			(10,086	)
	Other revenue						46,741			—			—			—			46,741
				Total revenue			4,357,372			(19,108	)		(374	)		(1,384	)		4,336,506
Cost of revenue:
	Electric generation and marketing expense
		Plant operating expense					399,498			—			—			—			399,498
		Transmission purchase expense					31,078			—			—			—			31,078
		Royalty expense					12,833			—			—			—			12,833
		Purchased power expense for hedging and optimization					820,108			—			—			—			820,108
			Total electric generation and marketing expense				1,263,517			—			—			—			1,263,517
	Oil and gas operating and marketing expense
		Oil and gas operating expense					45,770			(13,687	)		(1,290	)		(2,647	)		28,146
		Purchased gas expense for hedging and optimization					814,409			—			—			—			814,409
			Total oil and gas operating and marketing expense				860,179			(13,687	)		(1,290	)		(2,647	)		842,555
	Fuel expense						1,630,490			39,188			9,486			6,756			1,685,920
	Depreciation, depletion and amortization expense						311,203			(34,495	)		(3,099	)		(1,847	)		271,762
	Operating lease expense						54,762			—			—			—			54,762
	Other cost of revenue						48,988			—			—			—			48,988
				Total cost of revenue			4,169,139			(8,994	)		5,097			2,262			4,167,504
					Gross profit		188,233			(10,114	)		(5,471	)		(3,646	)		169,002
Loss (income) from unconsolidated investments in power projects and oil and gas properties							(1,788	)		2,586			—			—			798
Equipment cancellation and impairment cost							2,367			—			—			—			2,367
Project development expense							11,748			—			—			—			11,748
Research and development expense							8,939			—			—			—			8,939
Sales, general and administrative expense							118,225			(5,612	)		—			—			112,613
	Income from operations						48,742			(7,088	)		(5,471	)		(3,646	)		32,537
Interest expense							534,452			(9,920	)		(1,694	)		(1,120	)		521,718
Interest (income)							(21,981	)		—			—			—			(21,981	)
Minority interest expense							13,159			—			—			—			13,159
(Income) from repurchase of various issuances of debt							(3,394	)		—			—			—			(3,394	)
Other (income)							(203,996	)		—			—			—			(203,996	)
	Loss before (benefit) for income taxes						(269,498	)		2,832			(3,777	)		(2,526	)		(272,969	)
(Benefit) for income taxes							(146,553	)		1,109			(1,440	)		(1,003	)		(147,887	)
	Loss from continuing operations(3)					$	(122,945	)	$	1,723		$	(2,337	)	$	(1,523	)	$	(125,082	)
Basic and diluted loss per common share:
	Weighted average shares of common stock outstanding						416,332												416,332
	Loss from continuing operations(3)					$	(0.30	)										$	(0.30	)

(1)	The Pro-Forma Consolidated Condensed Statement of Operations assumes that the gas asset sales described above were sold by Calpine Corporation on January 1, 2003.
(2)	Operating results for the gas assets described above are their actual operating results from January 1 to their respective dates of sale.
(3)	Represents loss before discontinued operations and cumulative effect of a change in accounting principle.

6

CALPINE CORPORATION AND SUBSIDIARIES

PRO-FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS(1)(2)

Year Ended December 31, 2003

									Canadian			Rocky Mountain			New Mexico			Other			Pro-
						Actual			Gas Assets			Gas Assets			Gas Assets			Reclassifications(3)			Forma
						(In thousands, except per share amounts)
						(Unaudited)
Revenue:
	Electric generation and marketing revenue
		Electricity and steam revenue				$	4,695,744		$	—		$	—		$	—		$	(15,347	)	$	4,680,397
		Sales of purchased power for hedging and optimization					2,714,187			—			—			—			—			2,714,187
			Total electric generation and marketing revenue				7,409,931			—			—			—			(15,347	)		7,394,584
	Oil and gas production and marketing revenue
		Oil and gas sales					107,662			(46,920	)		(275	)		(1,311	)		—			59,156
		Sales of purchased gas for hedging and optimization					1,320,902			—			—			—			—			1,320,902
			Total oil and gas production and marketing revenue				1,428,564			(46,920	)		(275	)		(1,311	)		—			1,380,058
	Mark-to-market activities, net						(26,439	)		—			—			—						(26,439	)
	Other revenue						107,483			—			—			—			15,347			122,830
				Total revenue			8,919,539			(46,920	)		(275	)		(1,311	)		—			8,871,033
Cost of revenue:
	Electric generation and marketing expense
		Plant operating expense					679,031			—			—			—			(4,221	)		674,810
		Transmission purchase expense					—			—			—			—			34,690			34,690
		Royalty expense					24,932			—			—			—			—			24,932
		Purchased power expense for hedging and optimization					2,690,069			—			—			—			—			2,690,069
			Total electric generation and marketing expense				3,394,032			—			—			—			30,469			3,424,501
	Oil and gas operating and marketing expense
		Oil and gas operating expense					106,244			(24,011	)		(2,569	)		(4,211	)		—			75,453
		Purchased gas expense for hedging and optimization					1,279,568			—			—			—			—			1,279,568
			Total oil and gas operating and marketing expense				1,385,812			(24,011	)		(2,569	)		(4,211	)		—			1,355,021
	Fuel expense						2,564,742			76,778			14,590			9,508			—			2,665,618
	Depreciation, depletion and amortization expense						583,912			(69,056	)		(4,817	)		(2,724	)		—			507,315
	Operating lease expense						112,070			—			—			—			—			112,070
	Other cost of revenue						42,270			—			—			—			—			42,270
				Total cost of revenue			8,082,838			(16,289	)		7,204			2,573			30,469			8,106,795
					Gross profit		836,701			(30,631	)		(7,479	)		(3,884	)		(30,469	)		764,238
(Income) from unconsolidated investments in power projects and oil and gas properties							(76,703	)		898			—			—			—			(75,805	)
Equipment cancellation and impairment cost							64,384			—			—			—			—			64,384
Long-term service agreement cancellation charge							16,355			—			—			—			—			16,355
Project development expense							21,804			—			—			—			—			21,804
Research and development expense							—			—			—			—			10,630			10,630
Sales, general and administrative expense							265,653			(8,083	)		—			—			(41,099	)		216,471
Merger expense							—			—			—			—			—			—
	Income from operations						545,208			(23,446	)		(7,479	)		(3,884	)		—			510,399
Interest expense							726,103			(15,892	)		(2,271	)		(1,634	)		—			706,306
Distributions on trust preferred securities							46,610			—			—			—			—			46,610
Interest (income)							(39,716	)		—			—			—			—			(39,716	)
Minority interest expense							27,330			—			—			—			—			27,330
(Income) from repurchase of various issuances of debt							(278,612	)		—			—			—			—			(278,612	)
Other (income)							(46,126	)		—			—			—			—			(46,126	)
	Income before provision (benefit) for income taxes						109,619			(7,554	)		(5,208	)		(2,250	)		—			94,607
(Benefit) for income taxes							(134	)		(2,960	)		(1,980	)		(899	)		—			(5,973	)
	Income from continuing operations(4)					$	109,753		$	(4,594	)	$	(3,228	)	$	(1,351	)	$	—		$	100,580
Basic earnings per common share:
	Weighted average shares of common stock outstanding						390,772															390,772
	Income from continuing operations(4)					$	0.28														$	0.26
Diluted earnings per common share:
	Weighted average shares of common stock outstanding before dilutive effect of certain convertible securities						396,219															396,219
	Income from continuing operations(4)					$	0.28														$	0.25

7

(1)	The Pro-Forma Consolidated Statement of Operations assumes that the gas asset sales described above were sold on January 1, 2003.
(2)	Operating results for the gas assets described above are their actual operating results from January 1 to their respective dates of sales.
(3)	Certain amounts in the Pro-Forma Consolidated Statement of Operations have been reclassified to conform to the 2004 presentation. Note that these reclassifications did not occur as a result of the disposition of the gas assets described above. These reclassifications include: (1) $15,347 from Electricity and Steam revenue to Other revenue representing Transmission revenue; (2) $34,690 from Plant operating expense to Transmission purchase expense; (3) $25,075 from Sales, general and administrative expense to Plant operating expense for information systems costs for the Company’s power plants; (4) $10,630 from Sales, general and administrative expense to Research and development expense; and (5) $5,394 from Sales, general and administrative expense to Plant operating expense for the Company’s stock option compensation expense.
(4)	Represents income before discontinued operations and cumulative effect of a change in accounting principle.

8

      (c) Exhibits

99.1	—	Purchase and Sale Agreement among Calpine Corporation, Calpine Natural Gas L.P. and Pogo Producing Company dated July 1, 2004.
99.2	—	Purchase and Sale Agreement among Calpine Corporation, Calpine Natural Gas L.P. and Bill Barrett Corporation dated July 1, 2004
99.3	—	Asset and Trust Unit Purchase and Sale Agreement among Calpine Canada Natural Gas Partnership and Calpine Energy Holdings Limited and Calpine Corporation and PrimeWest Gas Corp. and PrimeWest Energy Trust dated July 1, 2004.
99.4	—	Press release dated September 2, 2004, indicating the Registrant’s sale of its Rocky Mountain gas reserves.
99.5	—	Press release dated September 2, 2004, indicating the Registrant’s sale of its Canadian gas reserves.

9

SIGNATURES

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

CALPINE CORPORATION

By:  /s/ CHARLES B. CLARK, JR.

Charles B. Clark, Jr.

Senior Vice President and Corporate Controller, Chief Accounting Officer

Date: September 14, 2004

10

EXHIBIT INDEX

Exhibit
No.			Description
	99	.1	Purchase and Sale Agreement among Calpine Corporation, Calpine Natural Gas L.P. and Pogo Producing Company dated July 1, 2004.
	99	.2	Purchase and Sale Agreement among Calpine Corporation, Calpine Natural Gas L.P. and Bill Barrett Corporation dated July 1, 2004.
	99	.3	Asset and Trust Unit Purchase and Sale Agreement among Calpine Canada Natural Gas Partnership and Calpine Energy Holdings Limited and Calpine Corporation and PrimeWest Gas Corp. and PrimeWest Energy Trust dated July 1, 2004.
	99	.4	Press release dated September 2, 2004, indicating the Registrant’s sale of its Rocky Mountain gas reserves.
	99	.5	Press release dated September 2, 2004, indicating the Registrant’s sale of its Canadian gas reserves.

EX-99.1

                                                                    EXHIBIT 99.1

                           PURCHASE AND SALE AGREEMENT

                                      AMONG

                               CALPINE CORPORATION

                            CALPINE NATURAL GAS L.P.

                                       AND

                             POGO PRODUCING COMPANY

                              DATED AUGUST 20, 2004

                          EFFECTIVE DATE: JULY 1, 2004


                                TABLE OF CONTENTS

                                                                      
PART ONE...............................................................   1

     SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION.............   1
          Section 1.1   Subject Matter.................................   1
          Section 1.2    Definitions...................................   1
               Actual Knowledge........................................   1
               Affiliate...............................................   1
               Agreed Rate.............................................   2
               Agreement...............................................   2
               Applicable Law..........................................   2
               Asset...................................................   2
               Assumed Liabilities.....................................   2
               Beneficial Interests....................................   2
               Burdens.................................................   3
               Business Day............................................   3
               Closing.................................................   3
               Closing Date............................................   3
               Code....................................................   3
               Confidentiality Agreement...............................   3
               Contracts...............................................   3
               Corporate Documents.....................................   3
               Easements...............................................   3
               Effective Date..........................................   4
               Environmental Condition.................................   4
               Facilities..............................................   6
               Fee Interests...........................................   6
               Governmental Body.......................................   6
               HSR Act.................................................   7
               Hydrocarbons............................................   7
               Leases..................................................   7
               Losses..................................................   7
               Net Revenue Interest....................................   7
               Party...................................................   7
               Permitted Encumbrances..................................   7
               Person..................................................   9
               Personal Property.......................................   9
               Plugging and Abandonment................................  10
               Remediation.............................................  10
               Tax.....................................................  10
               Third Person............................................  11
               Title Defect............................................  11
               Wells...................................................  11
          Section 1.3   Other Definitions in the Agreement.............  11
          Section 1.4   Rules of Construction..........................  12



                                       i


                                                                                                           
PART TWO....................................................................................................  13

     SALE AND PURCHASE......................................................................................  13
          Section 2.1  Assets...............................................................................  13
          Section 2.2  Purchase Price.......................................................................  13
          Section 2.3  Allocation of Purchase Price.........................................................  14
          Section 2.4  Performance Deposit and Liquidated Damages...........................................  14
          Section 2.6  Method of Payment....................................................................  15

PART THREE..................................................................................................  15

     REPRESENTATIONS AND WARRANTIES.........................................................................  15
          Section 3.1  Seller...............................................................................  15
          Section 3.2  Buyer................................................................................  19
          Section 3.3. Disclaimers and Notifications........................................................  20

PART FOUR...................................................................................................  22

     COVENANTS..............................................................................................  22
          Section 4.1  Covenants of Seller..................................................................  22
          Section 4.2  Covenants of Buyer...................................................................  24
          Section 4.3  Covenants of Seller and Buyer........................................................  25

PART FIVE...................................................................................................  31

     TAXES..................................................................................................  31
          Section 5.1  Payment and Apportionment of Real Property Taxes and Personal Property Taxes.........  31
          Section 5.2  Sales Taxes..........................................................................  32
          Section 5.3  Other Taxes..........................................................................  32
          Section 5.4  Cooperation..........................................................................  32
          Section 5.5  Tax Proceedings......................................................................  32
          Section 5.6  Purchase Price Allocation............................................................  32

PART SIX....................................................................................................  33

     ENVIRONMENTAL MATTERS..................................................................................  33
          Section 6.5  Covenant of Cooperation..............................................................  35
          Section 6.6  Selection and Performance of Remedies................................................  35
          Section 6.10 Exclusive Remedies...................................................................  36

PART SEVEN..................................................................................................  37

     TITLE MATTERS..........................................................................................  37
          Section 7.1  Confidentiality Agreement............................................................  37
          Section 7.2  Preferential Purchase Rights.........................................................  37
          Section 7.3  Required Consents....................................................................  37
          Section 7.4  Title Defects........................................................................  38
          Section 7.5  Seller's Right to Cure...............................................................  38
          Section 7.6  Contested Title Defects..............................................................  39



                                       ii


                                                                       
          Section 7.7   Title Indemnity Payments........................  39
          Section 7.8   Interest Additions..............................  40
          Section 7.8   Reconveyance....................................  40

PART EIGHT..............................................................  41

     INDEMNITY..........................................................  41
          Section 8.1   General Indemnification.........................  41
          Section 8.2   Method of Asserting Claims, Etc.................  42
          Section 8.3   Payment.........................................  44
          Section 8.4   Disputed Claims.................................  44
          Section 8.5   Applicability of Part Eight.....................  44

PART NINE...............................................................  44

     CONDITIONS PRECEDENT...............................................  44
          Section 9.1   Conditions Precedent of Seller..................  44
          Section 9.2   Conditions Precedent of Buyer...................  46

PART TEN................................................................  48

     MISCELLANEOUS......................................................  48
          Section 10.1  Notices.........................................  48
          Section 10.2  Modification....................................  49
          Section 10.3  Governing Law...................................  49
          Section 10.4  Exhibits........................................  49
          Section 10.5  Counterparts....................................  49
          Section 10.6  Invalidity......................................  49
          Section 10.7  Entire Agreement and Construction...............  49
          Section 10.8  Expenses........................................  50
          Section 10.9  Waivers and Amendments..........................  50
          Section 10.10 Binding Effect: Assignment......................  50
          Section 10.11 Survival of Representations and Covenants.......  51
          Section 10.13 Arbitration of Disputes.........................  51
          Section 10.12 Conflict........................................  52



                                      iii


                             SCHEDULES AND EXHIBITS


Schedules

   A.           Leases
   B.           Fee Interests
   C.           Contracts
                C-l   Contracts - Bisti Prospect
                C-2   Contracts - Farmington Prospect
                      C-2(a) Farmington - ROW/Easement
                C-3   Contracts - Largo Canyon
   D.           Beneficial Interests
   E.           Excluded Contracts
   F.           Assets Not Included
   G.           Permitted Encumbrances
   H.           Property
   2.3          Allocation of Purchase Price
   3.1(e)       Litigation
   3.1(f)       Seller's Consents Not Received
   3.1(i)       Current Commitments
   3.1(o)       Gas Imbalances
   3.1(q)       Insurance and Bonds
   3.1(r)       Payout Balances
   3.1 (u)      Suspense Accounts
   3.1 (v)      Wells
   4.3(f)       Preferential Right to Purchase Hydrocarbons
   7.2          Preferential Rights
   10.13        Dispute Resolution

Exhibits

   1.          Assignments
   2.          Deeds
   3.          Form of Opinion Letter
   4.          Form of Certificates
   5.          Due Diligence Acknowledgement

                                       iv


                           PURCHASE AND SALE AGREEMENT

      The Agreement dated as of August 20, 2004, is made and entered into
between Calpine Corp., a Delaware corporation and Calpine Natural Gas L.P., a
Delaware limited partnership both having an office at 717 Texas Avenue, Suite
1000, Houston, Texas 77002, (collectively "Seller") and Pogo Producing Company,
a Delaware corporation, having an office at Five Greenway Plaza, Suite 2700,
Houston, Texas 77046 ("Buyer").

                                    PART ONE

             SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION

      Section 1.1 Subject Matter. The subject matter of the Agreement is the
sale, assignment, transfer or conveyance of Seller's interest in the Assets, the
purchase of the Assets and the assumption of the Assumed Liabilities by Buyer,
and the terms and conditions upon which the sale shall take place.

      Section 1.2 Definitions. For purposes of the Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this Section 1.2 have the meanings herein assigned to them and the
capitalized terms defined elsewhere in the Agreement, by inclusion in quotation
marks and parentheses, shall have the meanings so ascribed to them.

      "Actual Knowledge" means actually known, after due inquiry by Hugo Cartaya
      (Director of Operations), Roxy Blu (Director of Land), Art Klavan (Sr.
      Vice President, Calpine Fuels Corp.), Ed Seeman (Director Reservoir
      Engineering), Bill Berilgen (President, Calpine Fuels Corp), or Bert Bates
      (Director, North America EH&S).

      "Affiliate" means, with respect to any specified Person, any other Person
      directly or indirectly controlling or controlled by or under direct or
      indirect common control with such specified Person. For the purposes of
      this definition, "control" means the power to direct the management and
      policies of such Person, directly or indirectly, whether through the
      ownership of voting securities, by contract or otherwise; and the terms
      "controlling" and "controlled" have meanings correlative to the foregoing,
      it being understood and agreed that with respect to a corporation, control
      shall mean a direct or indirect ownership of more than fifty percent (50%)
      of the voting stock.

                                       1

      "Agreed Rate" means a rate per annum which is equal to the lesser of (i) a
      rate which is one percent (1%) above the prime rate of interest of [J.P.
      Morgan Chase Bank], New York, New York, as announced or published by such
      bank from time to time (adjusted from time to time to reflect any changes
      in such rate determined hereunder), or (ii) the maximum rate from time to
      time permitted by Applicable Law.

      "Agreement" means this Purchase and Sale Agreement, including the
      Schedules and Exhibits.

      "Applicable Law" means any applicable law, order, regulation, permit,
      judgment or decree of any Governmental Body, including the common or civil
      law of any Governmental Body, including but not limited to those relating
      to occupational safety and health, consumer product safety, employee
      benefits, environmental laws, securities zoning laws or regulations.

      "Assets" mean the Fee Interests, Leases, Personal Property, Facilities,
      Easements, Contracts, and Beneficial Interests, but excluding the Excluded
      Assets.

      "Assumed Liabilities" means:

            (a)   all liabilities, duties, and obligations that arise on and
      after the Effective Date from ownership or operation of the Assets;

            (b)   all liabilities and obligations with respect to Plugging and
      Abandonment;

            (c)   all duties, liabilities and obligations that arise on and
      after the Effective Date under the Contracts, Fee Interests, Leases,
      Easements and Beneficial Interests, including, without limitation, all
      obligations with respect to gas imbalances associated with the Assets as
      set forth in Section 4.3(o);

            (d)   all liabilities and obligations with respect to funds
      attributable to Third Persons but suspended or impounded by Seller prior
      to the Effective Date but only to the extent of the amount of such
      suspended or impounded funds; and

            (e)   all other duties, liabilities, and obligations assumed by
      Buyer under the Agreement.

                                       2

      "Beneficial Interests" means any and all rights, titles and interests
      owned by Seller in, under or derived from all of the presently existing
      pooling, unitization and communitization agreements or other operating
      agreements and the units created thereby (including without limitation,
      all units formed under orders, regulations, rules or other official acts
      of any Governmental Body having jurisdiction) insofar and only insofar as
      they relate to any of the Leases or Fee Interests or to the production of
      Hydrocarbons from or attributable to such Leases or Fee Interests as set
      forth on Schedule D.

      "Burdens" means royalties (including both lessor royalties and
      nonparticipating royalty interests), overriding royalties, production
      payments, and other similar obligations payable out of production.

      "Business Day" means any day when commercial banks are generally open for
      regular business in the State of New Mexico.

      "Closing" means the closing of the transactions contemplated by the
      Agreement at 10:00 a.m., at Seller's offices at 717 Texas Ave., Houston,
      Texas 77002, on the Closing Date or at such other time or place as the
      Parties may mutually agree upon in writing.

      "Closing Date" means September 1, 2004, or such other date as the Parties
      may mutually agree upon in writing.

      "Code" means the United States Internal Revenue Code of 1986, as amended.

      "Confidentiality Agreement" means the Confidentiality Agreement between
      Seller and Buyer dated June 29, 2004.

      "Contracts" means all contracts and agreements whether recorded or
      unrecorded in existence at the Effective Date, which affect the Leases,
      Fee Interests, Personal Property, Beneficial Interests, Facilities and
      Easements, insofar and only insofar and only to the extent as they
      specifically relate to the Leases, Fee Interests, Personal Property,
      Beneficial Interests, Facilities and Easements, including but not limited
      to the contracts and agreements set forth on Schedule C, but specifically
      excluding the Easements, Leases, Beneficial Interests, and the contracts
      and agreements set forth on Schedule E.

                                       3


      "Corporate Documents" means with respect to a Delaware corporation the
      Certificate of Incorporation and By-Laws or the equivalent documents of a
      corporation or other business entity organized under the laws of another
      jurisdiction.

      "Easements" means Seller's non-exclusive rights to the use and occupancy
      of the surface, including, without limitation, tenements, appurtenances,
      surface leases, easements, permits, licenses, franchises, servitudes and
      rights-of-way in any way appertaining, belonging, affixed or incidental to
      or used in connection with the ownership or operation of the Fee
      Interests, Leases, Facilities and Beneficial Interests, whether recorded
      or unrecorded;

      "Effective Date" means 7:00 a.m., MDT, July 1, 2004 at the location of the
      Assets.

      "Environmental Condition" means any condition existing prior to the
      Effective Date, and only to the extent in existence on the Effective Date
      with respect to the air, land, soil, surface, subsurface strata, surface
      water, ground water, or sediments which causes a Property to be subject to
      remediation under, or not in compliance with an Environmental Law,
      Environmental Permit, a Lease or a Contract, but excluding the conditions
      associated with, or included in the definition of, Plugging and
      Abandonment.

      "Environmental Law" means any existing or future Applicable Law relating
      to pollution or the protection of the environment, health or safety
      including, without limitation, laws relating to air, water, land and the
      generation, storage, treatment, transportation, handling, release or
      disposal of waste materials including, without limitation, the Clean Air
      Act, as amended, the Federal Water Pollution Control 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 ("SARA"), as amended,
      the Resource Conservation and Recovery Act ("RCRA"), as amended, the
      Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic
      Substance Control Act, as amended, and the Occupational Safety and Health
      Act ("OSHA"), as amended but shall not include any Applicable Law
      associated with Plugging and Abandonment.

      "Environmental Permits" means any environmental and health and safety
      permits, licenses, approvals, consents, certificates and other
      authorizations necessary for the ownership or operation of the Properties.

      "Excluded Assets" means:

                                        4


            (a)   all (i) trade credits, accounts receivable, notes receivables
      and other receivables attributable to Seller's interest in the Assets with
      respect to any period of time prior to the Effective Date and (ii)
      deposits, cash, checks in process of collection, cash equivalents and
      funds attributable to Seller's interest in the Assets with respect to any
      period of time prior to the Effective Date.

            (b)   all corporate, financial, legal, personnel and Tax records of
      Seller;

            (c)   all claims and causes of action of Seller (i) arising from
      acts, omissions or events, or damage to or destruction of property,
      occurring prior to the Effective Date or (ii) affecting any of the
      excluded assets as set forth in (a) through (r) of this definition;

            (d)   all rights, titles, claims and interests of Seller (i) under
      any policy or agreement of insurance or indemnity; (ii) under any bond; or
      (iii) to any insurance or condemnation proceeds or awards;

            (e)   subject to the provisions of Section 4.3(p), all Hydrocarbons
      produced from or attributable to the Assets with respect to all periods
      prior to the Effective Date;

            (f)   claims of Seller for refunds of or loss carry forwards with
      respect to (i) Taxes attributable to any period prior to the Effective
      Date; (ii) Taxes attributable to any of the excluded assets as set forth
      in (a) through (r) of this definition; or (iii) any Tax credits accruing
      to the Assets prior to the Effective Date.

            (g)   all amounts due or payable to Seller as adjustments or refunds
      under any Contracts affecting the Assets, with respect to any period prior
      to the Effective Date including, without limitation, amounts recoverable
      from audits under operating agreements;

            (h)   all amounts due or payable to Seller as adjustments to
      insurance premiums related to the Assets with respect to any period prior
      to the Effective Date;

            (i)   all proceeds, benefits, income or revenues accruing (and any
      security or other deposits made) with respect to (i) the Assets prior to
      the Effective Date; and (ii) any of the excluded assets as set forth in
      (a) through (r) of this definition;

                                       5


            (j) all of Seller's seismic and geophysical information and data,
      together with all geological information and data, whether proprietary in
      Seller or licensed from Third Persons, and whether or not covering or
      affecting the Assets, but only to the extent that the transfer thereof is
      prohibited by law or third-party agreement and the necessary consents to
      transfer are not obtained or cannot be obtained without cost to Seller;

            (k) all of Seller's interpretive data;

            (l) the non-exclusive right reserved unto the Seller to use the
      Easements;

            (m) all of Seller's intellectual property, including but not limited
      to computer software, patents, trade secrets, copyrights, names, marks,
      and logos;

            (n) all of Seller's vehicles, trucks (including associated tools),
      boats, tools, pulling machines, warehouse stocks, microwave equipment,
      computer equipment and remote terminal units; equipment and material
      temporarily located on the Assets; and any pipelines, easements, fixtures,
      LACT units, tanks or equipment located on the Assets which belong to
      lessors or other Third Persons, or to Seller's Affiliates engaged in the
      business of purchasing, processing or transporting Hydrocarbons;

            (o) all of Seller's interest in any lands or depths covered by the
      Leases, Fee Interests and Beneficial Interests which are specifically
      excluded from the descriptions set forth on Schedules A, B and C.

            (p) records and documents subject to confidentiality provisions,
      claims of privilege, or other restrictions on access;

            (q) all rights of ingress, egress and surface use retained by Seller
      in connection with its obligations under Part Six of this Agreement; and

            (r) all other assets set forth on Schedule F.

      "Facilities" means facilities and equipment, whether active or inactive,
      that are customarily used directly in the production of Hydrocarbons,
      including, but not limited to injection facilities, disposal facilities,
      field separators, liquid extractors, compressors, LACT units, plants,
      tanks and the like.

                                        6


      "Fee Interests" means all rights, titles and interests owned by Seller in
      all the fee and mineral fee interests described on Schedule B, insofar and
      only insofar as such Fee Interests cover the lands and depths set forth in
      Schedule B. The Fee Interests shall include all of Seller's right, title
      and interest to all depths unless specifically limited on Schedule B.

      "Governmental Body" means any federal, state, Indian, county, municipal,
      or other federal, state or local governmental authority or judicial or
      regulatory agency, board, body, department, bureau, commission,
      instrumentality, court, tribunal or quasi-governmental authority in any
      jurisdiction (domestic or foreign) having jurisdiction over any Asset or
      Party to this transaction, or any of the transactions contemplated by the
      Agreement.

      "Hydrocarbons" means crude oil, natural gas, casinghead gas, condensate,
      sulphur, natural gas liquids, plant products and other liquid or gaseous
      hydrocarbons (including C02), and all other minerals of every kind and
      character which may be covered by or included in the Assets.

      "Leases" means any and all rights, titles and interests owned by Seller in
      all of the oil, gas or mineral leases and other interests described on
      Schedule A.

      "Losses" means any and all losses, liabilities, claims, demands,
      penalties, fines, assessments, settlements, damages and any related
      expenses of whatever kind or nature, known or contingent or otherwise,
      including, without limitation, legal, accounting, consulting and
      investigation expenses and litigation costs including without limitation,
      response, remedial or inspection costs or any cleanup and laboratory
      costs, but excluding consequential damages.

      "Net Revenue Interest" means Seller's share of production or revenue from
      (or where subject to a unit or pooling agreement, allocated under such
      agreement to) a Property, net of all Burdens related to such Property as
      set forth on Schedule H.

      "Party" means either Buyer or Seller.

                                        7


      "Permitted Encumbrances" means:

            (a) Burdens to the extent that the aggregate effect of such Burdens
      do not reduce the Net Revenue Interest of a Property below that shown on
      Exhibit H;

            (b) division orders and sales contracts;

            (c) rights of reassignment which arise prior to abandonment,
      surrender or release of oil, gas or mineral leases;

            (d) rights to consent by, required notices to, filings with, or
      other actions by, any Governmental Body in connection with the sale or
      conveyance of oil and gas leases or interests therein, or the assumption
      of operatorship, if they are customarily obtained subsequent to the sale
      or conveyance;

            (e) easements, rights-of-way, servitudes, permits, surface leases
      and other rights relative to surface use and occupancy including, without
      limitation, pipeline operations, grazing, logging, canals, ditches,
      reservoirs and similar rights and conditions, covenants or other similar
      restrictions on and over the surface of the Leases, Easements, Beneficial
      Interests or Fee Interests, to the extent they do not unreasonably
      interfere with exploration operations on the Assets;

            (f) easements for streets, alleys, highways, pipelines, telephone
      lines, power lines, railways and other easements and rights-of-way, on,
      over or in respect to the Leases, Beneficial Interests, Easements or Fee
      Interests;

            (g) all leases, operating agreements, operator liens and working
      interest owner liens, unit, communitization and pooling agreements,
      farmout and subleases and farmin agreements and all Contracts that do not
      affect the Net Revenue Interest;

            (h) all Applicable Laws of any Governmental Body, and all rights
      reserved to or vested in any Governmental Body to control or regulate the
      Assets in any manner, including, without limitation, any adjustment in the
      Net Revenue Interest or Working Interest of a particular Property, caused
      by, or as the result of, any action of a Governmental Body which is not
      the result of any negligent act or omission of Seller;

                                        8


            (i) liens for Taxes or assessments not yet due and payable or not
      yet delinquent, or if delinquent, that are being contested in good faith
      by appropriate action brought in the normal course;

            (j) reversionary interests arising under farmout and farmin
      agreements, subleases, and the non-consent provisions of applicable
      operating agreements provided that the affected Wells are listed on
      Schedule 3.1(r);

            (k) liens imposed by Applicable Law, such as carriers',
      warehousemen's and mechanics' liens and other similar liens arising in the
      ordinary course of business which secure payment of obligations not more
      than sixty (60) days past due or which are being contested in good faith
      or for which funds have been set aside;

            (l) consents to assign that have been obtained or waived and
      preferential rights to purchase that have been waived or for which the
      time period to exercise has expired;

            (m) defects that have been cured by possession under applicable
      statutes of limitation;

            (n) other minor defects or irregularities generally waived by
      prudent purchasers of oil and gas properties and that do not materially
      impair the value, ownership or use of the affected Property; and

            (o) others as set forth on Schedule G.

      "Person" means any individual, corporation, partnership, limited liability
      company, joint venture, association, joint stock company, trust, estate,
      unincorporated organization, other business entity or any Governmental
      Body.

      "Personal Property" means to the extent attributable to the Fee Interests,
      Leases, Easements, Contracts and Beneficial Interests, but excluding any
      personal property owned by any Third Person or any of Seller's Affiliates
      and subject to the limitations below, all of Seller's right, title and
      interest in and to:

            (a) all Wells (whether plugged or unplugged), equipment, Facilities
      and personal property of any kind including, but not limited to, tubing,
      casing, wellheads, pumping units, production units, compressors, valves,
      meters, flowlines,

                                        9


      tanks, heaters, separators, dehydrators, pumps, injection units, gates and
      fences, which are located on or connected with the Fee Interests, Leases,
      and Beneficial Interests and which are used solely and exclusively in
      connection with the production, separation, storage, treatment, gathering
      or transportation of Hydrocarbons from or attributable to the Fee
      Interests, Leases, and Beneficial Interests and that are not presently
      used in connection with any excluded assets;

            (b) all licenses, authorizations, permits, variances and similar
      rights and interests related to the Fee Interests, Leases, Facilities,
      Easements, Contracts and Beneficial Interests and personal property
      defined in (a) above;

            (c) all other rights, privileges, benefits and powers conferred upon
      the owner and holder of the Fee Interests, Leases, Facilities, Easements,
      Contracts and Beneficial Interests and personal property defined in (a)
      and (b) above; and

            (d) copies of applicable general operating records, well files
      (including applicable well logs and production data), lease files, land
      files, environmental compliance files, regulatory reports and
      certificates, abstracts and title work pertaining to the Fee Interests,
      Leases, Easements, Facilities, Contracts and Beneficial Interests and
      personal property defined in (a) above, but excluding: records containing
      trade secrets unrelated to the Assets, legal files, attorney-client
      communications or attorney work product materials and other similar
      documents covered by privilege, records and documents subject to
      confidentiality provisions and auditor's reports.

      "Plugging and Abandonment" means all plugging, replugging, abandonment,
      removal, disposal or restoration associated with the Assets, including,
      but not limited to, all plugging and abandonment, removal, surface
      restoration, site clearance and disposal of the wells, structures and
      Personal Property located on or associated with the Assets, the removal or
      capping and burying of all associated flowlines, the restoration of the
      surface in accordance with Applicable Laws or the terms and conditions of
      the applicable Leases or Contracts, whichever is more stringent, site
      clearance, as required by Applicable Laws, and any disposal of related
      waste materials, including naturally occurring radioactive material
      ("NORM") and asbestos, and shall include such Wells, structures, and
      Personal Property associated with any of the Assets, whether drilled or
      placed on a Lease, Fee Interest, or Beneficial Interest prior to, at, or
      after the Closing Date.

                                       10


      "Property" means a Well, a prospective Well location, or a unitized or
      communitized area described on Schedule H.

      "Remediation" or "Remediate" means affirmative actions or remedial work
      taken to remove or otherwise remedy an Environmental Condition, including
      but not limited to any survey, site assessment, audit, investigation,
      inspection, sampling, analysis, removal, excavation, pump and treat,
      cleanup, disposal, storage, handling or treatment, excluding those actions
      associated with Plugging and Abandonment.

      "Tax" means any and all fees (including, without limitation,
      documentation, license, recording, filing and registration fees), Taxes
      (including without limitation, production, gross receipts, ad valorem,
      value added, windfall profit tax, environmental tax, turnover, sales, use,
      personal property (tangible and intangible), stamp, leasing, lease, user,
      leasing use, excise, franchise, transfer, heating value, fuel, excess
      profits, occupational, interest equalization, lifting, oil, gas, or
      mineral production or severance, and other taxes), levies, imposts,
      duties, charges or withholdings of any nature whatsoever, imposed by any
      Governmental Body or taxing authority thereof, domestic or foreign,
      together with any and all penalties, fines, additions to Tax and interest
      thereon, whether or not such Tax shall be existing or hereafter adopted.

      "Third Person" means a Person other than a Party or an Affiliate of a
      Party.

      "Title Defect" means any one of the following:

            (1)   Seller's title as of the Effective Date as to all or any part
                  of the Property is subject to an outstanding mortgage, deed of
                  trust, lien, security interest, or other monetary encumbrance
                  or adverse claim not listed or referenced on Schedule G that
                  would induce a purchaser to suspend payment of proceeds for
                  the Property or require the furnishing of security or
                  indemnity;

            (2)   Seller's Net Revenue Interest attributable to a Property as of
                  the Effective Date is less than that shown on Schedule H or
                  Seller's Working Interest attributable to a Property as of the
                  Effective Date is greater than that shown on Schedule H
                  without a corresponding increase in Seller's Net Revenue
                  Interest in the Property; or

                                       11


            (3)   Seller's Net Revenue Interest would be reduced if a Third
                  Person were to exercise a reversionary, back-in, or other
                  similar right not listed or referenced on Schedule H;

      but shall not include any Permitted Encumbrances or preferential rights to
      purchase.

      "Wells" means, whether active or inactive, any orifice in the ground,
      completed or being drilled, including without limitation, those previously
      plugged and abandoned, those drilled for the production of Hydrocarbons,
      for injection, for disposal or for water sources.

      "Working Interest" means that share of costs and expenses associated with
      the exploration, maintenance, development and operation of a Property that
      Seller is required to bear and pay.

      Section 1.3 Other Definitions in the Agreement. The following terms shall
have the respective meanings ascribed to them in the Sections of the Agreement
set forth below opposite such terms:



                                         Section
                                         -------
                                      
AFE                                      3.1(h)
Aggregate Environmental Defect Value     6.6
Aggregate Title Defect Value             7.7
Assignments                              9.1(i)
Buyer                                    Preamble
Claim Notice                             8.2(a)
Cure                                     7.5
Cure Notice                              7.5
Deeds                                    9.1(j)
Defect Value                             7.4
Environmental Defect Notice              6.2
Environmental Defect Value               6.2
Environmental Notice Deadline            6.2
Environmental Rejection Notice           6.3(b)
Final Recap Amount                       4.3(h)
Final Recapitulation Statement           4.3(h)
Final Settlement Date                    4.3(h)


                                       12

                                      
Indemnified Party                        8.2(a)
Indemnifying Party                       8.2(a)
Interest Addition                        7.8
Interest Addition Notice                 7.8
Interest Addition Payment                7.8
Interest Addition Rejection Notice       7.8
Interest Addition Value                  7.8
Individual Threshold                     6.1
NORM                                     1.2
Notice Period                            8.2(a)
Offset                                   7.8
Performance Deposit                      2.4
Permits                                  3.1(1)
Purchase Price                           2.2
Rejection Notice                         7.6
Review Period                            6.1
Seller                                   Preamble
Title Defect Notices                     7.4
Title Indemnity Payment                  7.4



      Section 1.4 Rules of Construction. For purposes of the Agreement:

            (a) General. Unless the context otherwise requires (i) "or" is not
      exclusive; (ii) an accounting term not otherwise defined has the meaning
      assigned to it in accordance with accounting principles that are generally
      accepted in the United States of America; (iii) words in the singular
      include the plural and words in the plural include the singular; (iv)
      words in the masculine include the feminine and words in the feminine
      include the masculine; (v) any date specified for any action that is not a
      Business Day shall be deemed to mean the first Business Day after such
      date; and (vi) a reference to a Person includes its successors and
      assigns.

            (b) Parts and Sections. References to Parts and Sections are, unless
      otherwise specified, to Parts and Sections of the Agreement. Neither the
      captions to Parts or Sections hereof nor the Table of Contents shall be
      deemed to be a part of the Agreement.

            (c) Exhibits and Schedules. The Exhibits and Schedules form part of
      the Agreement and shall have the same force and effect as if set out in
      the body of the Agreement.

                                       13


            (d) Other Agreements. References herein to any agreement or other
      instrument shall, unless the context otherwise requires (or the definition
      thereof otherwise specifies), be deemed references to that agreement or
      instrument as it may from time to time be changed, amended or extended.
      There is no incorporation by reference unless stated.

                                    PART TWO

                               SALE AND PURCHASE

      Section 2.1 Assets. At Closing, Seller agrees to sell, assign, transfer
and convey to Buyer the Assets and Buyer agrees to purchase and pay for the
Assets and assume the Assumed Liabilities.

      Section 2.2 Purchase Price. The purchase price shall be Eighty Three
Million, Eighty Seven Thousand, Two Hundred and Twenty Four Dollars
($83,087,224) plus or minus the adjustments set forth in Parts Six and Seven of
the Agreement (the "Purchase Price").

      Section 2.3 Allocation of Purchase Price. Schedule 2.3 sets forth a good
faith allocation of the Purchase Price among the Properties which comprise the
Assets, which allocation was prepared by Buyer and delivered to Seller on August
13, 2004. Such allocation has been provided for the purpose of (i) establishing
a basis for certain Taxes, (ii) obtaining waivers of or making offers with
respect to any preferential rights to purchase the Assets, and (iii) handling
those instances for which the Purchase Price is adjusted as provided herein.

      Section 2.4 Performance Deposit and Liquidated Damages. Buyer shall tender
to Seller immediately upon execution of the Agreement, a non-refundable cash
performance deposit in the amount of Three Million Dollars ($3,000,000) (the
"Performance Deposit"). The Performance Deposit shall bear interest at the
Agreed Rate from the date delivered to Seller through the Closing or the date
returned to Buyer, whichever is applicable. At Closing, Buyer shall pay and
deliver to Seller the remaining unpaid portion of the Purchase price as provided
herein, and adjusted upward or downward pursuant to Parts Six and Seven.

      Section 2.5 Termination. The following provisions shall apply in the event
of termination of this Agreement:

                                       14


      (a) If this Agreement is terminated (i) by the mutual agreement of the
Seller and the Buyer and not as the result of the failure of either Party to
perform its obligations hereunder, or (ii) pursuant to Sections 4.3(e), 6.6 or
7.7, such termination shall be without liability of any Party or any affiliate
director, officer, employee, agent or representative of such Party and Seller
shall return the Performance Deposit to the Buyer.

      (b) If this Agreement is terminated as a result of the failure of Buyer to
perform its obligations hereunder, then Seller shall retain the Performance
Deposit along with interest accrued thereon and Seller shall have all remedies
available to it under the law.

      (c) If this Agreement shall be terminated as a result of the failure of
Seller to perform its obligations hereunder, then Seller shall return the
Performance Deposit to Buyer and Buyer shall have all remedies available to it
under the law. Notwithstanding the foregoing, it is expressly agreed to by the
Parties that Seller's failure to secure the release of the liens described in
Section 9.2 shall not constitute a failure of Seller to perform its obligations
hereunder and, in such event, Seller will return the Performance Deposit,
together with accrued interest, to the Buyer.

      Section 2.5 Method of Payment. Any amount payable under the Agreement
shall be payable in immediately available funds by means of a wire transfer, if
to Seller, to Seller's account at Bank One, Houston NA, ABA # 111000614, account
number 188-414-8246 (with immediate telephone notice to Michael Gerlich at phone
number 713.335.4037, or to such other account number as Seller may by written
notice direct, or if to Buyer, to Buyer's account as may be designated by Buyer.

                                   PART THREE

                         REPRESENTATIONS AND WARRANTIES

      Section 3.1 Seller. Seller represents and warrants to Buyer that:

            (a) Organization and Standing. Calpine Corp. is a corporation duly
      organized, validly existing, and in good standing under the laws of the
      State of Delaware, and is in good standing as a foreign corporation in all
      jurisdictions where the nature of the Assets requires it. Calpine Natural
      Gas L.P. is a limited partnership duly organized, validly existing, and in
      good standing under the laws of the State of Delaware and is in good
      standing as a foreign partnership in all jurisdictions where the nature of
      the Assets requires it.

                                       15


            (b) Authority. Seller has the corporate power and authority to enter
      into and perform the Agreement and to consummate the transactions
      contemplated hereby. The execution, delivery and performance by Seller of
      the Agreement and the consummation of the transactions contemplated hereby
      have been duly authorized by all requisite corporate action and the
      Agreement has been duly executed and delivered by Seller.

            (c) Validity of Agreement. The Agreement is a legal, valid and
      binding obligation of Seller enforceable against Seller in accordance with
      the terms of the Agreement, except as enforcement may be limited by
      bankruptcy, insolvency or other similar Applicable Laws now or hereafter
      in effect affecting the enforcement of creditors' rights in general. The
      enforceability of Seller's obligations under the Agreement is subject to
      general principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law).

            (d) No Violation. The execution and delivery of the Agreement and
      the performance by the Seller of the terms of the Agreement do not
      conflict with or result in a violation of the Corporate Documents of
      Seller or any agreement, instrument, order, writ, judgment or decree to
      which Seller is a party or is subject.

            (e) Litigation. Except as set forth on Schedule 3.1(e), there are no
      actions, suits, or proceedings pending or to the Actual Knowledge of
      Seller threatened against Seller as to the Assets, before any court or
      arbitration tribunal or before or by any Governmental Body in which the
      claim is in excess of Fifty Thousand Dollars ($50,000.00) for any one
      claim or One Million Dollars ($1,000,000.00) in the aggregate.

            (f) No Consents Required. Except as set forth in Section 4.3(d) and
      on Schedule 3.1(f), no preferential purchase rights, consents, approvals
      or other action by, or filings with any Person or Governmental Body are
      required in connection with the execution, delivery and performance by
      Seller of the Agreement.

            (g) Environmental Claims. Except as set forth on Schedule 3.1 (g) as
      to those Assets currently operated by Seller to Seller's Actual Knowledge,
      there are no pending written claims, actions or proceedings by any Third
      Person or Governmental Body caused by or arising out of any Environmental
      Condition pending against the Seller, the Assets, or the ownership or
      operation thereof and there are no Environmental Conditions presently
      under Remediation.

                                       16


            (h) Current Commitments. Schedule 3.1(i) contains a complete and
      accurate list as of the date of this Agreement of (i) all authorities for
      expenditures ("AFEs") in excess of $50,000 to drill or rework Well or for
      capital expenditures pursuant to any of the Contracts that have been
      proposed by any person on or after the Effective Date, whether or not
      accepted by Seller or any Third Person, and (ii) all AFEs and oral or
      written commitments in excess of $50,000 to drill or rework Wells or for
      other capital expenditures pursuant to any of the Contracts for which all
      of the activities anticipated in such AFEs or commitments have not been
      completed by the date of this Agreement.

            (i) Personal Property. The Personal Property located on the Assets
      currently operated by Seller constitutes the equipment and fixtures
      reasonably necessary for the operations of the Assets for the production
      of the Hydrocarbons. Such Personal Property currently in service is, in
      good repair and operating condition and is suitable for the purpose for
      which such Personal Property is employed.

            (j) Status of Contracts. Seller has all Contracts necessary to
      conduct the business and operations of those Assets currently operated by
      Seller as they are currently operated and all such material Contracts are
      set forth in Exhibit C. All of the Contracts and Easements (i) are in full
      force and effect, (ii) neither Seller nor, to Seller's Actual Knowledge,
      any other party to the Contracts or Easements, (1) is in breach of or
      default, or with the lapse of time or the giving of notice, or both, would
      be in breach or default, with respect to any of its obligations thereunder
      to the extent that such breaches or default have a material adverse Impact
      on any of the Assets or (2) has given notice of any default or action to
      alter, terminate, rescind or procure a judicial reformation of any
      Contract or Easement. There are no Contracts not set forth on Exhibit C
      which would have a material adverse effect on the ownership or operation
      of the Assets.

            (k) Taxes. All ad valorem, property, production, severance and other
      taxes based on or measured by the ownership of the Properties or the
      production of Hydrocarbons from the Properties due and payable prior to
      the Effective Date have been properly and timely paid except those
      disputed in ordinary course of business.

            (l) License. With respect to those Properties currently operated by
      Seller, Seller has all material licenses, authorizations, permits,
      variances and similar rights and interests from Governmental Bodies
      (collectively "Permits"), which are necessary to operate the Subject
      Interests. The conveyance of the Assets to Buyer shall

                                       17


      not cause revocation of any of such Permits. No violations of any of such
      Permit exists which could result in a termination of such Permit or that
      would materially impair Buyer's ability to enjoy the economic benefit of
      the Assets.

            (m) Tax Partnerships. None of the Assets are subject to a tax
      partnership, including, without limitation, none of such properties are
      subject to any operating agreement or other agreement under which the
      parties hereto have not made an effective election pursuant to Section 761
      of the Internal Revenue Code, and the Treasury Regulations promulgated
      thereunder, to be excluded from the application of Subchapter K, Chapter
      1, Subtitle A, of the Code.

            (n) Not a Foreign Person. Seller is not a "foreign person" within
      the meaning of Section 1445 (or similar provisions) of the Code (i.e.,
      Seller is not a non-resident alien, foreign corporation, foreign
      partnership, foreign trust or foreign estate as those terms are defined in
      the Code and regulations promulgated thereunder). Calpine Corporations's
      taxpayer identification number is 770212977 and Calpine Natural Gas L.P.'s
      taxpayer identification number is 710882453.

            (o) Gas Imbalances. Schedule 3.1(o) sets forth Seller's good faith
      estimate of all gas imbalances with respect to Assets as of the Effective
      Date. Buyer and Seller agree that the final gas imbalances attributable to
      the Assets shall be identified and resolved as set forth in Section
      4.3(o).

            (p) No Broker. Seller has not employed or otherwise benefited from
      the services of a broker, finder or similar person in connection with the
      transaction contemplated by this agreement.

            (q) Insurance. Schedule 3.1(q) sets forth a list of all material
      insurance policies by which the Assets are insured against the losses
      described therein, all of which are in full force and effect. True,
      complete and correct copies of all such policies have been previously
      provided to the Buyer.

            (r) Payout Balances. Schedule 3.1(r) contains a complete and
      accurate list of the status of any "payout" balance, as of the Effective
      Date, for those Wells that are subject to a reversion or other adjustment
      at some level of cost recovery or payout (or passage of time or other
      event other than termination of a Lease by its terms).

                                       18


            (s) Condemnation. To Seller's Actual Knowledge, there is no actual
      or threatened taking (whether permanent, temporary, whole, or partial) of
      any part of the Assets by reason of condemnation or the threat of
      condemnation.

            (t) Bankruptcy. There are no bankruptcy, reorganization, or similar
      arrangement proceedings pending, being contemplated by, or, to Seller's
      Actual Knowledge, threatened against Seller.

            (u) Suspense Accounts. Except as described on Schedule 3.1(u), there
      are no funds attributable to Seller's obligations to pay any Burdens held
      by Seller in suspense.

            (v) Wells. Except as described on Schedule 3.1(v), there are no
      unplugged, temporarily abandoned, or temporarily shut-in Wells situated on
      the Leases or the Fee Interests.

            (w) Calls on Production. Except as described on Schedule 3.1(w) and
      as contemplated by Section 4.3(f), there are no calls on production or
      other similar marketing restrictions affecting the Assets.

            (x) Accuracy of Representations and Warranties. The representations
      and warranties set forth in this Agreement do not contain any untrue
      statements of a material fact or omit to state any material fact necessary
      to make any statements made not misleading.

      Section 3.2 Buyer. Buyer represents and warrants to Seller that:

            (a) Organization and Standing. Buyer is a corporation duly
      organized, validly existing in good standing under the laws of the State
      of Delaware and is in good standing as a foreign corporation in all
      jurisdictions where the nature of the Assets requires it and is duly
      qualified to own federal, Indian and state leases in the State New Mexico.

            (b) Authority. Buyer has the corporate power and authority to enter
      into and perform the Agreement and to consummate the transactions
      contemplated hereby. The execution, delivery and performance by Buyer of
      the Agreement and the consummation of the transactions contemplated hereby
      have been duly authorized by all

                                       19


      requisite corporate action and the Agreement has been duly executed and
      delivered by Buyer.

            (c) Validity of Agreement. The Agreement is a legal, valid and
      binding obligation of Buyer enforceable against Buyer in accordance with
      the terms of the Agreement, except as enforcement may be limited by
      bankruptcy, insolvency or other similar Laws affecting the enforcement of
      creditors' rights in general. The enforceability of Buyer's obligations
      under the Agreement is subject to general principles of equity (regardless
      of whether enforceability is considered in a proceeding in equity or at
      law).

            (d) No Violation. The execution and delivery of the Agreement and
      the performance by Buyer of the terms of Agreement do not conflict with or
      result in a violation of the Corporate Documents of Buyer or of any
      agreement, instrument, order, writ, judgment or decree to which Buyer is a
      party or is subject.

            (e) No Consents Required. Except as set forth in Section 4.3(d), no
      consents, approvals or other action by, or filings with any Person or
      Governmental Body are required in connection with the execution, delivery
      and performance by Buyer of the Agreement.

            (f) Securities Representation. Buyer is an experienced and
      knowledgeable investor and operator in the oil and gas business and is
      acquiring the Assets for Buyer's own account and not with a view to, or
      for offer of resale in connection with, a distribution thereof, within the
      meaning of the Securities Act of 1933, or any other Applicable Laws
      pertaining to the distribution of securities.

            (g) Buyers' Sole Reliance on Own Investigation. Buyer has, subject
      to necessary Third Person operator approval as to those Assets not
      operated by Seller, availed itself of the opportunity to conduct a
      pre-acquisition review of the Assets. Buyer is purchasing the Assets
      solely in reliance on Buyer's own investigation of the Assets.

            (h) No Broker. Buyer has not retained or otherwise benefited from
      the services of a broker, finder or similar person in connection with the
      Agreement or the transaction contemplated herein.

            (i) Buyer's Qualifications. Buyer is, or will as of the Closing be,
      fully qualified and bonded as an operator by all applicable Governmental
      Bodies as necessary to operate the Assets.

                                       20


            (j) Accuracy of Representations and Warranties. The representations
      and warranties set forth in this Agreement do not contain any untrue
      statements of a material fact or omit to state any material fact necessary
      to make any statements made not misleading.

      Section 3.3. Disclaimers and Notifications. The Parties make the following
disclaimers and notifications:

            (a) No Other Warranties. Except as otherwise provided herein there
      are no express or implied warranties that apply to the transactions
      contemplated herein.

            (b) Disclaimer and Assumption of Risk. EXCEPT AS EXPRESSLY SET FORTH
      TO THE CONTRARY HEREIN, IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES THAT
      SELLER DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED
      WITH RESPECT TO THE ASSETS. WITHOUT LIMITATION OF THE FOREGOING, SELLER
      MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, AS TO TITLE
      (OTHER THAN THE SPECIAL WARRANTY OF TITLE SET FORTH IN THE "ASSIGNMENTS"
      AND THE "DEED," AS EACH OF SUCH TERMS IS DEFINED IN SECTION 9.1(j) BELOW)
      OR THE CONDITION OR STATE OF REPAIR OF THE ASSETS, THEIR VALUE, QUALITY,
      MERCHANTABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR USES OR
      PURPOSES, NOR AS TO THE CURRENT VOLUME, NATURE, QUALITY, CLASSIFICATION,
      OR VALUE OF THE HYDROCARBONS RESERVES THEREUNDER OR COVERED THEREBY, NOR
      WITH RESPECT TO ANY APPURTENANCES THERETO BELONGING OR APPERTAINING TO THE
      ASSETS, AND BUYER SHALL ACCEPT THE ASSETS IN "AS IS," "WHERE IS,"
      CONDITION. WITHOUT LIMITATION OF THE FOREGOING, BUYER HEREBY WAIVES ANY
      AND ALL RIGHTS AND REMEDIES BUYER MAY HAVE AGAINST SELLER ARISING FROM
      SAME INCLUDING, WITHOUT LIMITATION, ANY RIGHTS AND REMEDIES BUYER MAY HAVE
      AGAINST SELLER PURSUANT TOTHE THE NEW MEXICO UNFAIR TRADE PRACTICES ACT
      (NEW MEXICO STATUTES ANNOTATED Section 57-12-1, ET SEQ.).

            (c) Disclaimer with Respect to NORM, etc. BUYER ACKNOWLEDGES AND
      AGREES THAT THE ASSETS HAVE BEEN UTILIZED BY

                                       21


      SELLER FOR THE PURPOSE OF EXPLORATION, DEVELOPMENT, AND PRODUCTION OF OIL
      AND GAS, AS WELL AS PROCESSING AND REFINING OPERATIONS, AND THAT MATERIALS
      ASSOCIATED THEREWITH MAY HAVE BEEN STORED, KEPT OR DISPOSED OF ON OR IN
      THE ASSETS. BUYER ACKNOWLEDGES THAT EQUIPMENT, PLANTS, BUILDINGS,
      STRUCTURES, IMPROVEMENTS, ABANDONED AND OTHER TANKS AND PIPING, STORAGE
      FACILITIES, GATHERING AND DISTRIBUTION LINES, WELLS AND OTHER PETROLEUM
      PRODUCTION FACILITIES AND APPURTENANCES MAY BE LOCATED THEREON. BUYER
      ACKNOWLEDGES THAT THERE MAY HAVE BEEN SPILLS OF CRUDE OIL, PRODUCED WATER
      OR OTHER MATERIALS IN THE PAST ON OR IN THE ASSETS. IN ADDITION, SOME
      PRODUCTION EQUIPMENT MAY CONTAIN ASBESTOS AND NORM. IN THIS REGARD, BUYER
      EXPRESSLY ACKNOWLEDGES AND AGREES THAT NORM MAY AFFIX OR ATTACH ITSELF TO
      THE INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE, OR IN OTHER FORMS,
      AND THAT WELLS, MATERIALS AND EQUIPMENT LOCATED ON THE ASSETS MAY CONTAIN
      NORM AND THAT NORM-CONTAINING MATERIAL MAY BE BURIED AND OTHERWISE
      DISPOSED OF ON THE ASSETS. BUYER ALSO EXPRESSLY UNDERSTANDS THAT SPECIAL
      PROCEDURES MAY BE REQUIRED FOR THE REMOVAL AND DISPOSAL OF ASBESTOS AND
      NORM FROM THE EQUIPMENT AND LAND WHERE IT MAY BE FOUND AND THAT BUYER
      ASSUMES ALL LIABILITY AND EXPENSE FOR SUCH ASSESSMENT, REMOVAL AND
      DISPOSAL OF ANY SUCH MATERIALS AND ASSOCIATED ACTIVITIES, SUBJECT,
      HOWEVER, TO THE TERMS AND PROVISIONS OF THIS AGREEMENT.

            (d) Disclaimer with Respect to Data. All descriptions set forth
      herein and all data, evaluations, reports, and any other information,
      heretofore or hereafter furnished Buyer by Seller concerning any or all of
      the Assets, and the operation thereof, have been and shall be furnished
      solely for Buyer's convenience and have not constituted and shall not
      constitute a representation or warranty of any kind by Seller, and any
      reliance thereupon by Buyer shall be at Buyer's sole risk and liability.
      Seller does not warrant or represent the accuracy or completeness of any
      information, data or materials furnished to Buyer with respect to this
      transaction. Buyer acknowledges that Seller's information with respect to
      the Assets is incomplete and Seller does not have the requisite
      information with which to determine the exact nature or condition of the
      Assets.

                                       22


                                    PART FOUR

                                    COVENANTS

      Section 4.1 Covenants of Seller. Seller covenants with Buyer as follows:

            (a) Access. Except for such of the Assets not operated by Seller,
      Seller shall afford Buyer and Buyer's representatives full and reasonable
      access to the Assets in the possession of Seller during normal working
      hours.

            (b) Operations Prior to Closing. After the date hereof and until the
      Closing, except as otherwise consented to by Buyer in writing, Seller
      shall use and maintain the Assets in substantially the same manner in
      which they have been used and maintained prior to the Agreement. Seller
      shall not be obligated for any expenditures relating to the Assets after
      the Effective Date. Without limitation of the foregoing, after the
      execution of the Agreement and prior to Closing, Seller shall have the
      right to make any changes, repairs or modifications, or incur any
      expenditures necessary or desirable in Seller's opinion for the protection
      of the Assets or to comply with any Applicable Law or other legal
      requirement relative to the premises or to prevent or react to an
      emergency or environmental incident. Seller shall have the right to effect
      such expenditure or action with or without such approval, acting as would
      any prudent operator under similar circumstances. Unless Buyer and Seller
      otherwise agree, Seller shall not materially alter the Assets (other than
      the use of supplies and consumables or the normal production of
      Hydrocarbons from the Assets) or remove any improvements, equipment or
      property which comprise the Assets (other than the use of supplies and
      consumables).

            Without the prior written consent of Buyer, Seller shall not do any
      of the following:

                  (i) make any material change in the conduct of its business or
      operations;

                  (ii) amend in any material respect any contract or agreement
      except where such amendment will not have a material adverse effect;

                  (iii) sell, lease or otherwise dispose of any of the Assets,
      other than properties sold, leased or otherwise disposed of in the
      ordinary course of business,

                  (iv) commit to any new operations reasonably anticipated by
      the Seller to require future capital expenditures in excess of $50,000;

                                       23


                  (v) with respect to any wells to be completed prior to
      Closing, skip any zone or abandon any zone while testing;

                  (vi) run pipe or abandon any well;

                  (vii) elect to participate in any operation on the Assets or
      fail to participate in any operation proposed on the Assets, or

                  (viii) commit to do any of the foregoing.

            In addition, from the date hereof until the Closing, unless the
      prior written consent of Buyer is obtained, Seller shall:

                  (aa) use all reasonable efforts to cause the Assets to be
      developed, maintained, or operated in a manner consistent with prior
      operations and in compliance with good operating standards and in
      accordance with the terms and conditions of the applicable Leases, laws
      and regulations and will regularly consult with Buyer with respect to
      same;

                  (bb) ensure the payment of all rentals, royalties, overriding
      royalties and other payments due with respect to the Assets;

                  (cc) maintain all insurance now in force with respect to the
      Assets;

                  (dd) maintain all material permits, approvals, bonds, and
      guaranties affecting the Assets, and make all filings required under
      applicable law with respect to the Assets;

                  (ee) maintain books of account and records with regard to the
      Assets in accordance with Seller's past practices; and

                  (ff) promptly notify Buyer of any notice of default (or threat
      of default) received or given by Seller with respect to the Assets.

            (c) Consents. Subject to 4.3 (d), Seller shall use reasonable
      efforts to obtain all waivers, consents, approvals, permits and
      authorizations and actions of Third Parties to complete the transactions
      contemplated by the Agreement. Seller shall reasonably endeavor to notify
      all holders of such rights of consent to the assignment of the Assets of
      its intention to sell the portion of the Assets affected thereby, and of
      such terms and conditions of the Agreement to which the holders of the
      rights are entitled.

                                       24


      Seller shall promptly notify Buyer if any consents or approvals are
      denied, or if the requisite period has elapsed without said consents or
      approvals having been received.

      Section 4.2 Covenants of Buyer. Buyer covenants with Seller as follows:

            (a) Performance Bonds, Guaranties, Etc.. With respect to any surety
      bonds, performance bonds, guarantees or financial assurances relating to
      the Assets, on which Seller or Seller's Affiliates is a principal or a
      guarantor, Buyer shall cause such surety bonds, performance bonds,
      guarantees or financial assurances to be replaced or otherwise released
      within ninety (90) days after the Closing Date. Buyer shall reimburse
      Seller for any reasonable amounts paid by Seller with respect to such
      surety bonds, performance bonds, guarantees or financial assurances
      related to periods on and after the Effective Date.

            (b) Plugging and Abandonment. Upon Closing, Buyer shall assume all
      of Seller's responsibility for Plugging and Abandonment associated with
      the Assets, and shall conduct all Plugging and Abandonment in a good and
      workmanlike manner. If at any time during Buyer's ownership of the Assets,
      Buyer sells an interest or assigns an interest or obligation in any of the
      Leases, Fee Interests or Beneficial Interests, then Buyer or its assignee
      shall provide Seller a performance bond (in a form and with a surety
      satisfactory to Seller) or other security satisfactory to Seller in an
      amount reasonably calculated by Seller at that time to pay for any of
      Buyer's remaining Plugging and Abandonment obligations with respect to the
      Assets.

            (c) No Use of Calpine Mark. At the Closing Buyer shall cease to use
      any trademarks, symbols or trade names containing "Calpine," or similar
      words. Notwithstanding anything to the contrary herein, Buyer shall have
      sixty (60) days from the Closing Date to remove or replace any
      identifications and signs.

            (d) Transfer Orders. Buyer shall execute, acknowledge and deliver
      transfer orders or letters in lieu prepared by Buyer directing all
      purchasers of Hydrocarbons to make payments to buyer of proceeds
      attributable to Hydrocarbons produced from the Assets within sixty (60)
      days after Closing.

      Section 4.3 Covenants of Seller and Buyer. Seller and Buyer
covenant to each other as follows:

            (a) Compliance with Conditions Precedent. Each Party shall use its
      commercially reasonable efforts to cause the conditions precedent set
      forth in Part Nine, applicable to such Party, to be fulfilled and
      satisfied as soon as practicable.

                                       25


            (b) Recording. Seller shall be solely responsible for recording of
      the Assignments, and any other documents related to the conveyance of the
      Assets, and shall promptly furnish Buyer with either the recorded
      originals or with the recording information thereof. Seller shall also be
      solely responsible for all filings with any Governmental Body for change
      of operator, and shall promptly provide Buyer with the original approved
      copies of all such filings, or confirmation thereof. All recording and
      filing shall be at the sole cost and expense of Buyer and Buyer shall
      promptly reimburse Seller for all such costs upon presentation of
      appropriate invoices.

            (c) Press Release. No Party shall make any press release or other
      announcement respecting the Agreement without the consent of the other
      Party unless a Party refuses to consent and the Party desiring to make the
      release or other announcement is advised by its counsel that the release
      or other announcement is required to comply with any Applicable Law or
      stock exchange rule.

            (d) Certain Filings, Consents and Permits. With respect to certain
      filings and consents required by any Governmental Body, the Parties agree
      that Buyer and Seller shall cooperate with one another to make all filings
      necessary and to obtain any necessary consents, permits, authorizations,
      approvals or waivers.

            (e) Risk of Loss. The risk of casualty loss relating to the Assets
      shall pass from Seller to Buyer as of the Effective Date. If, after the
      Effective Date but prior to Closing, all or any material portion of the
      Assets is destroyed by fire or other casualty, is taken in condemnation or
      under the right of eminent domain or proceedings for such purposes are
      pending or threatened, Buyer shall purchase such portion of the Assets
      notwithstanding any such destruction, taking or pending or threatened
      taking, and the Purchase Price shall not be adjusted. Seller shall, at
      Closing, pay to Buyer all sums paid to Seller by Third Persons by reason
      of the destruction or taking of such portion of the Assets to be assigned
      to Buyer, and shall assign, transfer and set over to Buyer all of the
      right, title and interest of Seller in and to any unpaid awards or other
      payments from Third Persons arising out of the destruction, taking or
      pending or threatened taking as to such interest. Seller shall not
      voluntarily compromise, settle or adjust any material amounts payable by
      reason of any material destruction, taking or pending or threatened
      taking as to any of the Assets without first obtaining the written consent
      of Buyer, which shall not be unreasonably withheld. In the event that
      casualty losses exceed, in the aggregate, ten percent (10%) of the
      Purchase Price, either Seller or Buyer may terminate this Agreement upon
      written notice to the other, and neither Party thereafter shall have any
      further rights or obligations hereunder.

                                       26


            (f) Preferential Right to Purchase Hydrocarbon Production. Seller
      shall have the right, but not the obligation, at any time and from time to
      time, to designate a purchaser or to purchase as produced all Hydrocarbons
      produced and saved from the Assets. If Seller elects to purchase said
      Hydrocarbons, Seller and Buyer shall execute a NAESB form agreement for
      such sale and the transportation of such Hydrocarbons on commercially
      reasonable terms and conditions including, without limitation, those set
      our in Schedule 4.3(f).

            (g) Post-Closing Access. Except as otherwise expressly provided
      herein, from and after the Closing Date, Buyer and Seller shall reasonably
      cooperate and afford each other or cause to be afforded to their
      respective officers, employees, accountants and other representatives
      access, upon reasonable notice, during business hours with respect to that
      portion of the Assets to which access has been requested, to review and
      copy the books, documents, databases or other records relating to the
      Assets, but excluding those documents subject to Third Party
      confidentiality obligations or subject to the attorney-client privilege or
      otherwise excluded from the definition of Assets (which books, documents,
      databases, records, or employees files or other information the Parties
      shall cooperate and assist one another in identifying and locating),
      interview, depose or seek testimony of employees, provide assistance in
      proceedings with employees as witnesses or advisors, investigate the
      physical premises, take photographs or videotapes, identify employees and
      contractors with knowledge of any matter which is the subject of a claim
      for which a Party has responsibility and make such employees available to
      such Party and provide reasonable office space to do any of the foregoing
      in connection with any matter affecting or alleged to affect the Party
      requesting such access. Notwithstanding the foregoing, access to Tax
      records shall be governed by Part Five.

            (h) Final Recapitulation Settlement. On or before one hundred eighty
      (180) days after Closing ("Final Settlement Date") Seller shall deliver to
      Buyer a final statement (the "Final Recapitulation Statement") which shall
      set forth all of the adjustments to the Purchase Price called for in this
      Section 4.3(h) ("Final Recap Amount").

                  (1) Seller Adjustments. The Final Settlement Statement shall
            incorporate the following adjustments in favor of Seller:

                              (a) If appropriate, any and all merchantable
                        liquids in sales tanks above the pipeline connections on
                        the Effective Date

                                       27


                        that is credited to the Assets, less any Taxes required
                        to be withheld by the purchaser of such.

                              (b) If appropriate, the proceeds received for any
                        and all natural gas produced and credited to the Assets
                        as of the Effective Date.

                              (c) An amount equal to all capital costs,
                        expenses, and any Taxes that are paid by Seller, and
                        that are, in accordance with generally accepted
                        accounting principles, attributable to the Assets from
                        and after the Effective Date, including, without
                        limitation:

                                    (i) royalties, rentals or other similar
                              charges;

                                    (ii) expenses paid by or on behalf of Seller
                              under applicable operating agreements and, in the
                              absence of an operating agreement, expenses of the
                              sort customarily billed under such agreements; and

                                    (iii) ad valorem, property and other Taxes
                              and assessments (but not including income Taxes)
                              based upon or measured by the ownership of the
                              Property or the production of Hydrocarbons or the
                              receipt of proceeds therefrom. For the purposes of
                              this Agreement ad valorem taxes shall be prorated
                              as of the Effective Date.

                                    (iv) reasonable amounts paid by Seller for
                              surety bonds, performance bonds or other financial
                              assurances pursuant to Section 4.2(a); and

                              (d) Any other adjustments in favor of Seller as
                        provided for in this Agreement.

                  (2) Buyer Adjustments. The Final Settlement Statement shall
            incorporate adjustments in favor of Buyer:

                              (a) the proceeds received for any and all
                        merchantable liquids below the pipeline connections on
                        the Effective Date that is credited to the Assets less
                        any Taxes required to be withheld by the purchaser of
                        such.

                                       28


                              (b) the actual sales price received by Seller from
                        any and all natural gas proceeds and credited to the
                        Assets after the Effective Date; and

                              (c) Any other adjustments in favor of Buyer as
                        provided for in this Agreement.

                  (3) Buyer shall have the right, within thirty (30) days after
            receipt of the Final Recapitulation Statement, to audit and object
            to such statement. If Buyer objects to the Final Recapitulation
            Statement in writing within the thirty (30) day period, Buyer and
            Seller shall attempt to resolve such objections within thirty (30)
            days after receipt of said objection. If the Parties are unable to
            resolve such objections within the thirty (30) day period, then
            either Party shall have the right thereafter to submit the matter to
            arbitration pursuant to the terms of the Dispute Resolution
            Procedure attached as Schedule 10.13 for determination of the Final
            Recap Amount.

                  (4) Payment of the Final Recap Amount is due thirty (30) days
            from receipt of the Final Recapitulation Statement, or ten (10) days
            from the determination of the Final Recap Amount under the Dispute
            Resolution Procedure, whichever is later. Interest will be applied
            at the Agreed Rate to any amounts if not paid when due.

            (i) Audit Rights. Within one year after the Closing Date, each of
      Seller and Buyer may, at its own expense and by appointment only, audit
      the other Party's books, accounts and records relating to such production
      proceeds, capital costs, Taxes, Expenses and Burdens relating to this
      transaction. Such audit shall be conducted so as to cause a minimum of
      inconvenience to the audited Party.

            (j) Further Assurances. Each Party shall, from time to time at the
      request of the other, and without further consideration, execute and
      deliver such other instruments of sale, transfer, conveyance, assignment,
      clarification and termination and take such other action as the Party
      making the request may reasonably require to effectuate the intentions of
      the Parties, including those reasonably required to sell, transfer, convey
      and assign to and vest in Buyer, and to place Buyer in possession of the
      Assets and to transfer, assign or convey the Excluded Assets to Seller.
      Seller intends to convey the Assets at Closing; however, in the event it
      is determined after Closing that: (i) any part of the Assets was not in
      fact conveyed to Buyer, and that the title to any part of the Assets is
      incorrectly in the name of Seller; (ii) any Excluded Asset is conveyed to
      Buyer and that the title to such excluded Asset is incorrectly in the name
      of Buyer; then each Party shall take all Such action necessary to
      correctly convey any part of Assets to Buyer, or any part of the Excluded
      Assets to Seller.

                                       29


            (k) Affiliates Access. Seller and its Affiliates shall have a
      non-exclusive right of access to and over the Fee Interests, Leases and
      Easements reasonably necessary to operate, maintain or remove any
      facilities or personal property in existence and owned or operated by such
      Affiliates on the Effective Date.

            (l) Files Transfer. Originals (or copies if originals are not in
      possession of Seller) of all non-privileged and non-confidential files,
      contracts, and documents affecting the Assets which are in Seller's
      possession shall be shipped, using reasonable efforts, to Buyer within
      thirty (30) days after Closing. Buyer shall designate the method of
      shipment and the carrier far enough in advance to allow for timely
      shipment and shall be solely responsible for the cost and expense of
      shipment and for any Losses occurring as a result of such shipment. In the
      event Buyer has not provided for shipment within a reasonable time, then
      Seller may arrange and pay for shipment to Buyer; in such event, Buyer
      shall reimburse Seller for all expenses associated with such shipment
      within thirty (30) days of Seller's request for reimbursement.

            (m) Copies. Copies of all non-privileged and non-confidential books,
      records, production records, logs (originals if in possession of Seller),
      well files (originals if in possession of Seller), information, and
      engineering data relating to the Assets, (except information and data
      excluded from the definition of Assets), shall be shipped, using
      reasonable efforts, to Buyer within thirty (30) days after Closing.

            (n) Assumption of Operatorship. Unless otherwise agreed to by the
      Parties and subject to the terms and conditions of all applicable
      Contracts, Buyer shall assume Seller's obligations for operatorship of any
      Seller-operated Assets conveyed herein at 7:00 a.m. on the first Business
      Day following the Closing, and thereafter shall perform all duties
      required in the course of business, including without limitation, paying
      Burdens and severance Taxes, pumping and gauging wells, marketing
      Hydrocarbons, working over wells, drilling new wells, filing all necessary
      reports required by Applicable Law or otherwise, and performing
      maintenance or repair work on the Assets until such time as a successor
      operator is duly elected pursuant to any applicable Contract.
      Notwithstanding the foregoing, Seller does not warrant or guarantee that
      Buyer shall succeed Seller as operator.

            (o) Assumption of Gas Imbalances. Buyer agrees to assume and bear
      any and all gas imbalances with respect to the Assets. Buyer understands
      that the existence of a gas imbalance in the form of overproduction may
      result in a cash payment by Buyer or in Buyer's inability to further
      produce and sell gas. Further, to the extent any

                                       30


      of the Wells are underproduced, there are no warranties that any rights of
      makeup or cash payment exist with respect to such underproduction. WITHOUT
      LIMITATION OF ANY OTHER PROVISION CONTAINED HEREIN, BUYER HEREBY
      SPECIFICALLY RELEASES SELLER FROM, AND AGREES TO FULLY DEFEND, PROTECT,
      INDEMNIFY AND HOLD HARMLESS SELLER, ITS AFFILIATES AND THEIR RESPECTIVE
      OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES, FROM AND
      AGAINST EACH AND EVERY LOSS THAT MAY BE ASSERTED BY ANY THIRD PERSON,
      RELATING TO GAS IMBALANCES RESPECTING THE WELLS CONVEYED WHETHER ARISING
      UNDER THE TERMS OF ANY GAS BALANCING OR OTHER SIMILAR AGREEMENT, BY
      OPERATION OF APPLICABLE LAW OR OTHERWISE. Buyer represents that it has
      independently investigated, to its satisfaction, the gas balancing account
      associated with the Assets.

      On or before the date that the Final Recapitulation Statement is due,
      Seller and Buyer shall, based upon data available at that time, determine
      (a) the total amount of overproduction of gas attributable to Seller's
      interest (e.g. volumes of gas taken from the Properties, or on lands
      unitized therewith, by Seller in excess of those volumes which Seller's
      interest would be entitled to receive) and (b) the total amount of
      underproduction of gas attributable to Seller's interest (e.g. volumes of
      gas not taken from the Properties, or on lands unitized therewith, by
      Seller despite Seller's interest in and right to receive such volumes). If
      the total amount of overproduction (as so determined) exceeds the total
      amount of underproduction (as so determined) Buyer shall receive a credit
      against the Purchase Price equal to $3.00 per Mcf times such excess. If
      the total amount of underproduction (as so determined) exceeds the total
      amount of overproduction (as so determined) Buyer shall in addition to the
      amount of Purchase Price payable, pay to Seller an amount equal to $3.00
      per Mcf times such excess.

                                       31


                                    PART FIVE

                                      TAXES

      Section 5.1 Payment and Apportionment of Real Property Taxes and Personal
Property Taxes. With respect to Taxes:

            (a) 2004 Taxes. All property Taxes including, without limitation, ad
      valorem Taxes, benefit assessments, and special assessments, shall be
      prorated between the Buyer and Buyer based upon the Effective Date for the
      Tax year in which the Effective Date occurs. Buyer shall pay such Taxes to
      the appropriate taxing authorities. Seller shall be charged for and shall
      reimburse Buyer for the Seller's allocated share of property Taxes paid by
      Seller.

            (b) 2003 Taxes. All real property Taxes and personal property Taxes
      imposed as a result of ownership of the Assets at any time during 2003
      shall be paid by Seller.

            (c) 2005 Taxes. All real property Taxes and personal property Taxes
      imposed as a result of ownership of the Assets at any time during 2005
      shall be paid by Buyer.

      Section 5.2 Sales Taxes. The Purchase Price does not include any sales
Taxes or other transfer Taxes imposed in connection with the sale of the Assets.
Buyer shall reimburse Seller for or otherwise pay any sales Tax or other
transfer Tax, as well as any applicable conveyance, transfer and recording fee,
and real estate transfer stamps or Taxes imposed on the transfer of the Assets
pursuant to the Agreement. If Buyer is of the opinion that it is exempt from the
payment of any such sales Tax or other transfer Tax in connection with the
purchase of the Assets, Buyer shall furnish to Seller the appropriate Tax
exemption certification. Sales and other transfer Taxes shall be accounted for
pursuant to Section 4.3(h).

      Section 5.3 Other Taxes. All excise, windfall profit and other Taxes
(other than income Taxes) relating to production of Hydrocarbons prior to the
Effective Date shall be paid by Seller, and all such Taxes relating to such
production on or after the Effective Date shall be paid by Buyer.

      Section 5.4 Cooperation. For the period ending on the seventh anniversary
of the Closing Date, each Party to the Agreement shall provide the other Party
with reasonable

                                       32


access to all relevant documents, data and other information which may be
required by the other Party for the purpose of preparing Tax returns,
establishing or defending a Tax position and responding to any audit by any
taxing jurisdiction. Each Party to the Agreement shall cooperate with all
reasonable requests of the other Party made in connection with contesting the
imposition of Taxes. Notwithstanding anything to the contrary in the Agreement,
neither Party to the Agreement shall be required at any time to disclose to the
other Party any Tax returns or other confidential or privileged Tax information.

      Section 5.5 Tax Proceedings. In the event Buyer receives notice of any
examination, claim, adjustment or other proceeding relating to the liability for
Taxes of or with respect to Seller for any period Seller is or may be liable
under the Agreement, Buyer shall within ten (10) days notify Seller in writing
thereof. As to any such Taxes for which Seller is or may be liable under the
Agreement, and Seller does not contest such liability as against Buyer, Seller
shall be entitled at Seller's expense to control or settle the contest of such
examination, claim, adjustment or other proceeding, provided Seller notifies
Buyer in writing within thirty (30) days after receipt of the notice described
in the preceding sentence that Seller desires to do so. The Parties shall
cooperate with each other in the negotiations and settlement of any proceeding
described in this Section 5.5. Buyer shall provide, or cause to be provided, to
Seller necessary authorizations, including powers of attorney, to control any
proceeding which Seller is entitled to control pursuant to this Part Five.

      Section 5.6 Purchase Price Allocation. The allocation of Purchase Price
provided for in Section 2.3 is intended to comply with the allocation method
required by Section 1060 of the Code. Buyer and Seller shall cooperate to comply
with all substantive and procedural requirements of Section 1060 and regulations
thereunder, including without limitation the filing by Buyer and Seller of an
IRS Form 8594 with their federal income Tax returns for the taxable year in
which the Closing occurs. Buyer and Seller agree that each will not take for
income Tax purposes, or permit any Affiliate to take, any position inconsistent
with the allocation of Purchase Price prescribed in Section 2.3.

                                    PART SIX

                              ENVIRONMENTAL MATTERS

      6.1 Phase I Environmental Assessment. Beginning on the date of this
Agreement and ending on August 26, 2004 (the "Review Period"), Buyer shall have
the right,

                                       33


at its sole cost, risk and expense, to conduct an environmental assessment of
the Assets. During normal business hours and after providing Seller reasonable
prior notice of any such activities, Buyer and its representatives shall be
permitted to enter upon the Assets operated by Seller and all buildings and
improvements thereon, inspect the same, review all of Seller's non-privileged
and non-confidential files and records related to the Assets and generally
conduct such tests, examinations, and investigations as are consistent with the
American Society for Testing and Materials standard Phase I environmental audit.
Seller will have the right to (i) observe such investigation and (ii) promptly
receive a copy of all results, analyses and reviews. All information obtained or
reviewed by Buyer shall be maintained confidential pursuant to the
Confidentiality Agreement, which shall continue in force under its terms.

      6.2 Environmental Defect Notice. Buyer shall notify Seller in writing of
any Environmental Conditions (an "Environmental Defect Notice(s)") no later than
5:00 p.m. CDT August 26, 2004. The Environmental Defect Notice shall state with
reasonable specificity: (i) the Property affected or on which the Asset is
located; (ii) a complete description of the Environmental Condition claimed;
(iii) Buyer's good faith estimate of the cost of Remediation of such
Environmental Condition (the "Environmental Defect Value"); and (iv) appropriate
documentation substantiating Buyer's claim. Buyer shall conclusively be deemed
to have waived any Environmental Condition not asserted by an Environmental
Defect Notice no later than 5:00 p.m. CDT August 26, 2004 (the "Environmental
Notice Deadline").

      6.3 Seller's Election. For any Environmental Conditions asserted in an
Seller shall have the option of (i) Remediating the Environmental Defect
Notice(s), Environmental Condition, (ii) contesting the existence of the
Environmental Condition or the Environmental Defect Value, (iii) paying the
Environmental Defect Value as an adjustment to the Purchase Price subject to the
limitations set forth below, or (iv) excluding the affected Property and
reducing the Purchase Price by the value allocated to the Property. Seller shall
notify Buyer in writing of its election no more than five (5) days following its
receipt of an Environmental Defect Notice.

            (a) If Seller elects to Remediate an Environmental Condition, Seller
      shall give written notice of such an election to Buyer no more than four
      (4) days after receipt of the Environmental Defect Notice, together with
      Seller's proposed plan and timing for such Remediation and Seller shall
      remain liable for all Losses arising out of or in connection with such
      Environmental Condition until such time as the Remediation is completed.

            (b) If Seller contests the existence of an Environmental Defect or
      the Environmental Defect Value, then Seller shall so notify Buyer in
      writing no more than

                                       34


      four (4) days after receipt of the Environmental Defect Notice
      ("Environmental Rejection Notice"). The Environmental Rejection Notice
      shall state with reasonable specificity the basis of Seller's rejection of
      the Environmental Defect or the Environmental Defect Value. Within ten
      (10) days of Buyer's receipt of the Environmental Rejection Notice,
      representatives of Buyer and Seller, knowledgeable in environmental
      matters, shall meet and, within twenty (20) days after Buyer's receipt of
      such Environmental Rejection Notice, either: (i) agree to mutually reject
      the particular Environmental Defect Notice, or (ii) agree on the validity
      of such Notice including the Environmental Defect Value, in which case
      Seller shall have sixty (60) days after the date of such agreement within
      which to elect in writing to Remediate the Environmental Condition
      pursuant to Section 6.2(a) above or to pay Buyer the Environmental Defect
      Value pursuant to Section 6.2 (c) above. If the Parties cannot agree on
      either options (i) or (ii) in the preceding sentence, the dispute shall be
      submitted to arbitration in accordance with the procedures set forth in
      Section 10.13. In such case, Seller shall have five (5) days following the
      final decision of the arbitration panel to notify Buyer in writing of its
      election to Remediate the Environmental Defect or to pay the Buyer the
      Environmental Defect Value.

            (c) In the event a contested Environmental Defect cannot be resolved
      prior to Closing, Seller shall convey the affected Property to Buyer and
      Buyer shall pay for the Property at Closing in accordance with the
      Agreement as though there were no Environmental Defect, subject to
      Seller's obligations as set forth above upon resolution of the contested
      matter.

            (d) If the Purchase Price is adjusted pursuant to Section 6.2(iii)
      above, or if Buyer waives an Environmental Condition pursuant to Section
      6.2 above or otherwise, Buyer shall assume all Losses associated with such
      Environmental Condition(s).

            Section 6.4 Covenant of Cooperation. The Parties shall cooperate
fully with each other and act in good faith in implementing Part Six, including
but not limited to the following:

            (a) sharing with the other Party in a timely manner all material,
      non-privileged, non-confidential correspondence received from any
      Affiliate or Third Person that is relevant to such an Environmental
      Condition for which a Party is responsible pursuant to this Part Six;

            (b) affording the other Party timely access to and an opportunity to
      comment on (both draft and final versions) any material non-privileged,
      non-

                                       35


      confidential correspondence to Affiliates or Third Persons, study
      protocols and results, drawings, charts remediation plans or reports, or
      other documentation relating to an Environmental Condition for which a
      Party is responsible pursuant to this Part Six;

            (c) providing the other Party timely notice of and an opportunity to
      attend and participate in any meetings or hearing with Governmental Bodies
      or courts relating to any Environmental Condition for which a Party is
      responsible pursuant to this Part Six;

            (d) preparing all material strategies and plans affecting any matter
      with respect to which the other Party may have liability hereunder or that
      may affect the future operations of the other Party in consultation with
      the other Party using appropriate cost-effective technology and clean-up
      criteria, including risk-based clean-up standards where permitted, in
      accordance with Applicable Law;

            (e) permitting each other post-Closing access, as described in
      Section 4.3(h); and

            (f) cooperating with each other to assist in the collection of any
      amounts that may be collectible from joint interest owners to offset
      Buyer's and Seller's liabilities pursuant to Part Six;

      Section 6.5 Post-Closing Access. After the Closing with prior consent of
Buyer (which consent shall be timely given and shall not be unreasonably
withheld) and, where required, the prior written consent of any operator and
landowner of any affected Property, Seller and Seller's agents and
representatives shall have the right to enter onto the affected Property during
normal business hours for the purpose of conducting any environmental
inspection, audit, test, Remediation, or any other purpose deemed necessary by
Seller for purposes of fulfilling its responsibilities under Part Six. Buyer
shall use its reasonable efforts to obtain for Seller any consent required from
any Third Person (including but not limited to the operator and landowner) to
obtain such access.

      Section 6.6 Limitation. Payments of the Environmental Defect Values shall
be made by Seller to Buyer as an adjustment to the Purchase Price at Closing if
then determined or if not determined as of the Closing, thereafter, consistent
with the time frames set forth above. Notwithstanding the provisions of Sections
6.2 and 6.3, no adjustment to the Purchase Price for Environmental Defect Values
pursuant to Section 6.2(b) shall be made unless and until the aggregate value of
all such Values (the "Aggregate Environmental Defect Value")

                                       36


exceeds a deductible (not a threshold) equal to Five Hundred Thousand Dollars
($500,000.00). If the Environmental Defect Value with respect to any single
Environmental Condition is less than $5,000, such cost shall not be considered
in calculating the Aggregate Environmental Defect Value. In the event the
Aggregate Environmental Defect Value exceeds ten percent (10%) of the Purchase
Price, either Seller or Buyer may terminate this Agreement upon written notice
to the other, and neither Party thereafter shall have any further rights or
obligations hereunder.

      Section 6.7 Exclusive Remedies. The rights and remedies granted each Party
in Part Six are exclusive rights and remedies against the other Party related to
any Environmental Condition, or Losses related thereto and the other matters
contained in this Part Six, and, EXCEPT AS PROVIDED IN PART 8, EACH PARTY
EXPRESSLY WAIVES ANY AND ALL OTHER RIGHTS AND REMEDIES WHICH IT MAY HAVE AGAINST
THE OTHER PARTY REGARDING ENVIRONMENTAL CONDITIONS, WHETHER FOR CONTRIBUTION,
INDEMNITY OR OTHERWISE, REGARDLESS OF THE FAULT OR NEGLIGENCE OF THE CLAIMING
PARTY, INCLUDING STRICT OR STATUTORY LIABILITY OF THAT PARTY UNDER ANY
APPLICABLE LAW.

                                   PART SEVEN

                                  TITLE MATTERS

      Section 7.1 Confidentiality Agreement. During the Review Period, Buyer
upon written request and at Buyer's sole cost and expense, may inspect and
review all of Seller's non-privileged and non-confidential files, records, and
similar materials relating to the Fee Interests, Leases, Beneficial Interests
and Contracts. All information made available to Buyer and designated by Seller
as confidential or proprietary shall be maintained confidential pursuant to the
Confidentiality Agreement, which shall continue in force under its terms.

      Section 7.2 Preferential Purchase Rights. Seller shall have a period of
sixty (60) days from the date of the Agreement to resolve preferential purchase
rights to the Properties set forth on Schedule 7.2. To the extent any
preferential purchase rights are exercised by any Third Person entitled to
exercise such rights, or waivers thereof are not obtained prior to the Closing
Date, then the Properties subject to such preferential purchase rights shall not
be sold to Buyer and shall be excluded from the Agreement. The Purchase Price
shall be adjusted by the dollar value allocated to the Properties subject to
such preferential purchase right set forth in Schedule 2.3. In the event any
Third Person initially elects to exercise a particular preferential right, but
subsequently refuses or elects not to consummate the purchase under the

                                       37


preferential right (whether such failure occurs before or after the Closing
Date), the Parties agree that Buyer shall purchase such interests covered by the
preferential right in accordance with the values set forth in Schedule 2.3 and
the closing of such transaction shall take place on a date designated by Seller
not more than ninety (90) days after the Closing Date.

      Section 7.3 Required Consents. If Seller shall fail to obtain any consent
or waiver of maintenance of uniform interest provision required for the transfer
of any Property, Seller's failure shall be handled as follows:

            (a) If the holder of the right to consent or party to a maintenance
      of uniform interest provision affirmatively refuses to consent or waive
      prior to Closing, such refusal shall be considered a Title Defect under
      this Part Seven and the Title Indemnity Payment therefore shall equal the
      value (or portion thereof) allocated to the affected Property (or portion
      thereof) in Schedule 2.3.

            (b) Except for approvals from Governmental Bodies normally received
      subsequent to assignment, if Seller believes a consent or waiver may be
      obtained subsequent to Closing, the Property shall be held by Seller for
      the benefit of Buyer after Closing and Seller shall provide Buyer with the
      economic benefits thereof until such consent or waiver is received or
      until ninety (90) days following Closing, if later, and Buyer shall pay
      for the Property at Closing in accordance with the Agreement as though the
      consent or waiver had been obtained. If Seller obtains the consent or
      waiver on or before ninety (90) days following Closing, then Seller shall
      deliver conveyances of the Property to Buyer. If the consent or waiver is
      not obtained or is affirmatively refused on or before ninety (90) days
      following Closing, Seller shall refund the value allocated to the affected
      portion of the Property to Buyer less any net revenues (revenues net of
      costs and Burdens) received by Buyer in connection with such affected
      portion of the Property and Seller's holding for the benefit of Buyer
      shall terminate.

      Section 7.4 Title Defects. Buyer shall notify Seller in writing of any
Title Defects ("Title Defect Notice(s)") no later than 5:00 p.m. CDT on August
26, 2004. The Title Defect Notice shall state with reasonable specificity: (i)
the Property affected; (ii) the particular Title Defect claimed; (iii) Buyer's
good faith estimate of the amount the Title Defect reduces the value allocated
to the affected Property on Schedule 2.3 (the "Defect Value"); and (iv)
appropriate documentation substantiating Buyer's claim. Buyer shall conclusively
be deemed to have waived any Title Defects not asserted by a Title Defect Notice
no later than 5:00 p.m. CDT on August 26, 2004. For all Title Defects asserted
in Title Defect Notices, Seller shall have the option of (a) curing the Title
Defect, (b) contesting the Title Defect or Buyer's good faith estimate of the
Defect Value, (c) paying Buyer's good faith estimate of the Defect Value as an
adjustment to the Purchase Price subject to the limitations set forth below (a
"Title Indemnity Payment"), or

                                       38


(d) excluding the affected Property and reducing the Purchase Price by the value
allocated to such Property. Seller shall notify Buyer in writing of its election
no more than four (4) days following its receipt of a Title Defect Notice.

      Section 7.5 Seller's Right to Cure. If Seller elects to cure a Title
Defect, then Seller shall so notify Buyer in writing within four (4) days after
receipt of the particular Title Defect Notice ("Cure Notice"). Within sixty (60)
days after receipt of the Title Defect Notice, Seller shall either cure the
Title Defect to the reasonable satisfaction of Buyer ("Cure") or if Seller is
unable to Cure such Title Defect, make a Title Indemnity Payment for such Title
Defect equal to Buyer's good faith estimate of the Defect Value set forth in the
Title Defect Notice.

      If Seller is unable to Cure a Title Defect prior to Closing, Seller shall
convey the Property to Buyer and Buyer shall pay for the Property at Closing in
accordance with the Agreement as though the Title Defect had been Cured, subject
to Seller's obligation to make a Title Indemnity Payment to Buyer less any net
revenues (revenues net of costs and Burdens) received by Buyer in connection
with the affected portion of the Property if the Title Defect cannot be Cured
during the sixty (60) days following receipt of the Title Defect Notice.

      Section 7.6 Contested Title Defects. If Seller contests the existence of a
Title Defect or Buyer's good faith estimate of the Defect Value, then Seller
shall so notify Buyer in writing no more than five (5) days after Seller's
receipt of the Title Defect Notice ("Rejection Notice"). The Rejection Notice
shall state with reasonable specificity the basis of Seller's rejection of the
Title Defect or Buyer's good faith estimate of the Defect Value. Within thirty
(30) days of Buyer's receipt of the Rejection Notice, representatives of Buyer
and Seller, knowledgeable in title matters, shall meet and, within ten (10) days
after Buyer's receipt of such Rejection Notice, either: (i) agree to mutually
reject the particular Title Defect, or (ii) agree on the validity of such Title
Defect and the Defect Value, in which case Seller shall have sixty (60) days
after the date of such agreement within which to Cure such Title Defect and
failing such Cure, to make the Title Indemnity Payment therefore. If the Parties
cannot agree on either options (i) or (ii) in the preceding sentence, the Title
Defect or the Defect Value subject to the Rejection Notice shall be submitted to
arbitration in accordance with the procedures set forth in Section 10.13. If
Seller fails to timely deliver a Rejection Notice or a Cure Notice, Seller shall
be deemed to have accepted the validity of the Title Defect and Buyer's good
faith estimate of the Defect Value, and shall pay Buyer a Title Indemnity
Payment for the Title Defect equal to the Defect Value within sixty (60) days of
Seller's receipt of the applicable Title Defect Notice.

      In the event a contested Title Defect cannot be resolved prior to Closing,
Seller shall convey the affected Property to Buyer and Buyer shall pay for the
Property at Closing in

                                       39


accordance with the Agreement as though there were no Title Defect, subject to
Seller's obligations as set forth in this Section 7.6 to Cure or to make a Title
Indemnity Payment to Buyer less any net revenues (revenues net of costs and
Burdens) received by Buyer in connection with the affected Property.

      Section 7.7 Title Indemnity Payments. Title Indemnity Payments shall be
made by Seller to Buyer as an adjustment to the Purchase Price at Closing if
then determined or if not determined as of the Closing, thereafter, consistent
with the time frames set forth above Notwithstanding the provisions of Sections
7.3, 7.4, 7.5 and 7.6, Seller is obligated to make a Title Indemnity Payment
only if the aggregate Defect Value of all Title Defects that Seller has agreed
to pay pursuant to Section 7.4 or which is resolved pursuant to Section 7.6 (the
"Aggregate Title Defect Value") exceed a deductible (not a threshold) equal to
Five Hundred Thousand Dollars ($500,000.00). If the Defect Value for any single
Property is less than $5,000, such value shall not be considered in calculating
the Aggregate Title Defect Value. If a Defect Value is not liquidated or certain
in amount, the Defect Value shall be the amount necessary to compensate Buyer
for the adverse economic effect on the Property, taking into account all
relevant factors, including without limitation, the Property's Allocated Value,
the time value of money, the practical and legal effect of the Title Defect, and
the amount of reduction in Net Revenue Interest or increase in the Working
Interest of the affected Property. The aggregated Defect Value(s) for any
Property shall never exceed the value allocated to such Property in Schedule
2.3. In the event the Aggregate Title Defect Value exceeds ten percent (10%) of
the Purchase Price either Buyer or Seller may terminate this Agreement upon
written notice to the other, and neither Party thereafter shall have any further
rights or obligations hereunder.

      Section 7.8 Interest Additions. If Seller discovers an increase in the Net
Revenue Interest shown on Schedule H with respect to a Property Interest which
is free of Title Defects (an "Interest Addition"), then Seller shall, from time
to time and without limitation, have the right to give Buyer written notice of
such Interest Additions ("Interest Addition Notice"), as soon as practicable but
no less than fifteen (15) days before Closing, stating with reasonable
specificity the Property affected, the particular Interest Addition claimed, and
Seller's good faith estimate of the amount the Additional Interest increases the
value of the affected Property over and above the value allocated to such
Property in Schedule 2.3 ("Interest Addition Value"). Seller shall conclusively
be deemed to have waived any additional Interest not asserted by an Interest
Addition Notice on or before fifteen (15) days prior to Closing. If Buyer agrees
with the existence of the Additional Interest and Seller's good faith estimate
of the Interest Addition Value, then the Interest Addition Value shall be
applied as an offset to any Title Indemnity Payment required of Seller
("Offset"). If the Interest Addition Value exceeds the amount of any Title
Indemnity Payment(s) due Buyer, the amount of such difference (an "Interest
Addition Payment") shall be paid by Buyer to Seller as an adjustment

                                       40


to the Purchase Price at Closing. If Buyer contests the existence of the
Interest Addition or Seller's good faith estimate of the Interest Addition
Value, then Buyer shall so notify Seller in writing within ten (10) days after
Buyer's receipt of the Interest Addition Notice ("Interest Addition Rejection
Notice"). The Interest Addition Rejection Notice shall state with reasonable
specificity the basis of Buyer's rejection of the Additional Interest or Buyer's
good faith estimate of the Interest Addition Value. Within ten (10) days of
Seller's receipt of the Interest Addition Rejection Notice, representatives of
Buyer and Seller, knowledgeable in title matters, shall meet and, within sixty
(60) days after Seller's receipt of such Interest Addition Rejection Notice,
either (a) agree to mutually reject the Interest Addition in which case Seller
shall waive the Interest Addition, or (b) agree on validity of such Interest
Addition and the Interest Addition Value, in which case Seller shall be entitled
to an Offset or Interest Addition Payment. If the Parties cannot agree on either
option (a) or (b) in the preceding sentence, the Interest Addition subject to
the Interest Addition Rejection Notice shall be submitted to arbitration in
accordance with the procedures set forth in Section 10.13. If Buyer fails to
timely deliver an Interest Addition Rejection Notice, Buyer shall be deemed to
have accepted the validity of the Interest Addition and Seller's good faith
estimate of the Interest Addition Value, and Seller shall be entitled to an
Offset or Interest Addition Payment as described above.

      Section 7.9 Reconveyance. If Seller makes a payment for Title Defect
pursuant to Part Seven for one hundred percent (100%) of the Defect Value, Buyer
shall, at Seller's sole option to be exercised no later than sixty (60) days
after such payment, reconvey to Seller the Property or portion of the Property,
and all proceeds accruing thereto, with respect to which the Title Indemnity
Payment was made (effective as of the Effective Date).

                                   PART EIGHT

                                    INDEMNITY

      Section 8.1 General Indemnification. Buyer and Seller agree that:

            (a) Seller. Except with respect to Taxes (which are covered by Part
      Five), and title matters (which are covered by Part Seven) Seller shall
      indemnify, defend and hold harmless Buyer, its Affiliates and its and
      their respective officers, directors, agents and employees from and
      against all Losses based upon, arising out of, in connection with, or
      relating to:

                                       41


                  (i) any breach of any representation, warranty, covenant or
            agreement of Seller contained in the Agreement;

                  (ii) except for the Assumed Liabilities, any matter arising in
            connection with the ownership or operation of the Assets prior to
            the Effective Date;

                  (iii) all actions, proceedings, claims, litigation,
            arbitration, mediation or other dispute resolution procedure pending
            or to the Actual Knowledge of Seller threatened, as of the Effective
            Date relating to or affecting the Assets;

      and for which Buyer has submitted a Claim Notice on or before December 31,
      2005 in compliance with Section 8.2. NOTWITHSTANDING THE FOREGOING,
      SELLER'S FINANCIAL OBLIGATIONS UNDER THIS SECTION 8.1(a) SHALL NOT EXCEED,
      IN THE AGGREGATE, AN AMOUNT EQUAL TO FIFTY PERCENT (50%) OF THE PURCHASE
      PRICE AS ADJUSTED PURSUANT TO SECTION 2.2.

            (b) Buyer. Except with respect to Taxes (which are covered in Part
      Five), Buyer shall indemnify, defend and hold harmless Seller, its
      Affiliates and its and their respective officers, directors, agents and
      employees from and against all Losses based upon, arising out of, in
      connection with, or relating to:

                  (i) any breach of any representation, warranty, covenant or
            agreement of Buyer contained in the Agreement;

                  (ii) if the Closing occurs, any matter arising in connection
            with the ownership or operation of the Assets from and after the
            Effective Date;

                  (iii) Buyer's inspection of the Assets as set forth in Section
            3.2(g) and 4.1(a);

                  (iv) if the Closing occurs, any dispute or claim arising after
            Closing in connection with preferential purchase rights on Assets
            conveyed to Buyer at the Closing;

                  (v) any claims asserted by Third Persons against Seller in
            reliance on any interpretive data conveyed by Seller to Buyer, to
            the extent such claims arise as a consequence of Buyer's disclosure
            of such data;

                                       42


                  (vi) If Closing occurs, Losses attributable to claims against
            Seller's bonds or similar instruments that remain in place after the
            Closing pursuant to Section 4.2;

                  (vii) if the Closing occurs, the Assumed Liabilities; and

                  (viii) any Losses not indemnified by Seller by reason of the
            limitations set forth in Section 8.1 (a).

      Section 8.2 Method of Asserting Claims, Etc. Except for Claims under Parts
5 and 7, all claims for indemnification under the Agreement shall be asserted
and resolved as follows:

            (a) Third Party Claims. In the event that any claim for which a
      Party providing indemnification (the "Indemnifying Party") would be liable
      to a Party or any of its officers, directors, employees, agents,
      representatives or others entitled to indemnification hereunder (the
      "Indemnified Party") is asserted against or sought to be collected by a
      Third Person, the Indemnified Party shall promptly notify the Indemnifying
      Party of such claim, specifying the nature of such claim and the amount or
      the estimated amount thereof to the extent then feasible (which estimate
      shall not be conclusive of the final amount of such claim) (the "Claim
      Notice"). The Indemnified Party shall have thirty (30) days from its
      receipt of the Claim Notice (the "Notice Period") to notify the
      Indemnified Party (i) whether or not it disputes its liability to the
      Indemnifying Party hereunder with respect to such claim, and (ii) if it
      does not dispute such liability, whether or not it desires, at its sole
      cost and expense, to defend the Indemnified Party against such claim;
      provided, however, that the Indemnified Party is hereby authorized prior
      to and during the Notice Period to file any motion, answer or other
      pleading which it shall deem necessary or appropriate to protect its
      interests. In the event that the Indemnifying Party notifies the
      Indemnified Party within the Notice Period that it does not dispute such
      liability and desires to defend against such claim or demand, then, except
      as hereinafter provided, the Indemnifying Party shall have the right to
      defend such claim or demand by appropriate proceedings, which proceedings
      shall be promptly settled or prosecuted to a final conclusion, in such a
      manner as to avoid any risk of the Indemnified Party becoming subject to
      liability. If the Indemnified Party desires to participate in, but not
      control, any such defense or settlement, it may do so at its own cost and
      expense. If the Indemnifying Party disputes its liability with respect to
      such claim, or elects not to defend against such claim, whether by not
      giving timely notice as provided above or otherwise, the Indemnified Party
      shall have the right

                                       43


      but not the obligation to defend against such claim, and the amount of any
      such claim, or if the same be contested by the Indemnifying Party or by
      the Indemnified Party, then that portion thereof as to which such defense
      is unsuccessful, shall be conclusively deemed to be a liability of the
      Indemnifying Party hereunder (subject, if it has timely disputed
      liability, to a determination in accordance with Section 10.13 that the
      disputed liability is covered by this Part Eight.)

            (b) Other Claims. In the event that the Indemnified Party shall have
      a claim against the Indemnifying Party hereunder which does not involve a
      claim or demand being asserted against or sought to be collected from it
      by a Third Person, the Indemnified Party shall promptly send a Claim
      Notice with respect to such claim to the Indemnifying Party. If the
      Indemnifying Party does not notify the Indemnified Party within the Notice
      Period that it disputes such claim, the amount of such claim shall be
      conclusively deemed a liability of the Indemnifying Party hereunder.

      Section 8.3 Payment. Payments under this Part Eight shall be made as
      follows:

            (a) Payment for Undisputed Amounts. In the event that the
      Indemnifying Party is required to make any payment under this Part Eight,
      the Indemnifying Party shall promptly pay the Indemnified Party the amount
      so determined. If there should be a dispute as to the amount or manner of
      determination of any indemnity obligation owed under Part Six or this Part
      Eight, the Indemnifying Party shall nevertheless pay when due such
      portion, if any, of the obligation as shall not be subject to dispute. The
      difference, if any, between the amount of the obligation ultimately
      determined as properly payable under Part Six or this Part Eight and the
      portion, if any theretofore paid, shall bear interest at the Agreed Rate
      as provided in Section 8.3(b). Upon the payment in full of any claim, the
      Indemnifying Party shall be subrogated to the rights of the Indemnified
      Party against any Person or other entity with respect to the subject
      matter of such claim.

            (b) Interest. If all or part of any indemnification obligation under
      the Agreement is not paid when due upon resolution of the claim, then the
      Indemnifying Party shall pay on demand to the Indemnified Party interest
      at the Agreed Rate on the unpaid amount of the obligation for each day
      from the date the amount became due until payment in full.

                                       44


      Section 8.4 Disputed Claims. If the Indemnifying Party shall notify the
Indemnified Party during the Notice Period of any Disputed Claim under Section
8.2, the Disputed Claims shall be subject to the Dispute Resolution Procedure
pursuant to Section 10.13.

      Section 8.5 Applicability of Part Eight. This Part Eight does not apply to
title matters (which are covered by Part Seven) or Tax matters (which are
covered by Part Five). This Part Eight applies to certain Environmental
Conditions only to the extent of a breach of the representation set forth in
Section 3.1(g), and Seller's obligations (if any) under Section 6.3(a) all other
Environmental Conditions or other matters being expressly subject to the terms
and conditions of Part Six.

                                    PART NINE

                              CONDITIONS PRECEDENT

      Section 9.1 Conditions Precedent of Seller. The obligations of Seller
under the Agreement are subject, at the sole option of Seller, to the
satisfaction, in Seller's sole opinion, at or prior to the Closing of the
following conditions:

            (a) Representations and Warranties True at Closing. The
      representations and warranties of Buyer contained in the Agreement or in
      any certificate or document delivered pursuant to the provisions hereof,
      or in connection with the transactions contemplated hereby, were true and
      complete when made, and shall be true and complete on and as of the
      Closing Date as though such representations and warranties were made at
      and as of such date except as otherwise expressly provided herein.

            (b) Compliance with Agreement. On and as of the Closing Date, Buyer
      shall have performed and complied with all agreements, covenants and
      conditions required by the Agreement to be performed and complied with
      prior to or on the Closing Date.

            (c) Validity of Agreement. The execution, delivery and performance
      of this Agreement and the transactions contemplated thereby have been duly
      and validly authorized by all necessary action, corporate or otherwise, on
      the part of Buyer.

            (d) Approvals. Seller shall have obtained all approvals including,
      without limitation, those of its senior management and board of directors,
      necessary to consummate the proposed transaction.

                                       45


            (e) Opinion of Counsel. Seller shall have received an opinion dated
      as of the closing from Buyer's counsel in substantially the form set forth
      in Exhibit 3.

            (f) Buyer's Certificates. Seller shall have received (i) a
      certificate executed by a duly qualified officer of Buyer dated as of the
      Closing in substantially the form set forth in Exhibit 4 and a certificate
      of incumbency for such officer and (ii) certified copies of resolutions of
      Buyer's board of directors, as appropriate, authorizing and approving the
      execution, delivery and performance of the Agreement.

            (g) Consents. Buyer shall have used reasonable best efforts to
      obtain all necessary consents of and filings with any Governmental Body
      relating to the consummation of the transactions contemplated by this
      Agreement.

            (h) Injunction. On the Closing Date, there shall be no injunction,
      writ, or preliminary restraining order or any order of any nature issued
      by a court or other Governmental Body of competent jurisdiction directing
      that the transaction provided for herein or any of them not be consummated
      as herein provided or imposing any conditions on the consummation of the
      transactions contemplated hereby and no material proceeding or lawsuit
      shall have been commenced or threatened by any Governmental Body or other
      Third Person with respect to any of the transactions contemplated by the
      Agreement.

            (i) Due Diligence Acknowledgment. Buyer shall deliver to Seller at
      Closing a signed acknowledgment in substantially the form set forth in
      Exhibit 5, stating that Buyer had sufficient and adequate time and
      opportunity to review all files, documents, and other information, which
      Seller has made available. Buyer shall also acknowledge that as a result
      of Buyer's due diligence, including but not limited to the aforementioned
      file review, it has fully satisfied itself as to the condition and value
      of the Assets.

            (j) Conveyances. Buyer shall execute and acknowledge the assignments
      which are contained in Exhibit 1 (the "Assignments), the deeds which are
      contained in Exhibit 2 (the "Deeds"), as well as such certificates or
      other documents as are required to effect the transfer of the Assets.

            (k) Additional Agreements. Buyer shall execute, acknowledge and
      deliver to Seller such other agreements as may be necessary to carry out
      the purposes of the Agreement

                                       46


      Section 9.2 Conditions Precedent of Buyer. The obligations of Buyer under
this Agreement are subject, at the option of Buyer, to the satisfaction, in
Buyer's sole opinion, at or prior to the Closing of the following conditions:

            (a) Representations and Warranties True at Closing. The
      representations and warranties of Seller contained in the Agreement or in
      any certificate or document delivered pursuant to the provisions hereof,
      or in connection with the transactions contemplated hereby, were true and
      complete when made, and shall be true and complete on and as of the
      Closing Date as though such representations and warranties were made at
      and as of such date except as otherwise expressly provided herein.

            (b) Compliance with Agreement. On and as of the Closing Date, Seller
shall have performed and complied with all agreements, covenants, and conditions
required by the Agreement to be performed and complied with prior to or on the
Closing Date.

            (c) Validity of Agreement. The execution, delivery and performance
      of this Agreement and the transactions contemplated thereby have been duly
      and validly authorized by all necessary action, corporate or otherwise, on
      the part of Seller.

            (d) Opinion of Counsel. Buyer shall have received an opinion dated
      as of the Closing from Seller's counsel in substantially the form set
      forth in Exhibit 3.

            (e) Seller's Certificate. Buyer shall have received (i) a
      Certificate executed by a duly qualified officer of Seller dated as of the
      Closing in substantially the form set forth in Exhibit 4 and a certificate
      of incumbency for such officer and (ii) certified copies of resolutions of
      Buyer's board of directors, as appropriate authorizing and approving the
      execution, delivery and performance of the Agreement.

            (f) Consents. Seller shall have used reasonable efforts to obtain
      all necessary consents of and filings with any Governmental Body relating
      to the consummation of the transactions contemplated by the Agreement.

            (g) Injunction. On the Closing Date, there shall be no injunction,
      writ, or preliminary restraining order or any order of any nature issued
      by a court or other Governmental Body of competent jurisdiction directing
      that the transaction provided for herein or any of them-not be consummated
      as herein provided or imposing any conditions on the consummation of the
      transactions contemplated hereby and no

                                       47


      material proceeding or lawsuit shall have been commenced or threatened by
      any Governmental Body or other Third Person with respect to any of the
      transactions contemplated by the Agreement.

            (h) Conveyances. Seller shall execute, acknowledge and deliver to
      Buyer the Assignments as well as such certificates or other documents as
      are required to effect the transfer of the Assets, or the subsequent
      operation thereof. Buyer shall also execute and deliver such change of
      operator forms as are required by applicable Governmental Bodies to
      transfer operatorship of the Assets. Such documents as may be necessary to
      carry out the purpose of the Agreement.

            (i) Release of Lien. Seller shall have delivered to Buyer a release,
      as to the Assets, of the liens and security interests created by the
      Mortgage, Deed of Trust, Assignment, Security Agreement, Financing
      Statement and Fixture Filing dated as of May 1, 2002 as delivered to the
      Bank of Nova Scotia as agent as amended by the Amended and Restated
      Mortgage, Deed of Trust, Assignment, Security Agreement, Financing
      Statement and Fixture Filing dated July 16, 2003.

            (k) Additional Agreements. Seller shall execute, acknowledge and
      deliver to Seller such other agreements as may be necessary to carry out
      the purposes of the Agreement.

                                    PART TEN

                                  MISCELLANEOUS

      Section 10.1 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given and received when actually delivered
to the addressee or received via facsimile at the number set forth below of the
Party to be notified.

            If to Seller:

                  Calpine Corp.

                                       48


                  717 Texas Avenue
                  Houston, Texas 77002

                  Fax:       713.651.3056
                  Phone:     713.335.4001
                  Attention: B. A. Berilgen, President

            with a copy to:

                  50 West San Fernando Street
                  San Jose, California 95113

                  Fax:       408.975.4648
                  Phone:     408.792.1226
                  Attention: Lisa Bodensteiner, General Counsel

            If to Buyer:

                  Pogo Producing Company
                  5 Greenway Plaza, Suite 2700
                  Houston, Texas 77046

                  Fax:       713.297.5000
                  Phone:     713.295.5100
                  Attention: General Counsel

            with a copy to:

                  Cotton, Bledsoe, Tighe & Dawson, P.C.
                  1415 Louisiana, Suite 2100
                  Houston, Texas 77002
                  Fax:       713.759.0458
                  Phone:     713.759.9281
                  Attention: Michael J. Byrd

Any Party may, by written notice so delivered to the other, change the address
to which the delivery shall thereafter be made.

                                       49


      Section 10.2 Modification. The Agreement, including this Section 10.2 and
the Exhibits and Schedules, shall not be modified except by an instrument in
writing signed by or on behalf of all of the Parties.

      Section 10.3 GOVERNING LAW. THE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PROVISIONS THEREOF WHICH WOULD
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. ALL ASSIGNMENTS AND
INSTRUMENTS EXECUTED IN ACCORDANCE WITH THE CONVEYANCES TO BE DELIVERED
HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE WHERE THE PROPERTIES CONVEYED THEREBY ARE LOCATED.

      Section 10.4 Exhibits. All Exhibits and Schedules thereto, and the terms
thereof, which are referred to herein are hereby made a part of and incorporated
herein by reference.

      Section 10.5 Counterparts. The Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

      Section 10.6 Invalidity. If any of the provisions of the Agreement
including the Schedules and Exhibits, are held invalid or unenforceable, such
invalidity or unenforceability shall not affect in any way the validity or
enforceability of any other provision of the Agreement. In the event any
provision is held invalid or unenforceable, the Parties shall attempt to agree
on a valid or enforceable provision which shall be a reasonable substitute for
such invalid or unenforceable provision in light of the tenor of the Agreement
and, on so agreeing, shall incorporate such substitute provision in the
Agreement.

      Section 10.7 Entire Agreement and Construction. Except for the
Confidentiality Agreement, this Agreement contains the entire agreement between
the Parties with respect to the transactions contemplated hereby and all prior
understandings and agreements shall merge herein. There are no additional terms,
whether consistent or inconsistent, oral or written, which are intended to be
part of the Parties' understandings which have not been incorporated into the
Agreement and the Schedules. The Parties agree that they have jointly
participated in the drafting and preparation of the Agreement and that the
language of the Agreement shall be construed as a whole according to its fair
meaning and not for or against either of the Parties hereto based upon that
Party's role in the preparation of the Agreement.

                                       50


      Section 10.8 Expenses. Except as otherwise expressly provided herein, each
Party shall bear its fees, costs and expenses in connection with the
transactions contemplated herein, including, without limitation, all legal and
accounting fees and disbursements and fees and expenses of other advisors
retained by such Party.

      Section 10.9 Waivers and Amendments. All amendments and other
modifications hereof shall be in writing and signed by each of the Parties. Any
Party may by written instrument (i) waive any inaccuracies in any of the
representations or warranties made to it by any other Party contained in the
Agreement or in any instruments and documents delivered to it pursuant to the
Agreement, or (ii) waive compliance or performance by any other Party with or of
any of the covenants or agreements made to it by any other Party contained in
the Agreement. The delay or failure on the part of any Party hereto to insist,
in any one instance or more, upon strict performance of any of the terms or
conditions of the Agreement, or to exercise any right or privilege herein
conferred shall not be construed as a waiver or any such terms, conditions,
rights or privileges but the same shall continue and remain in full force and
effect. All rights and remedies are cumulative.

      Section 10.10 Expenses. Except as otherwise provided herein, each Party
shall be solely responsible for all expenses incurred by it in connection with
this transaction (including without limitation, fees and expenses of its own
legal counsel and accounts).

      Section 10.11 Binding Effect: Assignment. All the terms, provisions,
covenants, obligations, indemnities, representations, warranties and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
This Agreement may not be assigned by Buyer or Seller without the express
written consent of the other, such consent not to be unreasonably withheld.
Seller may condition its consent to assign this Agreement on Buyer providing
Seller with an appropriate guarantee of its assignee's performance. In the event
Buyer sells or assigns all or a portion of the Assets, this Agreement shall
remain in effect between Buyer and Seller as to all the Assets regardless of
such assignment.

      Section 10.12 Survival of Representations and Covenants. All
representations and warranties contained in the Agreement shall survive the
Closing and continue for one (1) year following the Closing Date, except those
contained in Parts Six and Seven. The covenants, indemnities and agreements
contained in the Agreement shall survive the Closing and continue in accordance
with their respective terms.

      Section 10.13 Arbitration of Disputes. Seller and Buyer covenant with each
other as follows:

                                       51


            (a) Generally. Any claim, controversy or dispute arising out of,
      relating to, or in connection with the Agreement or the agreements and
      transactions contemplated hereby, by Buyer or Seller, including the
      interpretation, validity, termination or breach thereof, shall be resolved
      solely in accordance with the dispute resolution procedures set forth in
      Schedule 10.13. The Parties covenant that they shall not resort to court
      remedies except as provided for in Schedule 10.13, or for preliminary
      relief in aid of arbitration.

            (b) Violations. A Party who violates the covenants in Section
      10.13(a) shall pay all the legal costs incurred by the other Parties in
      connection with the enforcement thereof. Suits, actions or proceedings in
      connection with violations of the covenants in Section 10.13 and Schedule
      10.13 shall be instituted in the United States District Court for the
      District of New Mexico and pursuant to Title IX of the Unites States Code.
      Each Party waives any option or objection which it may now or thereafter
      have to the laying of the venue in any such suit, action or proceeding and
      irrevocably submits to the jurisdiction of such court in any such suit,
      action or proceeding.

            BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
            DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION
            AS PROVIDED BY NEW MEXICO LAW AND THIS SECTION 10.13. YOU ARE GIVING
            UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
            COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING
            UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
            ARE SPECIFICALLY INCLUDED IN THE ARBITRATION OF DISPUTES PROVISIONS.
            IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
            PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF
            THE NEW MEXICO CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
            ARBITRATION PROVISION IS VOLUNTARY.

            WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
            DISPUTES ARISING OUT OF MATTERS INCLUDED IN THE ARBITRATION OF
            DISPUTES PROVISION TO NEUTRAL ARBITRATION.

                 BUYER'S INITIALS: SB        SELLER'S INITIALS: MG

                                       52


      Section 10.14 Conflict. Should terms and conditions of this Agreement be
in conflict with the Assignment and Bill of Sale, or the Deed, as such are
executed pursuant to the terms of this Agreement, the terms and conditions of
this Agreement shall prevail.

      IN WITNESS WHEREOF, the Parties hereto have entered into the Agreement as
of the date first herein above written.

                               CALPINE CORPORATION

                               By: /s/ Michael A. Gerlich
                                  -----------------------------------------
                                  Michael A. Gerlich, Senior Vice President
                                  Date: August 20, 2004

                               CALPINE NATURAL GAS L.P.

                               By: /s/ Michael A. Gerlich
                                  -----------------------------------------
                                  Michael A. Gerlich, Senior Vice President
                                  Date: August 20, 2004

                               POGO PRODUCING COMPANY

                               By: /s/ Stephen R. Brunner
                                  -----------------------------------------
                                  Stephen R. Brunner, Executive Vice President
                                  Date: August 20, 2004

                                       53

EX-99.2

                                                                    EXHIBIT 99.2

                           PURCHASE AND SALE AGREEMENT

                                      AMONG

                               CALPINE CORPORATION

                            CALPINE NA TURAL GAS L.P.

                                       AND

                            BILL BARRETT CORPORATION

                             DATED AUGUST 17, 2004

                          EFFECTIVE DATE: JULY 1, 2004



                                TABLE OF CONTENTS

                                                                                                
PART ONE........................................................................................    1

  SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION.........................................    1
    Section 1.1  Subject Matter.................................................................    1
    Section 1.2  Definitions....................................................................    1
       Actual Knowledge.........................................................................    1
       Affiliate................................................................................    1
       Agreed Rate..............................................................................    1
       Agreement................................................................................    2
       Applicable Law...........................................................................    2
       Asset....................................................................................    2
       Assumed Liabilities......................................................................    2
       Beneficial Interests....................................................................     2
       Burdens..................................................................................    3
       Business Day.............................................................................    3
       Closing...............................................................-..................    3
       Closing Date.............................................................................    3
       Code.....................................................................................    3
       Confidentiality Agreement................................................................    3
       Contracts................................................................................    3
       Corporate Documents......................................................................    3
       Easements................................................................................    3
       Effective Date...........................................................................    4
       Environmental Condition..................................................................    4
       Facilities...............................................................................    6
       Fee Interests............................................................................    6
       Governmental Body........................................................................    6
Hydrocarbons....................................................................................    7
       Leases...................................................................................    7
       Losses...................................................................................    7
       Net Revenue Interest.....................................................................    7
       Party....................................................................................    7
       Permitted Encumbrances...................................................................    7
       Person...................................................................................    9
       Personal Property........................................................................    9
       Plugging and Abandonment.................................................................   10
       Remediation..............................................................................   10
       Tax......................................................................................   10
       Third Person.............................................................................   11
       Title Defect.............................................................................   11
       Wells....................................................................................   11
    Section 1.3  Other Definitions in the Agreement.............................................   12
    Section 1.4  Rules of Construction..........................................................   13



                                        i


                                                                                                    
PART TWO...........................................................................................    14

  SALE AND PURCHASE................................................................................    14
    Section 2.1  Assets............................................................................    14
    Section 2.2  Purchase Price....................................................................    14
    Section 2.3  Allocation of Purchase Price......................................................    14
    Section 2.4  Performance Deposit and Liquidated Damages........................................    14
    Section 2.6  Method of Payment.................................................................    15

PART THREE.........................................................................................    15

  REPRESENTATIONS AND WARRANTIES...................................................................    15
    Section 3.1  Seller............................................................................    15
    Section 3.2  Buyer.............................................................................    18
    Section 3.3. Disclaimers and Notifications.....................................................    19

PART FOUR..........................................................................................    21

  COVENANTS........................................................................................    21
    Section 4.1  Covenants of Seller.........................................'.....................    21
    Section 4.2  Covenants of Buyer................................................................    22
    Section 4.3  Covenants of Seller and Buyer.....................................................    23

PART FIVE..........................................................................................    30

  TAXES............................................................................................    30
    Section 5.1  Payment and Apportionment of Real Property Taxes and Personal Property Taxes......    30
    Section 5.2  Sales Taxes.......................................................................    30
    Section 5.3  Other Taxes.......................................................................    30
    Section 5.4  Cooperation.......................................................................    31
    Section 5.5  Tax Proceedings...................................................................    31
    Section 5.6  Purchase Price Allocation.........................................................    31

PART SIX...........................................................................................    32

  ENVIRONMENTAL MATTERS............................................................................    32
    Section 6.5  Covenant of Cooperation...........................................................    33
    Section 6.6  Selection and Performance of Remedies.............................................    34
    Section 6.10 Exclusive Remedies................................................................    35

PART SEVEN.........................................................................................    35

  TITLE MATTERS....................................................................................    35
    Section 7.1 Confidentiality Agreement..........................................................    35
    Section 7.2 Preferential Purchase Rights.......................................................    35
    Section 7.3 Required Consents..................................................................    36
    Section 7.4 Title Defects......................................................................    36
    Section 7.5 Seller's Right to Cure.............................................................    37



                                       ii


                                                                                                   
    Section 7.6  Contested Title Defects..........................................................    37
    Section 7.7  Title Indemnity Payments.........................................................    38
    Section 7.8  Interest Additions...............................................................    38
    Section 7.8  Reconvey.........................................................................    39

PART EIGHT........................................................................................    39

  INDEMNITY.......................................................................................    39
    Section 8.1  Genera] Indemnification..........................................................    39
    Section 8.2  Method of Asserting Claims. Etc..................................................    41
    Section 8.3  Payment..........................................................................    42
    Section 8.4  Disputed Claims..................................................................    42
    Section 8.5  Applicability of Part Eight......................................................    42

PART NINE.........................................................................................    43

  CONDITIONS PRECEDENT............................................................................    43
    Section 9.1  Conditions Precedent of Seller...................................................    43
    Section 9.2  Conditions Precedent of Buyer....................................................    44

PART TEN..........................................................................................    46

  MISCELLANEOUS...................................................................................    46
    Section 10.1  Notices.........................................................................    46
    Section 10.2  Modification....................................................................    47
    Section 10.3  Governing Law...................................................................    47
    Section 10.4  Exhibits........................................................................    48
    Section 10.5  Counterparts....................................................................    48
    Section 10.6  Invalidity......................................................................    48
    Section 10.7  Entire Agreement and Construction...............................................    48
    Section 10.8  Expenses........................................................................    48
    Section 10.9  Waivers and Amendments..........................................................    48
    Section 10.10 Binding Effect: Assignment......................................................    49
    Section 10.11 Survival of Representations and Covenants.......................................    49
    Section 10.12 Arbitration of Disputes.........................................................    49
    Section 10.13 Conflict........................................................................    51



                                       iii


                             SCHEDULES AND EXHIBITS

Schedules

      A.      Leases
              A-1 Lease Plat
      B.      Fee Interests
      C.      Contracts
      D.      Beneficial Interests
      E.      Excluded Contracts
      F.      Assets Not Included
      G.      Permitted Encumbrances
      H.      Property
      2.3     Allocation of Purchase Price
      3.1(e)  Litigation
      3.1(f)  Seller's Consents Not Received
      3.1(g)  Environmental Claims
      3.1(h)  Current Commitments
      3.1(o)  Gas Imbalances
      7.2     Preferential Rights
      10.12   Dispute Resolution

Exhibits

      1.      Form of Assignment
      2.      Form of Deed
      3.      Form of Opinion Letter
      4.      Form of Certificates
      5.      Due Diligence Certificate

                                       iv


                           PURCHASE AND SALE AGREEMENT

      The Agreement dated as of August 17, 2004, is made and entered into
between Calpine Corp., a Delaware corporation and Calpine Natural Gas L.P., a
Delaware limited partnership both having an office at 717 Texas Avenue, Suite
1000, Houston, Texas 77002, (collectively "Seller") and Bill Barrett
Corporation, a Delaware corporation, having an office at 1099 18th Street, Suite
2300, Denver, Colorado 80202 ("Buyer").

                                    PART ONE

              SUBJECT MATTER. DEFINITIONS AND RULES OF CONSTRUCTION

      Section 1.1 Subject Matter. The subject matter of the Agreement is the
sale, assignment, transfer or conveyance of Seller's interest in the Assets, the
purchase of the Assets and the assumption of the Assumed Liabilities by Buyer,
and the terms and conditions upon which the sale shall take place.

      Section 1.2 Definitions. For purposes of the Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this Section 1.2 have the meanings herein assigned to them and the
capitalized terms defined elsewhere in the Agreement, by inclusion in quotation
marks and parentheses, shall have the meanings so ascribed to them.

      "Actual Knowledge" means actually known, after due inquiry by Hugo Cartaya
      (Director of Operations), Art Klavan (Sr. Vice President, Calpine Fuels
      Corp.), Ed Seeman (Director Reservoir Engineering), Bill Berilgen
      (President, Calpine Fuels Corp), Roxy Blu (Director of Land) or Bert Bates
      (Director, North America EH&S).

      "Affiliate" means, with respect to any specified Person, any other Person
      directly or indirectly controlling or controlled by or under direct or
      indirect common control with such specified Person. For the purposes of
      this definition, "control" means the power to direct the management and
      policies of such Person, directly or indirectly, whether through the
      ownership of voting securities, by contract or otherwise; and the terms
      "controlling" and "controlled" have meanings correlative to the foregoing,
      it being understood and agreed that with respect to a corporation, control
      shall mean a direct or indirect ownership of more than fifty percent (50%)
      of the voting stock.

      "Agreed Rate" means a rate per annum which is equal to the lesser of (i) a
      rate which is one percent (1%) above the prime rate of interest of J.P.
      Morgan Chase Bank, New York,

                                        1


      New York, as announced or published by such bank from time to time
      (adjusted from time to time to reflect any changes in such rate determined
      hereunder), or (ii) the maximum rate from time to time permitted by
      Applicable Law.

      "Agreement" means this Purchase and Sale Agreement, including the
      Schedules and Exhibits.

      "Applicable Law" means any applicable law, order, regulation, permit,
      judgment or decree of any Governmental Body, including the common or civil
      law of any Governmental Body, including but not limited to those relating
      to occupational safety and health, consumer product safety, employee
      benefits, environmental laws, securities, or zoning laws or regulations.

      "Assets" mean the Fee Interests, Gathering System, Leases, Personal
      Property, Facilities, Easements, Contracts, and Beneficial Interests, but
      excluding the Excluded Assets.

      "Assumed Liabilities" means:

            (a) all liabilities, duties, and obligations that accrue on and
      after the Effective Date from ownership or operation of the Assets;

            (b) all liabilities and obligations with respect to Plugging and
      Abandonment;

            (c) all duties, liabilities and obligations that accrue on and after
      the Effective Date under the Contracts, Fee Interests, Leases, Easements
      and Beneficial Interests, including, without limitation, all obligations
      with respect to gas imbalances associated with the Assets as set forth in
      Section 4.3(o);

            (d) all liabilities and obligations with respect to funds
      attributable to Third Persons but suspended or impounded by Seller prior
      to the Effective Date but only to the extent of the amount of such
      suspended or impounded funds.

            (e) all other duties, liabilities, and obligations assumed by Buyer
      under the Agreement.

      "Beneficial Interests" means any and all rights, titles and interests
      owned by Seller in, under or derived from all of the presently existing
      pooling, unitization and communitization agreements or other operating
      agreements and the units created thereby (including without limitation,
      all units formed under orders, regulations, rules or other

                                        2


      official acts of any Governmental Body having jurisdiction) insofar and
      only insofar as they relate to any of the Leases or Fee Interests or to
      the production of Hydrocarbons from or attributable to such Leases or Fee
      Interests as set forth on Schedule D.

      "Burdens" means royalties (including both lessor royalties and
      nonparticipating royalty interests), overriding royalties, production
      payments, and other similar obligations payable out of production.

      "Business Day" means any day when commercial banks are generally open for
      regular business in the State of Colorado.

      "Closing" means the closing of the transactions contemplated by the
      Agreement at 10:00 a.m., at Seller's offices at 717 Texas Ave., Suite
      1000, Houston, Texas 77002, on the Closing Date or at such other time or
      place as the Parties may mutually agree upon in writing.

      "Closing Date" means September 1, 2004, or such other date as the Parties
      may mutually agree upon in writing.

      "Code" means the United States Internal Revenue Code of 1986, as amended.

      "Confidentiality Agreement" means the Confidentiality Agreement between
      Seller and Buyer dated August 6, 2004.

      "Contracts" means all contracts and agreements whether recorded or
      unrecorded in existence at the Effective Date, which affect the Leases,
      Fee Interests, Personal Property, Beneficial Interests, Facilities and
      Easements, insofar and only insofar and only to the extent as they
      specifically relate to the Leases, Fee Interests, Personal Property,
      Beneficial Interests, Facilities and Easements, including but not limited
      to the contracts and agreements set forth on Schedule C, but specifically
      excluding the Easements, Leases, Beneficial Interests, and the contracts
      and agreements set forth on Schedule E.

      "Corporate Documents" means with respect to a Delaware corporation the
      Certificate of Incorporation and By-Laws or the equivalent documents of a
      corporation or other business entity organized under the laws of another
      jurisdiction.

      "Easements" means Seller's non-exclusive rights to the use and occupancy
      of the surface, including, without limitation, tenements, appurtenances,
      surface leases, easements, permits, licenses, franchises, servitudes and
      rights-of-way in any way appertaining, belonging, affixed or incidental to
      or used in connection with the ownership or operation

                                        3


      of the Fee Interests, Leases, Facilities and Beneficial Interests, whether
      recorded or unrecorded;

      "Effective Date" means 7:00 a.m., MDT, July 1, 2004 at the location of the
      Assets.

      "Environmental Condition" means any condition existing prior to the
      Effective Date, and only to the extent in existence on the Effective Date
      with respect to the air, land, soil, surface, subsurface strata, surface
      water, ground water, or sediments which causes a Property to be subject to
      remediation under, or not in compliance with, an Environmental Law,
      Environmental Permit, a Lease or a Contract, but excluding the conditions
      associated with, or included in the definition of, Plugging and
      Abandonment.

      "Environmental Law" means any existing or future Applicable Law relating
      to pollution or the protection of the environment, health or safety
      including, without limitation, laws relating to air, water, land and the
      generation, storage, treatment, transportation, handling, release or
      disposal of waste materials including, without limitation, the Clean Air
      Act, as amended, the Federal Water Pollution Control 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 ("SARA"), as amended,
      the Resource Conservation and Recovery Act ("RCRA"), as amended, the
      Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic
      Substance Control Act, as amended, and the Occupational Safety and Health
      Act ("OSHA"), as amended but shall not include any Applicable Law
      associated with Plugging and Abandonment.

      "Environmental Permits" means any environmental and health and safety
      permits, licenses, approvals, consents, certificates and other
      authorizations necessary for the ownership or operation of the Properties.

      "Excluded Assets " means:

            (a) all (i) trade credits, accounts receivable, notes receivables
      and other receivables attributable to Seller's interest in the Assets with
      respect to any period of time prior to the Effective Date; (ii) deposits,
      cash, checks in process of collection, cash equivalents and funds
      attributable to Seller's interest in the Assets with respect to any period
      of time prior to the Effective Date.

            (b) all corporate, financial, legal, personnel and Tax records of
      Seller; provided however that Seller shall provide reasonable access to
      such records that are related to the Assets to the extent that such
      records are not privileged or confidential;

                                        4


            (c) all claims and causes of action of Seller (i) arising from acts,
      omissions or events, or damage to or destruction of property, occurring
      prior to the Effective Date or (ii) affecting any of the excluded assets
      as set forth in (a) through (r) of this definition;

            (d) all rights, titles, claims and interests of Seller (i) under any
      policy or agreement of insurance or indemnity; (ii) under any bond; or
      (iii) to any insurance or condemnation proceeds or awards;

            (e) subject to the provisions of Section 4.3(p), all Hydrocarbons
      produced from or attributable to the Assets with respect to all periods
      prior to the Effective Date;

            (f) claims of Seller for refunds of or loss carry forwards with
      respect to (i) Taxes attributable to any period prior to the Effective
      Date; (ii) Taxes attributable to any of the excluded assets as set forth
      in (a) through (r) of this definition; or (iii) any Tax credits accruing
      to the Assets prior to the Effective Date.

            (g) all amounts due or payable to Seller as adjustments or refunds
      under any Contracts affecting the Assets, with respect to any period prior
      to the Effective Date including, without limitation, amounts recoverable
      from audits under operating agreements;

            (h) all amounts due or payable to Seller as adjustments to insurance
      premiums related to the Assets with respect to any period prior to the
      Effective Date;

            (i) all proceeds, benefits, income or revenues accruing (and any
      security or other deposits made) with respect to (i) the Assets prior to
      the Effective Date; and (ii) any of the excluded assets as set forth in
      (a) through (r) of this definition;

            (j) all of Seller's seismic and geophysical information and data,
      together with all geological information and data, whether proprietary in
      Seller or licensed from Third Persons, and whether or not covering or
      affecting the Assets;

            (k) all of Seller's interpretive data;

            (l) the non-exclusive right reserved unto the Seller to use the
      Easements;

                                        5


            (m) all of Seller's intellectual property, including but not limited
      to computer software, patents, trade secrets, copyrights, names, marks,
      and logos;

            (n) all of Seller's vehicles, trucks (including associated tools),
      boats, tools, pulling machines, warehouse stocks, microwave equipment,
      computer equipment and remote terminal units; equipment and material
      temporarily located on the Assets; and any pipelines, easements, fixtures,
      LACT units, tanks or equipment located on the Assets which belong to
      lessors or other Third Persons engaged in the business of purchasing,
      processing or transporting Hydrocarbons;

            (o) all of Seller's interest in any lands or depths covered by the
      Leases, Fee Interests and Beneficial Interests which are specifically
      excluded from the descriptions set forth on Schedules A, B and C.

            (p) records and documents subject to confidentiality provisions,
      claims of privilege, or other restrictions on access;

            (q) all rights of ingress, egress and surface use retained by Seller
      in connection with its obligations under Part Six of this Agreement; and

            (r) all other assets set forth on Schedule F.

      "Facilities" means facilities and equipment, whether active or inactive,
      that are customarily used directly in the production of Hydrocarbons,
      including, but not limited to injection facilities, disposal facilities,
      field separators, liquid extractors, compressors, LACT units, plants,
      tanks and the like.

      "Fee Interests" means all rights, titles and interests owned by Seller in
      all the fee and mineral fee interests described on Schedule B, insofar and
      only insofar as such Fee Interests cover the lands and depths set forth in
      Schedule B. The Fee Interests shall include all of Seller's right, title
      and interest to all depths unless specifically limited on Schedule B.

      "Gathering System" means the Gibson Gulch gas gathering system and all
      related pipelines, processing and compression facilities associated with
      the Properties.

      "Governmental Body" means any federal, state, Indian, county, municipal,
      or other federal, state or local governmental authority, or judicial or
      regulatory agency, board, body, department, bureau, commission,
      instrumentality, court, tribunal or quasi-governmental authority in any
      jurisdiction (domestic or foreign) having jurisdiction over

                                        6


      any Asset or Party to this transaction, or any of the transactions
      contemplated by the Agreement.

      "Hydrocarbons" means crude oil, natural gas, casinghead gas, condensate,
      sulphur, natural gas liquids, plant products and other liquid or gaseous
      hydrocarbons (including Co2), and all other minerals of every kind and
      character which may be covered by or included in the Assets.

      "Leases" means any and all rights, tides and interests owned by Seller in
      all of the oil, gas or mineral leases and other interests described on
      Schedule A insofar and only insofar as such Leases cover the lands and
      depths set forth in Schedule A. The Leases shall include all of Seller's
      right, title and interest to all depths unless specifically limited on
      Schedule A and shall include, whether or not specifically set forth on
      Schedule A any rights, titles and interests owned by Seller in all of the
      oil, gas or mineral leases owned by Seller as of the Effective Date within
      the area shown on Schedule A-1.

      "Losses" means any and all losses, liabilities, claims, demands,
      penalties, fines, assessments, settlements, damages and any related
      expenses of whatever kind or nature, known or contingent or otherwise,
      including, without limitation, legal, accounting, consulting and
      investigation expenses and litigation costs including without limitation,
      response, remedial or inspection costs or any cleanup and laboratory
      costs, but excluding consequential damages.

      "Net Revenue Interest" means Seller's share of production or revenue from
      (or where subject to a unit or pooling agreement, allocated under such
      agreement to) a Property, net of all Burdens related to such Property as
      set forth on Schedule H..

      "Party" means either Buyer or Seller.

      "Permitted Encumbrances" means

            (a) Burdens to the extent that the aggregate effect of such Burdens
      do not reduce the Net Revenue Interest of a Property or Lease below that
      shown on Schedule H or Schedule 2.3, respectively;

            (b) division orders and sales contracts;

            (c) rights of reassignment, which arise prior to abandonment,
      surrender or release of oil, gas or mineral leases;

                                        7


            (d) rights to consent by, required notices to, filings with, or
      other actions by, any Governmental Body in connection with the sale or
      conveyance of oil and gas leases or interests therein, or the assumption
      of operatorship, if they are customarily obtained subsequent to the sale
      or conveyance;

            (e) easements, rights-of-way, servitudes, permits, surface leases
      and other rights relative to surface use and occupancy including, without
      limitation, pipeline operations, grazing, logging, canals, ditches,
      reservoirs and similar rights and conditions, covenants or other similar
      restrictions on and over the surface of the Leases, Easements, Beneficial
      Interests or Fee Interests provided that any unrecorded easements,
      rights-of-way, servitudes, permits, surface leases and such other rights
      do not materially interfere with the use or operation of the Leases,
      Easements, Beneficial Interests or Fee Interests;

            (f) recorded easements for streets, alleys, highways, pipelines,
      telephone lines, power lines, railways and similar easements and
      rights-of-way, on, over or in respect to the Leases, Beneficial Interests,
      Easements or Fee Interests;

            (g) all leases, operating agreements, operator liens and working
      interest owner liens, unit, communitization and pooling agreements,
      farmout and subleases and farmin agreements and all Contracts that do not
      affect the Net Revenue Interest;

            (h) all Applicable Laws of any Governmental Body, and all rights
      reserved to or vested in any Governmental Body to control or regulate the
      Assets in any manner, including, without limitation, any adjustment in the
      Net Revenue Interest or Working Interest of a particular Property or
      Lease, caused by, or as the result of, any action of a Governmental Body
      which is not the result of any negligent act or omission of Seller;

            (i) liens for Taxes or assessments not yet due and payable or not
      yet delinquent, or if delinquent, that are being contested in good faith
      by appropriate action brought in the normal course;

            (j) reversionary interests arising under farmout and farmin
      agreements, subleases, and the non-consent provisions of applicable
      operating agreements;

            (k) liens imposed by Applicable Law, such as carriers',
      warehousemen's and mechanics' liens and other similar liens arising in the
      ordinary course of business which secure payment of obligations not more
      than sixty (60) days past due or which are being contested in good faith
      or for which funds have been set aside;

                                        8


            (l) consents to assign that have been obtained or waived and
      preferential rights to purchase that have been waived or for which the
      time period to exercise has expired;

            (m) defects that have been cured by possession under applicable
      statutes of limitation;

            (n) other minor defects or irregularities generally waived by
      prudent purchasers of oil and gas properties and that do not materially
      impair the value, ownership or use of the affected Property or Lease; and

            (o) others as set forth on Schedule G.

      "Person" means any individual, corporation, partnership, limited liability
      company, joint venture, association, joint stock company, trust, estate,
      unincorporated organization, other business entity or any Governmental
      Body.

      "Personal Property" means to the extent attributable to the Fee Interests,
      Leases, Easements, Contracts and Beneficial Interests, but excluding any
      personal property owned by any Third Person as described on Schedule F or
      any of Seller's Affiliates and subject to the limitations below, all of
      Seller's right, title and interest in and to:

            (a) all Wells (whether plugged or unplugged), equipment, Facilities
      and personal property of any kind including, but not limited to, tubing,
      casing, wellheads, pumping units, production units, compressors, valves,
      meters, flowlines, tanks, heaters, separators, dehydrators, pumps,
      injection units, gates and fences, which are located on or connected with
      the Fee Interests, Gathering System, Leases, and Beneficial Interests and
      which are used solely and exclusively in connection with the production,
      separation, storage, treatment, gathering or transportation of
      Hydrocarbons from or attributable to the Fee Interests, Leases, and
      Beneficial Interests and that are not presently used in connection with
      any excluded assets;

            (b) all licenses, authorizations, permits, variances and similar
      rights and interests related to the Fee Interests, Gathering System,
      Leases, Facilities, Easements, Contracts and Beneficial Interests and
      personal property defined in (a) above;

            (c) all other rights, privileges, benefits and powers conferred upon
      the owner and holder of the Fee Interests, Gathering System, Leases,
      Facilities, Easements, Contracts and Beneficial Interests and personal
      property defined in (a) and (b) above; and

                                        9


            (d) copies of applicable general operating records, well files
      (including applicable well logs and production data), lease files, land
      files, environmental compliance files, regulatory reports and
      certificates, abstracts and title work pertaining to the Fee Interests,
      Leases, Easements, Facilities, Contracts and Beneficial Interests and
      personal property defined in (a) above, but excluding: records containing
      trade secrets unrelated to the Assets (copies of which records shall be
      made available to Buyer with information concerning trade secrets
      unrelated to the Assets being redacted by Seller), legal files,
      attorney-client communications or attorney work product materials and
      other similar documents covered by privilege, records and documents
      subject to confidentiality provisions and auditor's reports.

      "Plugging and Abandonment" means all plugging, replugging, abandonment,
      removal, disposal or restoration associated with the Assets, including,
      but not limited to, all plugging and abandonment, removal, surface
      restoration, site clearance and disposal of the wells, structures and
      Personal Property located on or associated with the Assets, the removal or
      capping and burying of all associated flowlines, the restoration of the
      surface in accordance with Applicable Laws or the terms and conditions of
      the applicable Leases or Contracts, whichever is more stringent, site
      clearance, as required by Applicable Laws, and any disposal of related
      waste materials, including naturally occurring radioactive material
      ("NORM") and asbestos, and shall include such Wells, structures, and
      Personal Property associated with any of the Assets, whether drilled or
      placed on a Lease, Fee Interest, or Beneficial Interest prior to, at, or
      after the Closing Date.

      "Property" means a Well, or a unitized or communitized area described on
      Schedule H.

      "Remediation" or "Remediate" means affirmative actions or remedial work
      taken to remove or otherwise remedy an Environmental Condition, including
      but not limited to any survey, site assessment, audit, investigation,
      inspection, sampling, analysis, removal, excavation, pump and treat,
      cleanup, disposal, storage, handling or treatment, excluding those actions
      associated with Plugging and Abandonment.

      "Tax" means any and all fees (including, without limitation,
      documentation, license, recording, filing and registration fees), taxes
      (including without limitation, production, gross receipts, ad valorem,
      value added, windfall profit tax, environmental tax, turnover, sales, use,
      personal property (tangible and intangible), stamp, leasing, lease, user,
      leasing use, excise, franchise, transfer, heating value, fuel, excess
      profits, occupational, interest equalization, lifting, oil, gas, or
      mineral production or severance, and other taxes), levies, imposts,
      duties, charges or withholdings of any nature whatsoever, imposed by any
      Governmental Body or taxing authority thereof, domestic or foreign,
      together with any

                                       10


      and all penalties, fines, additions to tax and interest thereon, whether
      or not such tax shall be existing or hereafter adopted.

      "Third Person" means a Person other than a Party or an Affiliate of a
      Party.

      "Title Defect" means any one of the following:

            (1)   Seller's title as of the Effective Date as to all or any part
                  of the Property or a Lease is subject to an outstanding
                  mortgage, deed of trust, lien, or other monetary encumbrance
                  or adverse claim not listed or referenced on Schedule G that
                  would induce a purchaser to suspend payment of proceeds for
                  the Property or a Lease or require the furnishing of security
                  or indemnity, or title to any Property or Lease is not vested
                  in Seller such that would induce a purchaser to suspend
                  payment of proceeds for the Property or Lease or require the
                  furnishing of security or indemnity;

            (2)   Seller's Net Revenue Interest attributable to a Property or a
                  Lease as of the Effective Date is less than that shown on
                  Schedule H or Schedule 2.3, respectively, or Seller's Working
                  Interest attributable to a Property or a Lease as of the
                  Effective Date is greater than that shown on Schedule H, or
                  Schedule 2.3, respectively, without a corresponding increase
                  in Seller's Net Revenue Interest in the Property or the Lease;
                  or

            (3)   Seller's Net Revenue Interest would be reduced if a Third
                  Person were to exercise a reversionary, back-in, or other
                  similar right not listed or referenced on Schedule H;

      but shall not include any Permitted Encumbrances or preferential rights to
      purchase.

      "Wells" means, whether active or inactive, any orifice in the ground,
      completed or being drilled, including without limitation, those previously
      plugged and abandoned, those drilled for the production of Hydrocarbons,
      for injection, for disposal or for water sources.

                                       11


      "Working Interest" means that share of costs and expenses associated with
      the exploration, maintenance, development and operation of a Property that
      Seller is required to bear and pay.

      Section 1.3 Other Definitions in the Agreement. The following terms shall
have the respective meanings ascribed to them in the Sections of the Agreement
set forth below opposite such terms:



                                             Section
                                             -------
                                          
AFE                                            3.1(h)
Aggregate Environmental Defect Value           6.6
Aggregate Title Defect Value                   7.7
Assignments                                    9.1(i)
Buyer                                          Preamble
Claim Notice                                   8.2(a)
Cure                                           7.5
Cure Notice                                    7.5
Deeds                                          9.1(j)
Defect Value                                   7.4
Environmental Defect Notice                    6.2
Environmental Defect Value                     6.2
Environmental Notice Deadline                  6.2
Environmental Rejection Notice                 6.3(b)
Final Recap Amount                             4.3(h)
Final Recapitulation Statement                 4.3(h)
Final Settlement Date                          4.3(h)
Indemnified Party                              8.2(a)
Indemnifying Party                             8.2(a)
Interest Addition                              7.8
Interest Addition Notice                       7.8
Interest Addition Payment                      7.8
Interest Addition Rejection Notice             7.8
Interest Addition Value                        7.8
Individual Threshold                           6.1
NORM                                           1.2
Notice Period                                  8.2(a)
Offset                                         7.8
Performance Deposit                            2.4
Permits                                        3.1(1)
Precedent Agreement                            4.3(f)


                                       12


                                            
Purchase Price                                 2.2
Rejection Notice                               7.6
Review Period                                  6.1
Seller                                         Preamble
Title Defect Notices                           7.4
Title Indemnity Payment                        7.4



      Section 1.4 Rules of Construction. For purposes of the Agreement:

            (a) General. Unless the context otherwise requires (i) "or" is not
      exclusive; (ii) an accounting term not otherwise defined has the meaning
      assigned to it in accordance with accounting principles that are generally
      accepted in the United States of America; (iii) words in the singular
      include the plural and words in the plural include the singular; (iv)
      words in the masculine include the feminine and words in the feminine
      include the masculine; (v) any date specified for any action that is not a
      Business Day shall be deemed to mean the first Business Day after such
      date; and (vi) a reference to a Person includes its successors and
      assigns.

            (b) Parts and Sections. References to Parts and Sections are, unless
      otherwise specified, to Parts and Sections of the Agreement. Neither the
      captions to Parts or Sections hereof nor the Table of Contents shall be
      deemed to be a part of the Agreement.

            (c) Exhibits and Schedules. The Exhibits and Schedules form part of
      the Agreement and shall have the same force and effect as if set out in
      the body of the Agreement.

            (d) Other Agreements. References herein to any agreement or other
      instrument shall, unless the context otherwise requires (or the definition
      thereof otherwise specifies), be deemed references to that agreement or
      instrument as it may from time to time be changed, amended or extended.
      There is no incorporation by reference unless stated.

                                       13


                                    PART TWO

                                SALE AND PURCHASE

      Section 2.1 Assets. At Closing, Seller agrees to sell, assign, transfer
and convey to Buyer the Assets and Buyer agrees to purchase and pay for the
Assets and assume the Assumed Liabilities.

      Section 2.2 Purchase Price. The purchase price shall be One Hundred Thirty
Nine Million Seven Hundred and Fifty Thousand Dollars ($139,750,000) plus or
minus the adjustments specifically set forth in the Agreement (the "Purchase
Price").

      Section 2.3 Allocation of Purchase Price. Schedule 2.3 sets forth a good
faith allocation of the Purchase Price among the Properties which comprise the
Assets, which allocation was prepared by Buyer and delivered to Seller on August
17, 2004. Such allocation has been provided for the purpose of (i) establishing
a basis for certain Taxes, (ii) obtaining waivers of or making offers with
respect to any preferential rights to purchase the Assets, and (iii) handling
those instances for which the Purchase Price is adjusted as provided herein.

      Section 2.4 Performance Deposit and Liquidated Damages. Buyer shall tender
to Seller immediately upon execution of the Agreement, a non-refundable (except
as provided in Section 2.6, below) cash performance deposit in the amount of
Seven Million Dollars ($7,000,000) (the "Performance Deposit"). At Closing,
Buyer shall pay and deliver to Seller the remaining unpaid portion of the
Purchase Price adjusted as provided herein, and adjusted upward or downward
pursuant to Parts Six and Seven.

            EXCEPT AS PROVIDED IN SECTIONS 2.6(a) OR (c), IF BUYER FAILS TO
            COMPLETE THE TRANSACTION SET FORTH IN THIS AGREEMENT, THE PARTIES
            AGREE THAT SELLER SHALL RETAIN THE PERFORMANCE DEPOSIT AS LIQUIDATED
            DAMAGES, WHICH THE PARTIES AGREE IS A REASONABLE SUM CONSIDERING ALL
            THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, INCLUDING
            THE RELATIONSHIP OF THE SUM OF THE RANGE OF HARM TO SELLER THAT
            REASONABLY COULD BE ANTICIPATED AND THE ANTICIPATION THAT PROOF OF
            ACTUAL DAMAGES WOULD BE COSTLY OR INCONVENIENT. IN PLACING THEIR
            INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE
            STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED
            BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES
            PROVISION AT THE TIME THIS AGREEMENT WAS MADE.

                                       14


              Seller                              Buyer
              Initial    MG                       Initial    WB

      Section 2.6 Termination. The following provisions shall apply in the event
of termination of this Agreement:

      (a) If this Agreement is terminated (i) by the mutual agreement of the
Seller and the Buyer and not as the result of the failure of either Party to
perform its obligations hereunder, or (ii) pursuant to Sections 4.3(e), 6.6 or
7.7 or (ii) because the conditions precedent to a Party's performance as set
forth in Part Nine have not occurred, such termination shall be without
liability of any Party or any affiliate, director, officer, employee, agent or
representative of such Party, and Seller shall return the Performance Deposit to
Buyer.

      (b) If this Agreement is terminated as a result of the failure of Buyer to
perform its obligations hereunder, then Seller shall retain the Performance
Deposit together with interest accrued thereon as liquidated damages, as its
sole remedy, for such failure.

      (c) If this Agreement shall be terminated as a result of the failure of
Seller to perform its obligations hereunder, then Seller shall refund the
Performance Deposit together with interest accrued at the Agreed Rate to
Purchaser.

      Section 2.7 Method of Payment. Any amount payable under the Agreement
shall be payable in immediately available funds by means of a wire transfer, if
to Seller, to Seller's account at Bank One, Houston NA, ABA #111000614, account
number 188-414-8246 (with immediate telephone notice to Michael Gerlich at phone
number 713.335.4037, or to such other account number as Seller may by written
notice direct, or if to Buyer, to Buyer's account as may be designated by Buyer.

                                   PART THREE

                         REPRESENTATIONS AND WARRANTIES

      Section 3.1 Seller. Seller represents and warrants to Buyer that:

            (a) Organization and Standing. Calpine Corp. is a corporation duly
      organized, validly existing, and in good standing under the laws of the
      State of Delaware,

            EXCEPT AS PROVIDED IN SECTIONS 2.6(a) OR (c), IF BUYER FAILS TO
            COMPLETE THE TRANSACTION SET FORTH IN THIS AGREEMENT, THE PARTIES
            AGREE THAT SELLER SHALL RETAIN THE PERFORMANCE DEPOSIT AS LIQUIDATED
            DAMAGES, WHICH THE PARTIES AGREE IS A REASONABLE SUM CONSIDERING ALL
            THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, INCLUDING
            THE RELATIONSHIP OF THE SUM OF THE RANGE OF HARM TO SELLER THAT
            REASONABLY COULD BE ANTICIPATED AND THE ANTICIPATION THAT PROOF OF
            ACTUAL DAMAGES WOULD BE COSTLY OR INCONVENIENT. IN PLACING THEIR
            INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE
            STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED
            BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES
            PROVISION AT THE TIME THIS AGREEMENT WAS MADE.

                 Seller                             Buyer
                 Initial    MG                      Initial    WB

      Section 2.6 Termination. The following provisions shall apply in the event
of termination of this Agreement:

      (a) If this Agreement is terminated (i) by the mutual agreement of the
Seller and the Buyer and not as the result of the failure of either Party to
perform its obligations hereunder, or (ii) pursuant to Sections 4.3(e), 6.6 or
7.7 or (ii) because the conditions precedent to a Party's performance as set
forth in Part Nine have not occurred, such termination shall be without
liability of any Party or any affiliate, director, officer, employee, agent or
representative of such Party, and Seller shall return the Performance Deposit to
Buyer.

      (b) If this Agreement is terminated as a result of the failure of Buyer to
perform its obligations hereunder, then Seller shall retain the Performance
Deposit together with interest accrued thereon as liquidated damages, as its
sole remedy, for such failure.

      (c) If this Agreement shall be terminated as a result of the failure of
Seller to perform its obligations hereunder, then Seller shall refund the
Performance Deposit together with interest accrued at the Agreed Rate to
Purchaser.

      Section 2.7 Method of Payment. Any amount payable under the Agreement
shall be payable in immediately available funds by means of a wire transfer, if
to Seller, to Seller's account at Bank One, Houston NA, ABA #111000614, account
number 188-414-8246 (with immediate telephone notice to Michael Gerlich at phone
number 713.335.4037, or to such other account number as Seller may by written
notice direct, or if to Buyer, to Buyer's account as may be designated by Buyer.

                                       15


      and is in good standing as a foreign corporation in all jurisdictions
      where the nature of the Assets requires it. Calpine Natural Gas L.P. is a
      limited partnership duly organized, validly existing, and in good standing
      under the laws of the State of Delaware and is in good standing as a
      foreign partnership in all jurisdictions where the nature of the Assets
      requires it.

            (b) Authority. Seller has the corporate power and authority to enter
      into and perform the Agreement and to consummate the transactions
      contemplated hereby. The execution, delivery and performance by Seller of
      the Agreement and the consummation of the transactions contemplated hereby
      have been duly authorized by all requisite corporate action and the
      Agreement has been duly executed and delivered by Seller.

            (c) Validity of Agreement. The Agreement is a legal, valid and
      binding obligation of Seller enforceable against Seller in accordance with
      the terms of the Agreement, except as enforcement may be limited by
      bankruptcy, insolvency or other similar Applicable Laws now or hereafter
      in effect affecting the enforcement of creditors' rights in general. The
      enforceability of Seller's obligations under the Agreement is subject to
      general principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law).

            (d) No Violation. The execution and delivery of the Agreement and
      the performance by the Seller of the terms of the Agreement do not
      conflict with or result in a violation of the Corporate Documents of
      Seller or any agreement, instrument, order, writ, judgment or decree to
      which Seller is a party or is subject.

            (e) Litigation. Except as set forth on Schedule 3.1(e), there are no
      actions, suits, or proceedings pending or to the Actual Knowledge of
      Seller threatened against Seller as to the Assets, before any court or
      arbitration tribunal or before or by any Governmental Body in which the
      claim is in excess of Fifty Thousand Dollars ($50,000.00) for any one
      claim or One Million Dollars ($1,000,000.00) in the aggregate.

            (f) No Consents Required. Except as set forth in Section 4.3(d) and
      on Schedule 3.1(f), no preferential purchase rights, consents, approvals
      or other action by, or filings with any Person or Governmental Body are
      required in connection with the execution, delivery and performance by
      Seller of the Agreement.

            (g) Environmental Claims. Except as set forth on Schedule 3.l(g), to
      Seller's Actual Knowledge, there are no pending written claims, actions or
      proceedings by

                                       16


      any Third Person or Governmental Body caused by or arising out of any
      Condition against the Seller, the Assets, or the ownership or operation
      thereof and there are no Environmental Conditions presently under
      Remediation.

            (h) Current Commitments. Schedule 3.1(h) contains a complete and
      accurate list as of the date of this Agreement of (i) all authorities for
      expenditures ("AFEs") in excess of $50,000 to drill or rework Well or for
      capital expenditures pursuant to any of the Contracts that have been
      proposed by any person on or after the Effective Date, whether or not
      accepted by Seller or any Third Person, and (ii) all AFEs and oral or
      written commitments in excess of $50,000 to drill or rework Wells or for
      other capital expenditures pursuant to any of the Contracts for which all
      of the activities anticipated in such AFEs or commitments have not been
      completed by the date of this Agreement.

            (i) Personal Property. The Personal Property located on the Assets
      currently operated by Seller constitutes the equipment and fixtures
      reasonably necessary for the operations of the Assets for the production
      of the Hydrocarbons. Such Personal Property currently in service is, in
      good repair and operating condition and is suitable for the purpose for
      which such Personal Property is employed.

            (j) Status of Contracts. Seller has all Contracts necessary to
      conduct the business and operations of those Assets currently operated by
      Seller as they are currently operated. All of the Contracts and Easements
      (i) are in full force and effect, (ii) neither Seller nor, to Seller's
      Actual Knowledge, any other party to the Contracts or Easements, (1) is in
      breach of or default, or with the lapse of time or the giving of notice,
      or both, would be in breach or default, with respect to any of its
      obligations thereunder to the extent that such breaches or default have a
      material adverse impact on any of the Assets or (2) has given notice of
      any default or action to alter, terminate, rescind or procure a judicial
      reformation of any Contract or Easement. Except as set forth on Schedule
      C, there are no Contracts (i) that cannot be terminated upon no more than
      ninety (90) days notice or (ii) for which the amount of Buyer's exposure
      would exceed One Hundred Thousand Dollars ($100,000).

            (k) Taxes. All ad valorem, property, production, severance and other
      taxes based on or measured by the ownership of the Properties or the
      production of Hydrocarbons from the Properties due and payable prior to
      the Effective Date have been properly and timely paid except those
      disputed in ordinary course of business, which disputed Taxes shall be
      disclosed by Seller to Buyer in writing prior to the Closing Date.

                                       17


            (l) License. With respect to those Properties currently operated by
      Seller, Seller has all material licenses, authorizations, permits,
      variances and similar rights and interests from Governmental Bodies
      (collectively "Permits"), which are necessary to operate the Subject
      Interests. The conveyance of the Assets to Buyer shall not cause
      revocation of any of such Permits. No violations of any of such Permit
      exists which could result in a termination of such Permit or that would
      materially impair Buyer's ability to enjoy the economic benefit of the
      Assets.

            (m) Tax Partnerships. None of the Assets are subject to a tax
      partnership, including, without limitation, none of such properties are
      subject to any operating agreement or other agreement under which the
      parties hereto have not made an effective election pursuant to Section 761
      of the Internal Revenue Code, and the Treasury Regulations promulgated
      thereunder, to be excluded from the application of Subchapter K, Chapter
      1, Subtitle A, of the Code.

            (n) Not a Foreign Person. Seller is not a "foreign person" within
      the meaning of Section 1445 (or similar provisions) of the Code (i.e.,
      Seller is not a non-resident alien, foreign corporation, foreign
      partnership, foreign trust or foreign estate as those terms are defined in
      the Code and regulations promulgated thereunder). Calpine Corporation's
      taxpayer identification number is 770212977. Calpine Natural Gas LP.'s
      taxpayer identification number is 710882453.

            (o) Gas Imbalances. Schedule 3.1(o) sets forth the current status of
      all gas imbalances with respect to Assets as of the Effective Date.

            (p) No Broker. Seller has not employed or otherwise benefited from
      the services of a broker, finder or similar person in connection with the
      transaction contemplated by this Agreement.

      Section 3.2 Buyer. Buyer represents and warrants to Seller that:

            (a) Organization and Standing. Buyer is a corporation duly
      organized, validly existing in good standing under the laws of the State
      of Delaware and is in good standing as a foreign corporation in all
      jurisdictions where the nature of the Assets requires it and is duly
      qualified to own federal and state leases in the State of Colorado.

            (b) Authority. Buyer has the corporate power and authority to enter
      into and perform the Agreement and to consummate the transactions
      contemplated hereby. The execution, delivery and performance by Buyer of
      the Agreement and the consummation of the transactions contemplated hereby
      have been duly authorized by all

                                       18


      requisite corporate action and the Agreement has been duly executed and
      delivered by Buyer.

            (c) Validity of Agreement. The Agreement is a legal, valid and
      binding obligation of Buyer enforceable against Buyer in accordance with
      the terms of the Agreement, except as enforcement may be limited by
      bankruptcy, insolvency or other similar Laws affecting the enforcement of
      creditors' rights in general. The enforceability of Buyer's obligations
      under the Agreement is subject to general principles of equity (regardless
      of whether enforceability is considered in a proceeding in equity or at
      law).

            (d) No Violation. The execution and delivery of the Agreement and
      the performance by Buyer of the terms of Agreement do not conflict with or
      result in a violation of the Corporate Documents of Buyer or of any
      agreement, instrument, order, writ, judgment or decree to which Buyer is a
      party or is subject.

            (e) No Consents Required. Except as set forth in Section 4.3(d), no
      consents, approvals or other action by, or filings with any Person or
      Governmental Body are required in connection with the execution, delivery
      and performance by Buyer of the Agreement.

            (f) Securities Representation. Buyer is an experienced and
      knowledgeable investor and operator in the oil and gas business and is
      acquiring the Assets for Buyer's own account and not with a view to, or
      for offer of resale in connection with, a distribution thereof, within the
      meaning of the Securities Act of 1933, or any other Applicable Laws
      pertaining to the distribution of securities.

            (g) Buyers' Sole Reliance on Own Investigation. Buyer has, subject
      to necessary Third Person operator approval as to those Assets not
      operated by Seller, availed itself of the opportunity to conduct a
      pre-acquisition review of the Assets. Buyer is purchasing the Assets
      solely in reliance on Buyer's own investigation of the Assets and Seller's
      representations and warranties set forth in this Agreement.

            (h) No Broker. Buyer has not retained or otherwise benefited from
      the services of a broker, finder or similar person in connection with the
      Agreement or the transaction contemplated herein.

            (i) Buyer's Qualifications. Buyer is, or will as of the Closing be,
      fully qualified and bonded as an operator by all applicable Governmental
      Bodies as necessary to operate the Assets.

                                       19



      Section 3.3. Disclaimers and Notifications. The Parties make the following
disclaimers and notifications:

            (a) No Other Warranties. Except as otherwise provided herein there
      are no express or implied warranties that apply to the transactions
      contemplated herein.

            (b) Disclaimer and Assumption of Risk. EXCEPT AS EXPRESSLY SET FORTH
      TO THE CONTRARY HEREIN, IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES THAT
      SELLER DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED
      WITH RESPECT TO THE ASSETS. WITHOUT LIMITATION OF THE FOREGOING, SELLER
      MAKES NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, AS TO TITLE OR
      THE CONDITION OR STATE OF REPAIR OF THE ASSETS, THEIR VALUE, QUALITY,
      MERCHANTABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR USES OR
      PURPOSES, NOR AS TO THE CURRENT VOLUME, NATURE, QUALITY, CLASSIFICATION,
      OR VALUE OF THE HYDROCARBONS RESERVES THEREUNDER OR COVERED THEREBY, NOR
      WITH RESPECT TO ANY APPURTENANCES THERETO BELONGING OR APPERTAINING TO THE
      ASSETS, AND BUYER SHALL ACCEPT THE ASSETS IN "AS IS," "WHERE IS,"
      CONDITION. WITHOUT LIMITATION OF THE FOREGOING, BUYER HEREBY WAIVES ANY
      AND ALL RIGHTS AND REMEDIES BUYER MAY HAVE AGAINST SELLER ARISING FROM
      SAME INCLUDING, WITHOUT LIMITATION, ANY RIGHTS AND REMEDIES BUYER MAY HAVE
      AGAINST SELLER PURSUANT TO THE COLORADO CONSUMER PROTECTION ACT (COLORADO
      REVISED STATUTES Section 61-1-1001 ET SEQ.).

            (c) Disclaimer with Respect to NORM, etc. BUYER ACKNOWLEDGES AND
      AGREES THAT THE ASSETS HAVE BEEN UTILIZED BY SELLER FOR THE PURPOSE OF
      EXPLORATION, DEVELOPMENT, AND PRODUCTION OF OIL AND GAS, AS WELL AS
      PROCESSING AND REFINING OPERATIONS, AND THAT MATERIALS ASSOCIATED
      THEREWITH MAY HAVE BEEN STORED, KEPT OR DISPOSED OF ON OR IN THE ASSETS.
      BUYER ACKNOWLEDGES THAT EQUIPMENT, PLANTS, BUILDINGS, STRUCTURES,
      IMPROVEMENTS, ABANDONED AND OTHER TANKS AND PIPING, STORAGE FACILITIES,
      GATHERING AND DISTRIBUTION LINES, WELLS AND OTHER PETROLEUM PRODUCTION
      FACILITIES AND APPURTENANCES MAY BE LOCATED THEREON. BUYER ACKNOWLEDGES
      THAT THERE MAY HAVE BEEN SPILLS OF CRUDE OIL, PRODUCED WATER OR OTHER
      MATERIALS IN THE PAST ON OR IN THE ASSETS. IN ADDITION, SOME PRODUCTION
      EQUIPMENT MAY CONTAIN ASBESTOS AND NORM. IN THIS REGARD, BUYER EXPRESSLY
      ACKNOWLEDGES AND AGREES THAT NORM MAY AFFIX

                                       20


      OR ATTACH ITSELF TO THE INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE,
      OR IN OTHER FORMS, AND THAT WELLS, MATERIALS AND EQUIPMENT LOCATED ON THE
      ASSETS MAY CONTAIN NORM AND THAT NORM-CONTAINING MATERIAL MAY BE BURIED
      AND OTHERWISE DISPOSED OF ON THE ASSETS. BUYER ALSO EXPRESSLY UNDERSTANDS
      THAT SPECIAL PROCEDURES MAY BE REQUIRED FOR THE REMOVAL AND DISPOSAL OF
      ASBESTOS AND NORM FROM THE EQUIPMENT AND LAND WHERE IT MAY BE FOUND AND
      THAT BUYER ASSUMES ALL LIABILITY AND EXPENSE FOR SUCH ASSESSMENT, REMOVAL
      AND DISPOSAL OF ANY SUCH MATERIALS AND ASSOCIATED ACTIVITIES.

            (d) Disclaimer with Respect to Data. All descriptions set forth
      herein and all data, evaluations, reports, and any other information,
      heretofore or hereafter furnished Buyer by Seller concerning any or all of
      the Assets, and the operation thereof, have been and shall be furnished
      solely for Buyer's convenience and have not constituted and shall not
      constitute a representation or warranty of any kind by Seller, and any
      reliance thereupon by Buyer shall be at Buyer's sole risk and liability.
      Seller does not warrant or represent the accuracy or completeness of any
      information, data or materials furnished to Buyer with respect to this
      transaction. Buyer acknowledges that Seller's information with respect to
      the Assets is incomplete and Seller does not have the requisite
      information with which to determine the exact nature or condition of the
      Assets.

                                   PART FOUR

                                   COVENANTS

      Section 4.1 Covenants of Seller. Seller covenants with Buyer as follows:

            (a) Access. Except for such of the Assets not operated by Seller,
      Seller shall afford Buyer and Buyer's representatives full and reasonable
      access to the Assets in the possession of Seller during normal working
      hours. In addition, the Seller shall, and shall cause officers of Seller
      to, afford the officers of Buyer complete access at all reasonable times
      from the date hereof through the Closing to Seller's officers, properties,
      facilities, and its non-privileged, non-confidential books, records and
      contracts

                                       21


      related to, or with knowledge of, the Assets and shall furnish Buyer all
      financial, operating and other data and information regarding the Assets,
      as Buyer through its officers, employees or agents, may reasonably request
      in a form that Buyer may reasonably request, including data required for
      Buyer to operate the Assets after Closing; provided there is no material
      cost to or effort required by Seller to furnish such information. Without
      limiting the foregoing, Seller shall provide Buyer with such unaudited
      accounting information as Buyer may reasonably request in order to prepare
      its financial statements, which information shall be audited by Buyer or
      its designee. Notwithstanding the foregoing, access to Tax records shall
      be governed by Part Five.

            (b) Operations Prior to Closing. After the date hereof and until
      Closing, except as otherwise consented to by Buyer in writing, Seller
      shall use and maintain the Assets in substantially the same manner in
      which they have been used and maintained prior to the Agreement. Seller
      shall pay in a timely manner in the ordinary course of business all
      expenditures relating to the Assets after the Effective Date; provided
      however, that Seller shall not (i) pay any single amount in excess of
      $50,000 and which is unrelated to any of the AFEs set forth on Schedule
      3.1(h) or (ii) enter into any new agreement with respect to operations on
      the Assets for which Buyer's liability would exceed $50,000 without the
      prior consent of Buyer, which consent shall not be unreasonably delayed or
      withheld; and provided further however, that all expenditures made in
      compliance with this Section 4.1(b) shall become an adjustment to the
      Purchase Price in accordance with Section 4.3(h). Without limitation of
      the foregoing, after the execution of the Agreement and prior to Closing,
      Seller shall have the right to make any changes, repairs or modifications,
      or incur any expenditures necessary or desirable in Seller's opinion for
      the protection of the Assets or to comply with any Applicable Law or other
      legal requirement relative to the premises or to prevent or react to an
      emergency or environmental incident. Seller shall have the right to effect
      such expenditure or action with or without such approval, acting as would
      any prudent operator under similar circumstances. Unless Buyer and Seller
      otherwise agree, Seller shall not materially alter the Assets (other than
      the use of supplies and consumables or the normal production of
      Hydrocarbons from the Assets) or remove any improvements, equipment or
      property which comprise the Assets (other than the use of supplies and
      consumables).

            (c) Consents. Subject to 4.3(d), Seller shall use reasonable efforts
      to obtain all waivers, consents, approvals, permits and authorizations and
      actions of Third Parties to complete the transactions contemplated by the
      Agreement. Seller shall reasonably endeavor to notify all holders of such
      rights of consent to the assignment of the Assets of its intention to sell
      the portion of the Assets affected thereby, and of such terms and
      conditions of the Agreement to which the holders of the rights are
      entitled. Seller shall promptly notify Buyer if any consents or approvals
      are denied, or if the requisite period has elapsed without said consents
      or approvals having been received.

                                       22


      Section 4.2 Covenants of Buyer. Buyer covenants with Seller as follows:

            (a) Performance Bonds, Guaranties, Etc. With respect to any surety
      bonds, performance bonds, guarantees or financial assurances relating to
      the Assets, on which Seller or Seller's Affiliates is a principal or a
      guarantor, Buyer shall cause such surety bonds, performance bonds,
      guarantees or financial assurances to be replaced or otherwise released
      within ninety (90) days after the Closing Date. Buyer shall reimburse
      Seller for any amounts paid by Seller with respect to such surety bonds,
      performance bonds, guarantees or financial assurances related to periods
      on and after the Effective Date.

            (b) Plugging and Abandonment. Upon Closing, Buyer shall assume all
      of Seller's responsibility for Plugging and Abandonment associated with
      the Assets, and shall conduct all Plugging and Abandonment in a good and
      workmanlike manner. If at any time during Buyer's ownership of the Assets,
      Buyer sells an interest or assigns an interest or obligation in any of the
      Leases, Fee Interests or Beneficial Interests, then Buyer shall provide
      Seller a performance bond (in a form and with a surety satisfactory to
      Seller) or other security satisfactory to Seller in an amount reasonably
      calculated by Seller at that time to pay for any of Buyer's remaining
      Plugging and Abandonment obligations with respect to the Assets.

            (c) No Use of Calpine Mark. At the Closing Buyer shall cease to use
      any trademarks, symbols or trade names containing "Calpine," or similar
      words. Notwithstanding anything to the contrary herein, Buyer shall have
      sixty (60) days from the Closing Date to remove or replace any
      identifications and signs.

            (d) Transfer Orders. Buyer shall execute, acknowledge and deliver
      transfer orders or letters in lieu prepared by Buyer directing all
      purchasers of Hydrocarbons to make payments to buyer of proceeds
      attributable to Hydrocarbons produced from the Assets within sixty (60)
      days after Closing.

      Section 4.3 Covenants of Seller and Buyer. Seller and Buyer covenant to
each other as follows:

            (a) Compliance with Conditions Precedent. Each Party shall use its
      commercially reasonable efforts to cause the conditions precedent set
      forth in Part Nine, applicable to such Party, to be fulfilled and
      satisfied as soon as practicable.

                                       23


            (b) Recording. Seller shall be solely responsible for recording of
      the Assignments, and any other documents related to the conveyance of the
      Assets, and shall promptly furnish Buyer with either the recorded
      originals or with the recording information thereof. Seller shall also be
      solely responsible for all filings with any Governmental Body for change
      of operator, and shall promptly provide Buyer with the original approved
      copies of all such filings, or confirmation thereof. All recording and
      filing shall be at the sole cost and expense of Buyer and Buyer shall
      promptly reimburse Seller for all such costs upon presentation of
      appropriate invoices.

            (c) Press Release. No Party shall make any press release or other
      announcement respecting the Agreement without the consent of the other
      Party unless a Party refuses to consent and the Party desiring to make the
      release or other announcement is advised by its counsel that the release
      or other announcement is required to comply with any Applicable Law or
      stock exchange rule.

            (d) Certain Filings, Consents and Permits. With respect to filings
      and consents required by any Governmental Body, the Parties agree that
      Buyer and Seller shall cooperate with one another to make all filings
      necessary and to obtain any necessary consents, permits, authorizations,
      approvals or waivers.

            (e) Risk of Loss. The risk of casualty loss relating to the Assets
      shall pass from Seller to Buyer as of the Effective Date. If, after the
      Effective Date but prior to Closing, all or any material portion of the
      Assets is destroyed by fire or other casualty, is taken in condemnation or
      under the right of eminent domain or proceedings for such purposes are
      pending or threatened, Buyer shall purchase such portion of the Assets
      notwithstanding any such destruction, taking or pending or threatened
      taking, and the Purchase Price shall not be adjusted. Seller shall, at
      Closing, pay to Buyer all sums paid to Seller by Third Persons by reason
      of the destruction or taking of such portion of the Assets to be assigned
      to Buyer, and shall assign, transfer and set over to Buyer all of the
      right, title and interest of Seller in and to any unpaid awards or other
      payments from Third Persons arising out of the destruction, taking or
      pending or threatened taking as to such interest. Seller shall not
      voluntarily compromise, settle or adjust any material amounts payable by
      reason of any material destruction, taking or pending or threatened taking
      as to any of the Assets without first obtaining the written consent of
      Buyer, which shall not be unreasonably withheld. In the event a casualty
      loss or other loss or potential loss described in this Section 4.3(e)
      together with all other such losses or potential losses in the aggregate
      exceeds ten percent (10%) of the Purchase Price, either Seller or Buyer
      may terminate this Agreement upon written notice to the other, and neither
      Party thereafter shall have any further rights or obligations hereunder.

                                       24


            (f) Questar Capacity. As soon after the Closing as is reasonably
      practical, Seller shall permanently release to Buyer and Buyer shall
      assume all of Seller's capacity on the Questar Pipeline Southern System
      Expansion pursuant to the Precedent Agreement for Firm Transportation
      Service between Calpine Corporation and Questar Pipeline Company dated
      March 28, 2003 (the "Precedent Agreement"). Buyer shall undertake all
      steps necessary to become a qualified replacement shipper on Questar
      Pipeline Company's Southern System on the same terms and conditions set
      forth in the Precedent Agreement.

            (g) Post-Closing Access. Except as otherwise expressly provided
      herein, from and after the Closing Date, Buyer and Seller shall reasonably
      cooperate and afford each other or cause to be afforded to their
      respective officers, employees, accountants and other representatives
      access, upon reasonable notice, during business hours with respect to that
      portion of the Assets to which access has been requested, to review and
      copy the books, documents, databases or other records relating to the
      Assets, but excluding those documents subject to Third Party
      confidentiality obligations or subject to the attorney-client privilege
      or otherwise excluded from the definition of Assets (which books,
      documents, databases, records, or employees files or other information the
      Parties shall cooperate and assist one another in identifying and
      locating), interview, depose or seek testimony of employees, provide
      assistance in proceedings with employees as witnesses or advisors,
      investigate the physical premises, take photographs or videotapes,
      identify employees and contractors with knowledge of any matter which is
      the subject of a claim for which a Party has responsibility and make such
      employees available to such Party and provide reasonable office space to
      do any of the foregoing in connection with any matter affecting or alleged
      to affect the Party requesting such access. Without limiting the
      foregoing, Seller shall provide Buyer with unaudited accounting
      information as Buyer may reasonably request in order to prepare its
      financial statements, which information shall be audited by Buyer or its
      designee. Notwithstanding the foregoing, access to Tax records shall be
      governed by Part Five.

            (h) Final Recapitulation Settlement. On or before ninety (90) days
      after Closing ("Final Settlement Date"), Seller shall deliver to Buyer a
      final statement (the "Final Recapitulation Statement"), which shall set
      forth all of the adjustments to the Purchase Price called for in this
      Section 4.3(h) ("Final Recap Amount").

                  (1) Seller Adjustments. The Final Settlement Statement shall
            incorporate the following adjustments in favor of Seller:

                              (a) If appropriate, the proceeds, net to Seller's
                        net revenue interest, received from any and all
                        merchantable liquids in sales tanks above the pipeline
                        connections on the Effective

                                       25


                        Date that is credited to the Assets, less any Taxes
                        required to be withheld by the purchaser of such.

                              (b) If appropriate, the proceeds, net to Seller's
                        net revenue interest, received for any and all natural
                        gas produced and credited to the Assets as of the
                        Effective Date.

                              (c) An amount equal to all capital costs,
                        expenses, and any Taxes that are paid by Seller, and
                        that are, in accordance with generally accepted
                        accounting principles, attributable to the Assets from
                        and after the Effective Date, including, without
                        limitation:

                                    (i) royalties, rentals or other similar
                              charges;

                                    (ii) expenses paid by or on behalf of Seller
                              under applicable operating agreements and, in the
                              absence of an operating agreement, expenses of the
                              sort customarily billed under such agreements; and

                                    (iii) ad valorem, property and other Taxes
                              and assessments (but not including income Taxes)
                              based upon or measured by the ownership of the
                              Property or the production of Hydrocarbons or the
                              receipt of proceeds therefrom. For the purposes of
                              this Agreement ad valorem taxes shall be prorated
                              as of the Effective Date in the manner provided in
                              Section 5.1 (a).

                                    (iv) amounts paid by Seller with respect to
                              surety bonds, performance bonds or other financial
                              assurances pursuant to Section 4.2(a); and

                              (d) Any other adjustments in favor of Seller as
                        provided for in this Agreement.

                  (2) Buyer Adjustments. The Final Settlement Statement shall
            incorporate adjustments in favor of Buyer:

                              (a) to the extent not already remitted to Buyer
                        pursuant to Section 4.3 (p), the proceeds received for
                        any and all merchantable liquids below the pipeline
                        connections on the Effective Date that is credited to
                        the Assets less any Taxes required to be withheld by the
                        purchaser of such.

                                       26


                              (b) to the extent not already remitted to Buyer
                        pursuant to Section 4.3 (p), the actual sales price
                        received by Seller from any and all natural gas proceeds
                        and credited to the Assets after the Effective Date; and

                              (c) Any other adjustments in favor of Buyer as
                        provided for in this Agreement.

                  (3) Buyer shall have the right, within fifteen (15) days after
            receipt of the Final Recapitulation Statement, to audit and object
            to such statement. If Buyer objects to the Final Recapitulation
            Statement in writing within the fifteen (15) day period, Buyer and
            Seller shall attempt to resolve such objections within fifteen (15)
            days after receipt of said objection. If the Parties are unable to
            resolve such objections within the fifteen (15) day period, then
            either Party shall have the right thereafter to submit the matter to
            arbitration pursuant to the terms of the Dispute Resolution
            Procedure attached as Schedule 10.12 for determination of the Final
            Recap Amount.

                  (4) Payment of the undisputed portion of the Final Recap
            Amount is due fifteen (15) days after the Final Recapitulation
            Statement is received by Buyer. Payment of the Final Recap Amount,
            less any amounts previously paid, is due fifteen (15) days from
            receipt of the Final Recapitulation Statement, or ten (10) days from
            the determination of the Final Recap Amount under the Dispute
            Resolution Procedure, whichever is later. Interest will be applied
            at the Agreed Rate to any amounts if not paid when due.

            (i) Audit Rights. Within one year after the Closing Date, each of
      Seller and Buyer may, at its own expense and by appointment only, audit
      the other Party's books, accounts and records relating to such production
      proceeds, capital costs, Taxes, Expenses and Burdens relating to this
      transaction. Such audit shall be conducted so as to cause a minimum of
      inconvenience to the audited Party.

            (j) Further Assurances. Each Party shall, from time to tune at the
      request of the other, and without further consideration, execute and
      deliver such other instruments of sale, transfer, conveyance, assignment,
      clarification and termination and take such other action as the Party
      making the request may reasonably require to effectuate the intentions of
      the Parties, including those reasonably required to sell, transfer, convey
      and assign to and vest in Buyer, and to place Buyer in possession of the
      Assets and to transfer, assign or convey the excluded Assets to Seller and
      to fulfill Seller's obligations under this Agreement. Seller intends to
      convey the Assets at Closing; however, in the event it is

                                       27


      determined after Closing that: (i) any part of the Assets was not in fact
      conveyed to Buyer, and that the title to any part of the Assets is
      incorrectly in the name of Seller; (ii) any excluded Asset is conveyed to
      Buyer and that the title to such excluded Asset is incorrectly in the name
      of Buyer; then each Party shall take all such action necessary to
      correctly convey any part of Assets to Buyer, or any part of the excluded
      assets to Seller.

            (k) Affiliates Access. Seller and its Affiliates shall have a
      non-exclusive right of access to and over the Fee Interests, Leases and
      Easements, after notice to Buyer, reasonably necessary to operate,
      maintain or remove any facilities or personal property in existence and
      owned or operated by such Affiliates on the Effective Date that is not
      included in the Assets.

            (l) Files Transfer. Originals (or copies if originals are not in
      possession of Seller) of all non-privileged and non-confidential files,
      contracts, and documents, including those in electronic form, affecting
      title to the Assets which are in Seller's possession shall be shipped,
      using reasonable efforts, to Buyer within thirty (30) days after Closing.
      Buyer shall designate the method of shipment and the carrier far enough in
      advance to allow for timely shipment and shall be solely responsible for
      the cost and expense of shipment and for any Losses occurring as a result
      of such shipment. In the event Buyer has not provided for shipment within
      a reasonable time, then Seller may arrange and pay for shipment to Buyer;
      in such event, Buyer shall reimburse Seller for all expenses associated
      with such shipment within thirty (30) days of Seller's request for
      reimbursement.

            (m) Copies. Copies of all non-privileged and non-confidential books,
      records, production records, logs (originals if in possession of Seller),
      well files (originals if in possession of Seller), information, and
      engineering data relating to the Assets, including those in electronic
      form, (except information and data excluded from the definition of
      Assets), shall be shipped, using reasonable efforts, to Buyer within
      thirty (30) days after Closing.

            (n) Assumption of Operatorship. Unless otherwise agreed to by the
      Parties and subject to the terms and conditions of all applicable
      Contracts, Buyer shall assume Seller's obligations for operatorship of any
      Seller operated Assets conveyed herein at 7:00 a.m. on the first Business
      Day following the Closing, and thereafter shall perform all duties
      required in the course of business, including without limitation, paying
      Burdens and severance Taxes, pumping and gauging wells, marketing
      Hydrocarbons, working over wells, drilling new wells, filing all necessary
      reports required by Applicable Law or otherwise, and performing
      maintenance or repair work on the Assets until such time as a successor
      operator is duly elected pursuant to any applicable Contract. Seller shall

                                       28


      cooperate with Buyer in the transition of Buyer's assumption of Seller's
      obligations for operatorship pursuant to this Section 4.3(n), including
      but not limited to coordinating with Buyer with respect to the receipt of
      revenue and the timing of payments. Notwithstanding the foregoing, Seller
      does not warrant or guarantee that Buyer shall succeed Seller as operator.

            (o) Assumption of Gas Imbalances. Buyer agrees to assume and bear
      any and all gas imbalances with respect to the Assets that are in effect
      on the Effective Date and set forth on Schedule 3.1(o). Buyer understands
      that the existence of a gas imbalance in the form of overproduction may
      result in a cash payment by Buyer or in Buyer's inability to further
      produce and sell gas. Further, to the extent any of the Wells are
      underproduced, there are no warranties that any rights of makeup or cash
      payment exist with respect to such underproduction. WITHOUT LIMITATION OF
      ANY OTHER PROVISION CONTAINED HEREIN, BUYER HEREBY SPECIFICALLY RELEASES
      SELLER FROM, AND AGREES TO FULLY DEFEND, PROTECT, INDEMNIFY AND HOLD
      HARMLESS SELLER, ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
      EMPLOYEES, AGENTS OR REPRESENTATIVES, FROM AND AGAINST EACH AND EVERY LOSS
      THAT MAY BE ASSERTED BY ANY THIRD PERSON, RELATING TO GAS IMBALANCES
      RESPECTING THE WELLS CONVEYED WHETHER ARISING UNDER THE TERMS OF ANY GAS
      BALANCING OR OTHER SIMILAR AGREEMENT, BY OPERATION OF APPLICABLE LAW OR
      OTHERWISE. Buyer represents that it has independently investigated, to its
      satisfaction, the gas balancing account associated with the Assets.

      On or before the date that the Final Recapitulation Statement is due,
      Seller and Buyer shall, based upon data available at that time, determine
      (a) the total amount of overproduction of gas attributable to Seller's
      interest (e.g. volumes of gas taken from the Properties, or on lands
      unitized therewith, by Seller in excess of those volumes which Seller's
      interest would be entitled to receive) and (b) the total amount of
      underproduction of gas attributable to Seller's interest (e.g. volumes of
      gas not taken from the Properties, or on lands unitized therewith, by
      Seller despite Seller's interest in and right to receive such volumes). If
      the total amount of overproduction (as so determined) exceeds the total
      amount of underproduction (as so determined) Buyer shall receive a credit
      against the Purchase Price equal to the actual price per Mcf received by
      Seller for July 2004 production times such excess. If the total amount of
      underproduction (as so determined) exceeds the total amount of
      overproduction (as so determined) Buyer shall in addition to the amount of
      Purchase Price payable, pay to Seller an amount equal to the actual price
      per Mcf received by Seller for July 2004 production times such excess.

                                       29


                   (p) Post-Closing Proceeds. Following the Closing, Seller
        shall remit to Buyer, within five (5) business days of Seller's receipt
        thereof, the net proceeds actually received by Seller for the sale of
        Hydrocarbons attributable to the Assets for the production months
        subsequent to the Effective Date.

                                    PART FIVE

                                      TAXES

      Section 5.1 Payment and Apportionment of Real Property Taxes and Personal
Property Taxes. With respect to Taxes:

            (a) 2004 Taxes. All property Taxes accruing during the Tax year in
      which the Effective Date occurs with respect to ownership of the Assets or
      production from the Assets during the period from January 1 of such year
      up to the Effective Date and regardless of when payable, including,
      without limitation, ad valorem Taxes, benefit assessments, and special
      assessments, shall be allocated to the Seller and all such Taxes accruing
      on and after the Effective Date through the end of such Tax year shall be
      allocated to the Buyer. Any Taxes determined by the value of any
      production shall be deemed to be attributable to the period during which
      such production occurred and not attributable to the year in which such
      Taxes are assessed. Buyer shall pay such Taxes to the appropriate taxing
      authorities. Seller shall be charged for and shall reimburse Buyer for the
      Seller's allocated share of property Taxes paid or to be paid by Buyer.

            (b) 2003 Taxes. All real property Taxes and personal property Taxes
      imposed as a result of ownership of the Assets at any time during 2003
      shall be paid by Seller.

            (c) 2005 Taxes. All real property Taxes and personal property Taxes
      imposed as a result of ownership of the Assets at any time during 2005
      shall be paid by Buyer.

      Section 5.2 Sales Taxes. The Purchase Price does not include any sales
Taxes or other transfer Taxes imposed in connection with the sale of the Assets.
Buyer shall reimburse Seller for or otherwise pay any sales Tax or other
transfer Tax, as well as any applicable conveyance, transfer and recording fee,
and real estate transfer stamps or Taxes imposed on the transfer of the Assets
pursuant to the Agreement. If Buyer is of the opinion that it is exempt from the
payment of any such sales Tax or other transfer Tax in connection with the
purchase of the Assets, Buyer

                                       30


shall furnish to Seller the appropriate Tax exemption certification. Sales and
other transfer Taxes shall be accounted for pursuant to Section 4.3(h).

      Section 5.3 Other Taxes. All excise, windfall profit and other Taxes
(other than income Taxes) relating to production of Hydrocarbons prior to the
Effective Date shall be paid by Seller, and all such Taxes relating to such
production on or after the Effective Date shall be paid by Buyer.

      Section 5.4 Cooperation. For the period ending on the seventh anniversary
of the Closing Date, each Party to the Agreement shall provide the other Party
with reasonable access to all relevant documents, data and other information
which may be required by the other Party for the purpose of preparing Tax
returns, establishing or defending a Tax position and responding to any audit by
any taxing jurisdiction. Each Party to the Agreement shall cooperate with all
reasonable requests of the other Party made in connection with contesting the
imposition of Taxes. Notwithstanding anything to the contrary in the Agreement,
neither Party to the Agreement shall be required at any time to disclose to the
other Party any Tax returns or other confidential or privileged Tax information.

      Section 5.5 Tax Proceedings. In the event Buyer receives notice of any
examination, claim, adjustment or other proceeding relating to the liability for
Taxes of or with respect to Seller for any period Seller is or may be liable
under the Agreement, Buyer shall within ten (10) days notify Seller in writing
thereof. As to any such Taxes for which Seller is or may be liable under the
Agreement, and Seller does not contest such liability as against Buyer, Seller
shall be entitled at Seller's expense to control or settle the contest of such
examination, claim, adjustment or other proceeding, provided Seller notifies
Buyer in writing within thirty (30) days after receipt of the notice described
in the preceding sentence that Seller desires to do so. The Parties shall
cooperate with each in the negotiations and settlement of any proceeding
described in this Section 5.5. Buyer shall provide, or cause to be provided, to
Seller necessary authorizations, including powers of attorney, to control any
proceeding which Seller is entitled to control pursuant to this Part Five to the
extent that Seller is so entitled to control such proceeding.

      Section 5.6 Purchase Price Allocation. The allocation of Purchase Price
provided for in Section 2.3 is intended to comply with the allocation method
required by Section 1060 of the Code. Buyer and Seller shall cooperate to comply
with all substantive and procedural requirements of Section 1060 and regulations
thereunder, including without limitation the filing by Buyer and Seller of an
IRS Form 8594 with their federal income Tax returns for the taxable year in
which the Closing occurs. Buyer and Seller agree that each will not take for
income Tax purposes, or permit any Affiliate to take, any position inconsistent
with the allocation of Purchase Price prescribed in Section 2.3.

                                       31


                                    PART SIX

                             ENVIRONMENTAL MATTERS

      6.1 Phase I Environmental Assessment. Beginning on the date of this
Agreement and ending on August 20, 2004 (the "Review Period"), Buyer shall have
the right, at its sole cost, risk and expense, to conduct an environmental
assessment of the Assets. During normal business hours and after providing
Seller reasonable prior notice of any such activities, Buyer and its
representatives shall be permitted to enter upon the Assets operated by Seller
and all buildings and improvements thereon, inspect the same, review all of
Seller's non-privileged and non-confidential files and records related to the
Assets and generally conduct such tests, examinations, and investigations as are
consistent with the American Society for Testing and Materials standard Phase I
environmental audit. Seller will have the right to (i) observe such
investigation and (ii) promptly receive a copy of all results, analyses and
reviews. All information obtained or reviewed by Buyer shall be maintained
confidential pursuant to the Confidentiality Agreement, which shall continue in
force under its terms.

      6.2 Environmental Defect Notice. Buyer shall notify Seller in writing of
any Environmental Conditions (an "Environmental Defect Notice(s)") on or before
August 20, 2004. The Environmental Defect Notice shall state with reasonable
specificity: (i) the Property affected or on which the Asset is located; (ii) a
complete description of the Environmental Condition claimed; (iii) Buyer's good
faith estimate of the cost of Remediation of such Environmental Condition (the
"Environmental Defect Value"); and (iv) appropriate documentation substantiating
Buyer's claim. Buyer shall conclusively be deemed to have waived any
Environmental Condition not asserted by an Environmental Defect Notice on or
before August 20, 2004 (the "Environmental Notice Deadline").

      6.3 Seller's Election. For any Environmental Conditions asserted in an
Environmental Defect Notice(s), Seller shall have the option of (i) Remediating
the Environmental Condition, (ii) contesting the existence of the Environmental
Condition or the Environmental Defect Value, (iii) paying the Environmental
Defect Value as an adjustment to the Purchase Price subject to the limitations
set forth below, or (iv) excluding the affected Property and reducing the
Purchase Price by the value allocated to the Property. Seller shall notify Buyer
in writing of its election no more than five (5) days following its receipt of
an Environmental Defect Notice.

                                       32


            (a) If Seller elects to Remediate an Environmental Condition, Seller
      shall give written notice of such an election to Buyer no more than five
      (5) days after receipt of the Environmental Defect Notice, together with
      Seller's proposed plan and timing for such Remediation and Seller shall
      remain liable for all Losses arising out of or in connection with such
      Environmental Condition until such time as the Remediation is completed.

            (b) If Seller contests the existence of an Environmental Defect or
      the Environmental Defect Value, then Seller shall so notify Buyer in
      writing no more than five (5) days after receipt of the Environmental
      Defect Notice ("Environmental Rejection Notice"). The Environmental
      Rejection Notice shall state with reasonable specificity the basis of
      Seller's rejection of the Environmental Defect or the Environmental Defect
      Value. Within ten (10) days of Buyer's receipt of the Environmental
      Rejection Notice, representatives of Buyer and Seller, knowledgeable in
      environmental matters, shall meet and, within twenty (20) days after
      Buyer's receipt of such Environmental Rejection Notice, either: (i) agree
      to mutually reject the particular Environmental Defect Notice, or (ii)
      agree on the validity of such Notice including the Environmental Defect
      Value, in which case Seller shall have sixty (60) days after the date of
      such agreement within which to elect in writing to Remediate the
      Environmental Condition pursuant to Section 6.2(a) above or to pay Buyer
      the Environmental Defect Value pursuant to Section 6.2 (c) above. If the
      Parties cannot agree on either options (i) or (ii) in the preceding
      sentence, the dispute shall be submitted to arbitration in accordance with
      the procedures set forth in Section 10.12. In such case, Seller shall have
      five (5) days following the final decision of the arbitration panel to
      notify Buyer in writing of its election to Remediate the Environmental
      Defect or to pay the Buyer the Environmental Defect Value.

            (c) In the event a contested Environmental Defect cannot be resolved
      prior to Closing, Seller shall convey the affected Property to Buyer and
      Buyer shall pay for the Property at Closing in accordance with the
      Agreement as though there were no Environmental Defect, subject to
      Seller's obligations as set forth above upon resolution of the contested
      matter.

            (d) If the Purchase Price is adjusted pursuant to Section 6.2(iii)
      above, or if Buyer waives an Environmental Condition pursuant to Section
      6.2 above or otherwise, Buyer shall assume all Losses associated with such
      Environmental Condition(s).

            Section 6.4 Covenant of Cooperation. The Parties shall cooperate
fully with each other and act in good faith in implementing Part Six, including
but not limited to the following:

                                       33


            (a) sharing with the other Party in a timely manner all material,
      non-privileged, non-confidential correspondence received from any
      Affiliate or Third Person that is relevant to such an Environmental
      Condition for which a Party is responsible pursuant to this Part Six;

            (b) affording the other Party timely access to and an opportunity to
      comment on (both draft and final versions) any material non-privileged,
      non-confidential correspondence to Affiliates or Third Persons, study
      protocols and results, drawings, charts remediation plans or reports, or
      other documentation relating to an Environmental Condition for which a
      Party is responsible pursuant to this Part Six;

            (c) providing the other Party timely notice of and an opportunity to
      attend and participate in any meetings or hearing with Governmental Bodies
      or courts relating to any Environmental Condition for which a Party is
      responsible pursuant to this Part Six;

            (d) preparing all material strategies and plans affecting any matter
      with respect to which the other Party may have liability hereunder or that
      may affect the future operations of the other Party in consultation with
      the other Party using appropriate cost-effective technology and clean-up
      criteria, including risk-based clean-up standards where permitted, in
      accordance with Applicable Law;

            (e) permitting each other post-Closing access, as described in
      Section 4.3(h); and

            (f) cooperating with each other to assist in the collection of any
      amounts that may be collectible from joint interest owners to offset
      Buyer's and Seller's liabilities pursuant to Part Six;

      Section 6.5 Post-Closing Access. After the Closing with prior consent of
Buyer (which consent shall be timely given and shall not be unreasonably
withheld) and, where required, the prior written consent of any operator and
landowner of any affected Property, Seller and Seller's agents and
representatives shall have the right to enter onto the affected Property during
normal business hours for the purpose of conducting any environmental
inspection, audit, test, Remediation, or any other purpose deemed necessary by
Seller for purposes of fulfilling its responsibilities under Part Six. Buyer
shall use its reasonable efforts to obtain for Seller any consent required from
any Third Person (including but not limited to the operator and landowner) to
obtain such access.

                                       34


      Section 6.6 Limitation. Payments of the Environmental Defect Values shall
be made by Seller to Buyer as an adjustment to the Purchase Price at Closing if
then determined or if not determined as of the Closing, thereafter, consistent
with the time frames set forth above. Notwithstanding the provisions of Sections
6.2 and 6.3, no adjustment to the Purchase Price for Environmental Defect Values
pursuant to Section 6.2(b) shall be made unless and until the aggregate value of
all such Values (the "Aggregate Environmental Defect Value") exceeds a
deductible (not a threshold) equal to One Million Dollars ($1,000,000). If the
Environmental Defect Value with respect to any single Environmental Condition is
less than $5,000, such cost shall not be considered in calculating the Aggregate
Environmental Defect Value. In the event the Aggregate Environmental Defect
Value exceeds ten percent (10%) of the Purchase Price, either Seller or Buyer
may terminate this Agreement upon written notice to the other, and neither Party
thereafter shall have any further rights or obligations hereunder.

      Section 6.7 Exclusive Remedies. The rights and remedies granted each Party
in Part Six are exclusive rights and remedies against the other Party related to
any Environmental Condition, or Losses related thereto and the other matters
contained in this Part Six, and, EXCEPT AS PROVIDED IN PART 8, EACH PARTY
EXPRESSLY WAIVES ANY AND ALL OTHER RIGHTS AND REMEDIES WHICH IT MAY HAVE AGAINST
THE OTHER PARTY REGARDING ENVIRONMENTAL CONDITIONS, WHETHER FOR CONTRIBUTION,
INDEMNITY OR OTHERWISE, REGARDLESS OF THE FAULT OR NEGLIGENCE OF THE CLAIMING
PARTY, INCLUDING STRICT OR STATUTORY LIABILITY OF THAT PARTY UNDER ANY
APPLICABLE LAW.

                                   PART SEVEN

                                  TITLE MATTERS

      Section 7.1 Confidentiality Agreement. During the Review Period, Buyer
upon written request and at Buyer's sole cost and expense, may inspect and
review all of Seller's non-privileged and non-confidential files, records, and
similar materials relating to the Fee Interests, Leases, Beneficial Interests
and Contracts. All information made available to Buyer and designated by Seller
as confidential or proprietary shall be maintained confidential pursuant to the
Confidentiality Agreement, which shall continue in force under its terms.

      Section 7.2 Preferential Purchase Rights. Seller shall have a period of
sixty (60) days from the date of the Agreement to resolve preferential purchase
rights to the Properties set forth on Schedule 7.2. To the extent any
preferential purchase rights are exercised by any Third Person entitled to
exercise such rights, or waivers thereof, are not obtained prior to the Closing
Date, then the Properties subject to such preferential purchase rights shall not
be sold to Buyer

                                       35


and shall be excluded from the Agreement. The Purchase Price shall be adjusted
by the dollar value allocated to the Properties subject to such preferential
purchase right set forth in Schedule 2.3. In the event any Third Person
initially elects to exercise a particular preferential right, but subsequently
refuses or elects not to consummate the purchase under the preferential right
(whether such failure occurs before or after the Closing Date), the Parties
agree that Buyer shall purchase such interests covered by the preferential right
in accordance with the values set forth in Schedule 2.3 and the closing of such
transaction shall take place on a date designated by Seller not more than ninety
(90) days after the Closing Date.

      Section 7.3 Required Consents. If Seller shall fail to obtain any consent
or waiver of maintenance of uniform interest provision required for the transfer
of any Property, Seller's failure shall be handled as follows:

            (a) If the holder of the right to consent or party to a maintenance
      of uniform interest provision affirmatively refuses to consent or waive
      prior to Closing, such refusal shall be considered a Title Defect under
      this Part Seven and the Title Indemnity Payment therefor shall equal the
      value (or portion thereof) allocated to the affected Property (or portion
      thereof) in Schedule 2.3.

            (b) Except for approvals from Governmental Bodies normally received
      subsequent to assignment, if Seller believes a consent or waiver may be
      obtained subsequent to Closing, the Property shall be held by Seller for
      the benefit of Buyer after Closing and Seller shall provide Buyer with the
      economic benefits thereof until such consent or waiver is received or
      until ninety (90) days following Closing, if later, and Buyer shall pay
      for the Property at Closing in accordance with the Agreement as though the
      consent or waiver had been obtained. If Seller obtains the consent or
      waiver on or before ninety (90) days following Closing, then Seller shall
      deliver conveyances of the Property to Buyer. If the consent or waiver is
      not obtained or is affirmatively refused on or before ninety (90) days
      following Closing, Seller shall refund the value allocated to the affected
      portion of the Property to Buyer less any net revenues (revenues net of
      costs and Burdens) received by Buyer in connection with such affected
      portion of the Property and Seller's holding for the benefit of Buyer
      shall terminate.

      Section 7.4 Title Defects. Buyer shall notify Seller in writing of any
Title Defects ("Title Defect Notice(s)") on or before August 25, 2004. The Title
Defect Notice shall state with reasonable specificity: (i) the Property or Lease
affected; (ii) the particular Title Defect claimed; (iii) Buyer's good faith
estimate of the amount the Title Defect reduces the value allocated to the
affected Property or Lease on Schedule 2.3 (the "Defect Value"); and (iv)
appropriate documentation substantiating Buyer's claim. For purposes of this
Part Seven, the value allocated to an affected Lease for an undeveloped parcel
listed on Schedule 2.3 shall be the

                                       36


aggregate amount shown on Schedule 2.3 for the 40-acre governmental
quarter-quarter section, which amount is equal to the sum of the two adjacent
20-acre parcels shown on Schedule 2.3 comprising the 40-acre governmental
quarter-quarter section. Buyer shall conclusively be deemed to have waived any
Title Defects not asserted by a Title Defect Notice on or before on or before
August 25, 2004. For all Title Defects asserted in Tide Defect Notices, Seller
shall have the option of (a) curing the Title Defect, (b) contesting the Title
Defect or Buyer's good faith estimate of the Defect Value, (c) paying Buyer's
good faith estimate of the Defect Value as an adjustment to the Purchase Price
subject to the limitations set forth below (a "Title Indemnity Payment"), or (d)
excluding the affected Property or Lease and reducing the Purchase Price by the
value allocated to such Property or Lease. Seller shall notify Buyer in writing
of its election no more than five (5) days following its receipt of a Title
Defect Notice.

      Section 7.5 Seller's Right to Cure. If Seller elects to cure a Title
Defect, then Seller shall so notify Buyer in writing within five (5) days after
receipt of the particular Title Defect Notice ("Cure Notice"). Within sixty (60)
days after receipt of the Title Defect Notice, Seller shall either cure the
Title Defect to the reasonable satisfaction of Buyer ("Cure") or if Seller is
unable to Cure such Title Defect, make a Title Indemnity Payment for such Title
Defect equal to Buyer's good faith estimate of the Defect Value set forth in the
Title Defect Notice.

      If Seller is unable to Cure a Title Defect prior to Closing, Seller shall
convey the Property or Lease to Buyer and Buyer shall pay for the Property or
Lease at Closing in accordance with the Agreement as though the Title Defect had
been Cured, subject to Seller's obligation to make a Title Indemnity Payment to
Buyer less any net revenues (revenues net of costs and Burdens) received by
Buyer in connection with the affected portion of the Property or Lease if the
Title Defect cannot be Cured during the sixty (60) days following receipt of the
Title Defect Notice.

      Section 7.6 Contested Title Defects. If Seller contests the existence of a
Title Defect a Buyer's good faith estimate of the Defect Value, then Seller
shall so notify Buyer in writing no more than five (5) days after Seller's
receipt of the Title Defect Notice ("Rejection Notice"). The Rejection Notice
shall state with reasonable specificity the basis of Seller's rejection of the
Title Defect or Buyer's good faith estimate of the Defect Value. Within thirty
(30) days of Buyer's receipt of the Rejection Notice, representatives of Buyer
and Seller, knowledgeable in title matters, shall meet and, within ten (10) days
after Buyer's receipt of such Rejection Notice, either: (i) agree to mutually
reject the particular Title Defect, or (ii) agree on the validity of such Title
Defect and the Defect Value, in which case Seller shall have sixty (60) days
after the date of such agreement within which to Cure such Title Defect and
failing such Cure, to make the Title Indemnity Payment therefore. If the Parties
cannot agree on either options (i) or (ii) in the preceding sentence, the Title
Defect or the Defect Value subject to the Rejection Notice shall be submitted to
arbitration in accordance with the procedures set forth in Section 10.12. If
Seller fails to timely deliver a Rejection Notice or a Cure Notice, Seller shall
be deemed to have

                                       37


accepted the validity of the Title Defect and Buyer's good faith estimate of the
Defect Value, and shall pay Buyer a Title Indemnity Payment for the Title Defect
equal to the Defect Value within sixty (60) days of Seller's receipt of the
applicable Title Defect Notice.

      In the event a contested Title Defect cannot be resolved prior to Closing,
Seller shall convey the affected Property or Lease to Buyer and Buyer shall pay
for the Property at Closing in accordance with the Agreement as though there
were no Title Defect, subject to Seller's obligations as set forth in this
Section 7.6 to Cure or to make a Title Indemnity Payment to Buyer less any net
revenues (revenues net of costs and Burdens) received by Buyer in connection
with the affected Property or Lease.

      Section 7.7 Title Indemnity Payments. Title Indemnity Payments shall be
made by Seller to Buyer as an adjustment to the Purchase Price at Closing if
then determined or if not determined as of the Closing, thereafter, consistent
with the time frames set forth above. Notwithstanding the provisions of Sections
7.3, 7.4, 7.5 and 7.6, Seller is obligated to make a Title Indemnity Payment
only if the aggregate Defect Value of all Title Defects that Seller has agreed
to pay pursuant to Section 7.4 or which is resolved pursuant to Section 7.6 (the
"Aggregate Title Defect Value") exceed a deductible (not a threshold) equal to
One Million Dollars ($1,000,000). If the Defect Value for any single Property or
Lease is less than $5,000, such value shall not be considered in calculating the
Aggregate Title Defect Value. If a Defect Value is not liquidated or certain in
amount, the Defect Value shall be the amount necessary to compensate Buyer for
the adverse economic effect on the Property or Lease, taking into account all
relevant factors, including without limitation, the Property or Leases's
allocated value, the time value of money, the practical and legal effect of the
Title Defect, and the amount of reduction in Net Revenue Interest or increase in
the Working Interest of the affected Property or Lease. The aggregated Defect
Value(s) for any Property shall never exceed the value allocated to such
Property in Schedule 2.3. In the event the Aggregate Title Defect Value exceeds
ten percent (10%) of the Purchase Price either Buyer or Seller may terminate
this Agreement upon written notice to the other, and neither Party thereafter
shall have any further rights or obligations hereunder.

      Section 7.8 Interest Additions. If Seller discovers an increase in the Net
Revenue Interest shown on Schedule H with respect to a Property Interest or on
Schedule 2.3 with respect to a Lease which is free of Title Defects (an
"Interest Addition"), then Seller shall, from time to time and without
limitation, have the right to give Buyer written notice of such Interest
Additions ("Interest Addition Notice"), as soon as practicable but no less than
five (5) days before Closing, stating with reasonable specificity the Property
or Lease affected, the particular Interest Addition claimed, and Seller's good
faith estimate of the amount the Additional Interest increases the value of the
affected Property or Lease over and above the value allocated to such Property
or Lease in Schedule 2.3 ("Interest Addition Value"). Seller shall conclusively
be deemed to have waived

                                       38


any additional interest not asserted by an Interest Addition Notice on or before
five (5) days prior to Closing. If Buyer agrees with the existence of the
Additional Interest and Seller's good faith estimate of the Interest Addition
Value, then the Interest Addition Value shall be applied as an offset to any
Title Indemnity Payment required of Seller ("Offset"). If the Interest Addition
Value exceeds the amount of any Title Indemnity Payment(s) due Buyer, the amount
of such difference (an "Interest Addition Payment") shall be paid by Buyer to
Seller as an adjustment to the Purchase Price at Closing. If Buyer contests the
existence of the Interest Addition or Seller's good faith estimate of the
Interest Addition Value, then Buyer shall so notify Seller in writing within ten
(10) days after Buyer's receipt of the Interest Addition Notice ("Interest
Addition Rejection Notice"). The Interest Addition Rejection Notice shall state
with reasonable specificity the basis of Buyer's rejection of the Additional
Interest or Buyer's good faith estimate of the Interest Addition Value. Within
ten (10) days of Seller's receipt of the Interest Addition Rejection Notice,
representatives of Buyer and Seller, knowledgeable in title matters, shall meet
and, within sixty (60) days after Seller's receipt of such Interest Addition
Rejection Notice, either (a) agree to mutually reject the Interest Addition in
which case Seller shall waive the Interest Addition, or (b) agree on validity of
such Interest Addition and the Interest Addition Value, in which case Seller
shall be entitled to an Offset or Interest Addition Payment. If the Parties
cannot agree on either option (a) or (b) in the preceding sentence, the Interest
Addition subject to the Interest Addition Rejection Notice shall be submitted to
arbitration in accordance with the procedures set forth in Section 10.12. If
Buyer fails to timely deliver an Interest Addition Rejection Notice, Buyer shall
be deemed to have accepted the validity of the Interest Addition and Seller's
good faith estimate of the Interest Addition Value, and Seller shall be entitled
to an Offset or Interest Addition Payment as described above.

      Section 7.9 Reconveyance. If Seller makes a payment for Title Defect
pursuant to Part Seven for one hundred percent (100%) of the Defect Value, Buyer
shall, at Seller's sole option to be exercised no later than sixty (60) days
after such payment, reconvey to Seller the Property or Lease or portion of the
Property or Lease, and all proceeds accruing thereto, with respect to which the
Title Indemnity Payment was made (effective as of the Effective Date).

                                   PART EIGHT

                                   INDEMNITY

      Section 8.1 General Indemnification. Buyer and Seller agree that:

            (a) Seller. Except with respect to Taxes (which are covered by Part
      Five), and title matters (which are covered by Part Seven) Seller shall
      indemnify, defend and hold harmless Buyer, its Affiliates and its and
      their respective officers, directors, agents

                                       39


      and employees from and against all Losses based upon, arising out of, in
      connection with, or relating to:

                  (i) any breach of any representation, warranty, covenant or
            agreement of Seller contained in the Agreement;

                  (ii) except for the Assumed Liabilities, any matter arising in
            connection with the ownership or operation of the Assets prior to
            the Effective Date;

                  (iii) all actions, proceedings, claims, litigation,
            arbitration, mediation or other dispute resolution procedure pending
            or to the Actual Knowledge of Seller threatened, as of the Effective
            Date relating to or affecting the Assets;

      and for which Buyer has submitted a Claim Notice within one (1) year
      following the Closing Date in compliance with Section 8.2. NOTWITHSTANDING
      THE FOREGOING, SELLER'S FINANCIAL OBLIGATIONS UNDER THIS SECTION 8.1(a)
      SHALL NOT EXCEED, IN THE AGGREGATE, AN AMOUNT EQUAL TO FIFTY PERCENT (50%)
      OF THE PURCHASE PRICE AS ADJUSTED PURSUANT TO SECTION 2.2.

            (b) Buyer. Except with respect to Taxes (which are covered in Part
      Five), Buyer shall indemnify, defend and hold harmless Seller, its
      Affiliates and its and their respective officers, directors, agents and
      employees from and against all Losses based upon, arising out of, in
      connection with, or relating to:

                  (i) any breach of any representation, warranty, covenant or
            agreement of Buyer contained in the Agreement;

                  (ii) if the Closing occurs, any matter arising in connection
            with the ownership or operation of the Assets from and after the
            Effective Date;

                  (iii) Buyer's inspection of the Assets as set forth in Section
            3.2(g) and 4.1(a);

                  (iv) any claims asserted by Third Persons against Seller in
            reliance on any interpretive data conveyed by Seller to Buyer, to
            the extent such claims arise as a consequence of Buyer's disclosure
            of such data; and

                                       40


                  (v) If Closing occurs, Losses attributable to claims against
            Seller's bonds or similar instruments that remain in place after the
            Closing pursuant to Section 4.2;

                  (vi) if the Closing occurs, the Assumed Liabilities.

      Section 8.2 Method of Asserting Claims, Etc. Except for Claims under Parts
5 and 7, all claims for indemnification under the Agreement shall be asserted
and resolved as follows:

            (a) Third Party Claims. In the event that any claim for which a
      Party providing indemnification (the "Indemnifying Party") would be liable
      to a Party or any of its officers, directors, employees, agents,
      representatives or others entitled to indemnification hereunder (the
      "Indemnified Party") is asserted against or sought to be collected by a
      Third Person, the Indemnified Party shall promptly notify the Indemnifying
      Party of such claim, specifying the nature of such claim and the amount or
      the estimated amount thereof to the extent then feasible (which estimate
      shall not be conclusive of the final amount of such claim) (the "Claim
      Notice"). The Indemnified Party shall have thirty (30) days from its
      receipt of the Claim Notice (the "Notice Period") to notify the
      Indemnified Party (i) whether or not it disputes its liability to the
      Indemnifying Party hereunder with respect to such claim, and (ii) if it
      does not dispute such liability, whether or not it desires, at its sole
      cost and expense, to defend the Indemnified Party against such claim;
      provided, however, that the Indemnified Party is hereby authorized prior
      to and during the Notice Period to file any motion, answer or other
      pleading which it shall deem necessary or appropriate to protect its
      interests. In the event that the Indemnifying Party notifies the
      Indemnified Party within the Notice Period that it does not dispute such
      liability and desires to defend against such claim or demand, then, except
      as hereinafter provided, the Indemnifying Party shall have the right to
      defend such claim or demand by appropriate proceedings, which proceedings
      shall be promptly settled or prosecuted to a final conclusion, in such a
      manner as to avoid any risk of the Indemnified Party becoming subject to
      liability. If the Indemnified Party desires to participate in, but not
      control, any such defense or settlement, it may do so at its own cost and
      expense. If the Indemnifying Party disputes its liability with respect to
      such claim, or elects not to defend against such claim, whether by not
      giving timely notice as provided above or otherwise, the Indemnified Party
      shall have the right but not the obligation to defend against such claim,
      and the amount of any such claim, or if the same be contested by the
      Indemnifying Party or by the Indemnified Party, then that portion thereof
      as to which such defense is unsuccessful, shall be conclusively deemed to
      be a liability of the Indemnifying Party hereunder (subject, if it has
      timely disputed liability, to a determination in accordance with Section
      10.12 that the disputed liability is covered by this Part Eight.)

                                       41


            (b) Other Claims. In the event that the Indemnified Party shall have
      a claim against the Indemnifying Party hereunder which does not involve a
      claim or demand being asserted against or sought to be collected from it
      by a Third Person, the Indemnified Party shall promptly send a Claim
      Notice with respect to such claim to the Indemnifying Party. If the
      Indemnifying Party does not notify the Indemnified Party within the Notice
      Period that it disputes such claim, the amount of such claim shall be
      conclusively deemed a liability of the Indemnifying Party hereunder.

      Section 8.3 Payment. Payments under this Part Eight shall be made as
follows:

            (a) Payment for Undisputed Amounts. In the event that the
      Indemnifying Party is required to make any payment under this Part Eight,
      the Indemnifying Party shall promptly pay the Indemnified Party the amount
      so determined. If there should be a dispute as to the amount or manner of
      determination of any indemnity obligation owed under Part Six or this Part
      Eight, the Indemnifying Party shall nevertheless pay when due such
      portion, if any, of the obligation as shall not be subject to dispute. The
      difference, if any, between the amount of the obligation ultimately
      determined as properly payable under Part Six or this Part Eight and the
      portion, if any theretofore paid, shall bear interest at the Agreed Rate
      as provided in Section 8.3(b). Upon the payment in full of any claim, the
      Indemnifying Party shall be subrogated to the rights of the Indemnified
      Party against any Person or other entity with respect to the subject
      matter of such claim.

            (b) Interest. If all or part of any indemnification obligation under
      the Agreement is not paid when due upon resolution of the claim, then the
      Indemnifying Party shall pay on demand to the Indemnified Party interest
      at the Agreed Rate on the unpaid amount of the obligation for each day
      from the date the amount became due until payment in full.

      Section 8.4 Disputed Claims. If the Indemnifying Party shall notify the
Indemnified Party during the Notice Period of any Disputed Claim under Section
8.2, the Disputed Claims shall be subject to the Dispute Resolution Procedure
pursuant to Section 10.12.

      Section 8.5 Applicability of Part Eight. This Part Eight does not apply to
title matters (which are covered by Part Seven) or Tax matters (which are
covered by Part Five). This Part Eight applies to certain Environmental
Conditions only to the extent of a breach of the representation set forth in
Section 3.1(g), and Seller's obligation as set forth in Section 6.3(a), all
other Environmental Conditions or other matters being expressly subject to the
terms and conditions of Part Six.

                                       42


                                   PART NINE

                              CONDITIONS PRECEDENT

      Section 9.1 Conditions Precedent of Seller. The obligations of Seller
under the Agreement are subject, at the sole option of Seller, to the
satisfaction, in Seller's sole opinion, at or prior to the Closing of the
following conditions:

            (a) Representations and Warranties True at Closing. The
      representations and warranties of Buyer contained in the Agreement or in
      any certificate or document delivered pursuant to the provisions hereof,
      or in connection with the transactions contemplated hereby, were true and
      complete when made, and shall be true and complete on and as of the
      Closing Date as though such representations and warranties were made at
      and as of such date except as otherwise expressly provided herein.

            (b) Compliance with Agreement. On and as of the Closing Date, Buyer
      shall have performed and complied with all agreements, covenants and
      conditions required by the Agreement to be performed and complied with
      prior to or on the Closing Date.

            (c) Validity of Agreement. The execution, delivery and performance
      of this Agreement and the transactions contemplated thereby have been duly
      and validly authorized by all necessary action, corporate or otherwise, on
      the part of Buyer.

            (d) Approvals. Seller shall have obtained all approvals including,
      without limitation, those of its senior management and board of directors,
      necessary to consummate the proposed transaction.

            (e) Opinion of Counsel. Seller shall have received an opinion dated
      as of the closing from Buyer's general counsel in substantially the form
      set forth in Exhibit 3.

            (f) Buyer's Certificates. Seller shall have received (i) a
      certificate executed by a duly qualified officer of Buyer dated as of the
      Closing in substantially the form set forth in Exhibit 4 and a certificate
      of incumbency for such officer and (ii) certified copies of resolutions of
      Buyer's board of directors, as appropriate, authorizing and approving the
      execution, delivery and performance of the Agreement.

                                       43


            (g) Consents. Buyer shall have used reasonable best efforts to
      obtain all necessary consents of and filings with any Governmental Body
      relating to the consummation of the transactions contemplated by this
      Agreement.

            (h) Injunction. On the Closing Date, there shall be no injunction,
      writ, or preliminary restraining order or any order of any nature issued
      by a court or other Governmental Body of competent jurisdiction directing
      that the transaction provided for herein or any of them not be consummated
      as herein provided or imposing any conditions on the consummation of the
      transactions contemplated hereby and no material proceeding or lawsuit
      shall have been commenced or threatened by any Governmental Body or other
      Third Person with respect to any of the transactions contemplated by the
      Agreement.

            (i) Due Diligence Acknowledgment. Buyer shall deliver to Seller at
      Closing a signed acknowledgment in substantially the form set forth in
      Exhibit 5, stating that Buyer had sufficient and adequate time and
      opportunity to review all files, documents, and other information, which
      Seller has made available. Buyer shall also acknowledge that as a result
      of Buyer's due diligence, including but not limited to the aforementioned
      file review, it has fully satisfied itself as to the condition and value
      of the Assets.

            (j) Conveyances. Buyer shall execute and acknowledge the assignments
      which are contained in Exhibit 1 (the "Assignments), the deeds which are
      contained in Exhibit 2 (the "Deeds"), as well as such certificates or
      other documents as are required to effect the transfer of the Assets.

            (k) Additional Agreements, Buyer shall execute, acknowledge and
      deliver to Seller such other agreements as may be necessary to carry out
      the purposes of the Agreement.

      Section 9.2 Conditions Precedent of Buyer. The obligations of Buyer under
this Agreement are subject, at the option of Buyer, to the satisfaction, in
Buyer's sole opinion, at or prior to the Closing of the following conditions:

            (a) Representations and Warranties True at Closing. The
      representations and warranties of Seller contained in the Agreement or in
      any certificate or document delivered pursuant to the provisions hereof,
      or in connection with the transactions contemplated hereby, were true and
      complete when made, and shall be true and complete on and as of the
      Closing Date as though such representations and warranties were made at
      and as of such date except as otherwise expressly provided herein.

                                       44


            (b) Compliance with Agreement. On and as of the Closing Date, Seller
      shall have performed and complied with all agreements, covenants, and
      conditions required by the Agreement to be performed and complied with
      prior to or on the Closing Date.

            (c) Validity of Agreement. The execution, delivery and performance
      of this Agreement and the transactions contemplated thereby have been duly
      and validly authorized by all necessary action, corporate or otherwise, on
      the part of Seller.

            (d) Opinion of Counsel. Buyer shall have received an opinion dated
      as of the Closing from Seller's counsel in substantially the form set
      forth in Exhibit 3.

            (e) Seller's Certificate. Buyer shall have received (i) a
      Certificate executed by a duly qualified officer of Seller dated as of the
      Closing in substantially the form set forth in Exhibit 4 and a certificate
      of incumbency for such officer and (ii) certified copies of resolutions of
      Buyer's board of directors, as appropriate authorizing and approving the
      execution, delivery and performance of the Agreement.

            (f) Consents. Seller shall have used reasonable efforts to obtain
      all necessary consents of and filings with any Governmental Body relating
      to the consummation of the transactions contemplated by the Agreement.

            (g) Injunction. On the Closing Date, there shall be no injunction,
      writ, or preliminary restraining order or any order of any nature issued
      by a court or other Governmental Body of competent jurisdiction directing
      that the transaction provided for herein or any of them not be consummated
      as herein provided or imposing any conditions on the consummation of the
      transactions contemplated hereby and no material proceeding or lawsuit
      shall have been commenced or threatened by any Governmental Body or other
      Third Person with respect to any of the transactions contemplated by the
      Agreement.

            (h) Conveyances. Seller shall execute, acknowledge and deliver to
      Buyer the Assignments as well as such certificates or other documents as
      are required to effect the transfer of the Assets, or the subsequent
      operation thereof. Buyer shall also execute and deliver such change of
      operator forms as are required by applicable Governmental Bodies to
      transfer operatorship of the Assets. Such documents as may be necessary to
      carry out the purpose of the Agreement.

            (i) Release of Lien. Seller shall have delivered to Buyer, a
      release, as to the Assets, of the liens and security interests created by
      the Mortgage, Deed of Trust, Assignment, Security Agreement, Financing
      Statement and Fixture Filing dated

                                       45


      as of May 1, 2002 as delivered to the Bank of Nova Scotia as agent as
      amended by the Amended and Restated Mortgage, Deed of Trust, Assignment,
      Security Agreement, Financing Statement and Fixture Filing dated July 16,
      2003.

            (j) Geophysical License. Seller shall deliver to Buyer, at no
      additional cost to Buyer beyond the Purchase Price, a geophysical license
      in a mutually agreeable form granting Buyer a license for the geophysical
      data acquired by Seller pursuant to the approximately 34 mile 2D seismic
      shoot in Garfield County, Colorado conducted on or about August 14, 2004
      by Tesla Exploration, which license shall allow Buyer to provide access to
      (but not a copy or license of) such data to Buyer's partners and joint
      interest owners in the Assets. Should Buyer sell all or substantially all
      of the Assets, Buyer may transfer such license by notifying Seller in
      writing of the sale and Seller shall not be due any fee in connection with
      such transfer.

            (k) Additional Agreements. Seller shall execute, acknowledge and
      deliver to Seller such other agreements as may be necessary to carry out
      the purposes of the Agreement.

      Section 9.3 Market Disruption. Notwithstanding anything to the contrary
      contained herein, in the event that a general moratorium on commercial
      banking activities or clearance services is declared by Federal
      authorities or a material disruption in commercial banking or securities
      settlement or clearance services in the United States occurs; Buyer's
      obligation to close may be delayed for a period not to exceed seven (7)
      days until such moratorium or disruption is resolved without forfeiture of
      the Performance Deposit; provided that Buyer uses its best efforts to
      effect the Closing as soon thereafter as possible. In the event that Buyer
      is unable to Close within such seven (7) day period, this Agreement may be
      terminated at Seller's sole option and Buyer shall forfeit the Performance
      Deposit.

                                    PART TEN

                                  MISCELLANEOUS

      Section 10.1 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given and received when actually delivered
to the addressee or received via facsimile at the number set forth below of the
Party to be notified.

            If to Seller:

                                       46


                         Calpine Corp.

                         717 Texas Avenue
                         Houston, Texas 77002

                         Fax: 713.651.3056
                         Phone: 713.335.4001
                         Attention: B. A. Berilgen

                         With a copy to:

                         50 West San Fernando Street
                         San Jose, California 95113

                         Fax: 408.975.4648
                         Phone: 408.792.1226
                         Attention: Lisa Bodensteiner

                  If to Buyer:

                         Bill Barrett Corporation
                         1099 18th Street, Suite 2300
                         Denver, Colorado 80202

                         Fax: (303) 291-0420
                         Phone: (303) 293-9100
                         Attention: President

                  With a copy to:

                         General Counsel

Any Party may, by written notice so delivered to the other, change the address
to which the delivery shall thereafter be made.

      Section 10.2 Modification. The Agreement, including this Section 10.2 and
the Exhibits and Schedules, shall not be modified except by an instrument in
writing signed by or on behalf of all of the Parties.

                                       47


      Section 10.3 GOVERNING LAW. THE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PROVISIONS THEREOF WHICH WOULD
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. ALL ASSIGNMENTS AND
INSTRUMENTS EXECUTED IN ACCORDANCE WITH THE CONVEYANCES TO BE DELIVERED
HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE WHERE THE PROPERTIES CONVEYED THEREBY ARE LOCATED.

      Section 10.4 Exhibits. All Exhibits and Schedules thereto, and the terms
thereof, which are referred to herein are hereby made a part of and incorporated
herein by reference.

      Section 10.5 Counterparts. The Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

      Section 10.6 Invalidity. If any of the provisions of the Agreement
including the Schedules and Exhibits, are held invalid or unenforceable, such
invalidity or unenforceability shall not affect in any way the validity or
enforceability of any other provision of the Agreement. In the event any
provision is held invalid or unenforceable, the Parties shall attempt to agree
on a valid or enforceable provision which shall be a reasonable substitute for
such invalid or unenforceable provision in light of the tenor of the Agreement
and, on so agreeing, shall incorporate such substitute provision in the
Agreement.

      Section 10.7 Entire Agreement and Construction. Except for the
Confidentiality Agreement, which shall terminate upon the Closing Date if the
Closing occurs, this Agreement contains the entire agreement between the Parties
with respect to the transactions contemplated hereby and all prior
understandings and agreements shall merge herein. There are no additional terms,
whether consistent or inconsistent, oral or written, which are intended to be
part of the Parties' understandings which have not been incorporated into the
Agreement and the Schedules. The Parties agree that they have jointly
participated in the drafting and preparation of the Agreement and that the
language of the Agreement shall be construed as a whole according to its fair
meaning and not for or against either of the Parties hereto based upon that
Party's role in the preparation of the Agreement.

      Section 10.8 Expenses. Except as otherwise expressly provided herein, each
Party shall bear its fees, costs and expenses in connection with the
transactions contemplated herein, including, without limitation, all legal and
accounting fees and disbursements and fees and expenses of other advisors
retained by such Party.

                                       48


      Section 10.9 Waivers and Amendments. All amendments and other
modifications hereof shall be in writing and signed by each of the Parties. Any
Party may by written instrument (i) waive any inaccuracies in any of the
representations or warranties made to it by any other Party contained in the
Agreement or in any instruments and documents delivered to it pursuant to the
Agreement, or (ii) waive compliance or performance by any other Party with or of
any of the covenants or agreements made to it by any other Party contained in
the Agreement. The delay or failure on the part of any Party hereto to insist,
in any one instance or more, upon strict performance of any of the terms or
conditions of the Agreement, or to exercise any right or privilege herein
conferred shall not be construed as a waiver or any such terms, conditions,
rights or privileges but the same shall continue and remain in full force and
effect. All rights and remedies are cumulative.

      Section 10.10 Binding Effect: Assignment. All the terms, provisions,
covenants, obligations, indemnities, representations, warranties and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
This Agreement may not be assigned by Buyer or Seller without the express
written consent of the other, such consent not to be unreasonably withheld.
Seller may condition its consent to assign this Agreement on Buyer providing
Seller with an appropriate guarantee of its assignee's performance. In the event
Buyer sells or assigns all or a portion of the Assets, this Agreement shall
remain in effect between Buyer and Seller as to all the Assets regardless of
such assignment.

      Section 10.11 Survival of Representations and Covenants. All
representations and warranties contained in the Agreement shall survive the
Closing and continue for one (1) year following the Closing Date, except those
contained in Parts Six and Seven. The covenants, indemnities and agreements
contained in the Agreement shall survive the Closing and continue in accordance
with their respective terms.

      Section 10.12 Arbitration of Disputes. Seller and Buyer covenant
with each other as follows:

            (a) Generally. Any claim, controversy or dispute arising out of,
      relating to, or in connection with the Agreement or the agreements and
      transactions contemplated hereby, by Buyer or Seller, including the
      interpretation, validity, termination or breach thereof, shall be resolved
      solely in accordance with the dispute resolution procedures set forth in
      Schedule 10.12. The Parties covenant that they shall not resort to court
      remedies except as provided for in Schedule 10.12, or for preliminary
      relief in aid of arbitration.

                                       49


            (b) Violations. A Party who violates the covenants in Section
      10.12(a) shall pay all the legal costs incurred by the other Parties in
      connection with the enforcement thereof. Suits, actions or proceedings in
      connection with violations of the covenants in Section 10.12 and Schedule
      10.12 shall be instituted in the United States District Court for the
      District of Colorado, and pursuant to Title IX of the United States Code.
      Each Party waives any option or objection which it may now or thereafter
      have to the laying of the venue in any such suit, action or proceeding and
      irrevocably submits to the jurisdiction of such court in any such suit,
      action or proceeding.

            BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
            DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION
            AS PROVIDED BY COLORADO LAW AND THIS SECTION 10.12. YOU ARE GIVING
            UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
            COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING
            UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
            ARE SPECIFICALLY INCLUDED IN THE ARBITRATION OF DISPUTES PROVISIONS.
            IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
            PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF
            THE COLORADO CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
            ARBITRATION PROVISION IS VOLUNTARY.

            WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
            DISPUTES ARISING OUT OF MATTERS INCLUDED IN THE ARBITRATION OF
            DISPUTES PROVISION TO NEUTRAL ARBITRATION.

                BUYER'S INITIALS: WB         SELLER'S INITIALS: MG

            (a) Generally. Any claim, controversy or dispute arising out of,
      relating to, or in connection with the Agreement or the agreements and
      transactions contemplated hereby, by Buyer or Seller, including the
      interpretation, validity, termination or breach thereof, shall be resolved
      solely in accordance with the dispute resolution procedures set forth in
      Schedule 10.12. The Parties covenant that they shall not resort to court
      remedies except as provided for in Schedule 10.12, or for preliminary
      relief in aid of arbitration.

            (b) Violations. A Party who violates the covenants in Section
      10.12(a) shall pay all the legal costs incurred by the other Parties in
      connection with the enforcement thereof. Suits, actions or proceedings in
      connection with violations of the covenants in Section 10.12 and Schedule
      10.12 shall be instituted in the United States District Court for the
      District of Colorado, and pursuant to Title IX of the United States Code.
      Each Party waives any option or objection which it may now or thereafter
      have to the laying of the venue in any such suit, action or proceeding and
      irrevocably submits to the jurisdiction of such court in any such suit,
      action or proceeding.

            BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
            DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION
            AS PROVIDED BY COLORADO LAW AND THIS SECTION 10.12. YOU ARE GIVING
            UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
            COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING
            UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
            ARE SPECIFICALLY INCLUDED IN THE ARBITRATION OF DISPUTES PROVISIONS.
            IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
            PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF
            THE COLORADO CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
            ARBITRATION PROVISION IS VOLUNTARY.

            WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
            DISPUTES ARISING OUT OF MATTERS INCLUDED IN THE ARBITRATION OF
            DISPUTES PROVISION TO NEUTRAL ARBITRATION.

                BUYER'S INITIALS: WB            SELLER'S INITIALS: MG

                                       50


      Section 10.13 Conflict. Should terms and conditions of this Agreement be
in conflict with the Assignment and Bill of Sale, or the Deed, as such are
executed pursuant to the terms of this Agreement, the terms and conditions of
this Agreement shall prevail.

      IN WITNESS WHEREOF, the Parties hereto have entered into the Agreement as
of the date first herein above written.

                                       CALPINE CORPORATION

                                       By: /s/ Michael A. Gerlich
                                           _____________________________________
                                           Michael A. Gerlich
                                           Senior Vice President

                                       Date: August 18, 2004
                                           ___________________________________

                                       CALPINE NATURAL GAS L.P.

                                       By: /s/ Michael A. Gerlich
                                           _____________________________________
                                           Michael A. Gerlich
                                           Vice President

                                       Date: August 18, 2004
                                           ___________________________________


                                       BILL BARRETT CORPORATION

                                       By: /s/ William J. Barrett
                                           _____________________________________

                                           William J. Barrett
                                           Chief Executive Officer

                                       Date: August 18, 2004

                                       51

EX-99.3

                                                                    EXHIBIT 99.3

                              ASSET AND TRUST UNIT
                          PURCHASE AND SALE AGREEMENT

                                      AMONG

                     CALPINE CANADA NATURAL GAS PARTNERSHIP

                                       AND

                         CALPINE ENERGY HOLDINGS LIMITED

                                       AND

                               CALPINE CORPORATION

                                       AND

                               PRIMEWEST GAS CORP.

                                       AND

                             PRIMEWEST ENERGY TRUST

                                  JULY 1, 2004



                               TABLE OF CONTENTS
                                                                                         
ARTICLE 1 INTERPRETATION..................................................................   7

1.1      DEFINITIONS.......................................................................  7
1.2      INTERPRETATION...................................................................  20
1.3      INTERPRETATION IF CLOSING DOES NOT OCCUR.........................................  21
1.4      CONFLICTS........................................................................  21
1.5      SCHEDULES........................................................................  21
1.6      VENDORS' KNOWLEDGE...............................................................  21

ARTICLE 2 PURCHASE AND SALE...............................................................  22

2.1      PURCHASE AND SALE................................................................  22
2.2      BID PRICE, PURCHASE PRICE AND ADJUSTED PURCHASE PRICE............................  22
2.3      PAYMENT OF ADJUSTED ASSET PURCHASE PRICE AND ADJUSTED TRUST UNIT PURCHASE PRICE..  22
2.4      DEPOSIT..........................................................................  23
2.5      GST AND OTHER SALES TAXES........................................................  23
2.6      ALLOCATION OF ADJUSTED ASSET PURCHASE PRICE......................................  24
2.7      FORM OF PAYMENT..................................................................  24

ARTICLE 3 CLOSING.........................................................................  24

3.1      PLACE AND DATE OF CLOSING........................................................  24
3.2      TRANSFER OF OWNERSHIP AND RISK...................................................  25
3.3      VENDOR DELIVERIES AT CLOSING.....................................................  25
3.4      DELIVERIES OF GAS CORP. AND THE TRUST AT CLOSING.................................  26
3.5      SPECIFIC CONVEYANCES.......,.....................................................  26
3.6      POST - CLOSING DELIVERIES........................................................  27

ARTICLE 4 CONDITIONS OF CLOSING...........................................................  27

4.1     CONDITIONS OF GAS CORP. AND THE TRUST.............................................  27






                                                                                       
4.2      VENDOR CONDITIONS............................................................    29
4.3      EFFORTS TO FULFILL CONDITIONS.......................,........................    30
4.4      FAILURE OF A CONDITION.......................................................    31
4.5      EFFECT OF TERMINATION........................................................    31

ARTICLE 5 REPRESENTATIONS AND WARRANTIES..............................................    31

5.1      REPRESENTATIONS AND WARRANTIES OF CCNGP......................................    31
5.2      REPRESENTATIONS AND WARRANTIES OF CEHL.......................................    35
5.3      LIMITATION OF REPRESENTATIONS AND WARRANTIES.................................    37
5.4      REPRESENTATIONS AND WARRANTIES OF GAS CORP...................................    38
5.5      REPRESENTATIONS AND WARRANTIES OF THE TRUST..................................    39

ARTICLE 6 LIABILITIES AND INDEMNITIES.................................................    41

6.1      VENDOR INDEMNITIES...........................................................    41
6.2      PURCHASER'S INDEMNITIES......................................................    41
6.3      ENVIRONMENTAL LIABILITIES....................................................    41
6.4      ASSUMED OBLIGATIONS..........................................................    42
6.5      POST-CLOSING EMPLOYMENT INDEMNITIES OF GAS CORP..............................    42
6.6      POST-CLOSING EMPLOYMENT INDEMNITIES OF VENDOR................................    43
6.7      VENDOR'S ADDITIONAL INDEMNITIES..............................................    43
6.8      SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................    43
6.9      LIMITATIONS ON VENDOR LIABILITIES............................................    43
6.10     INDEMNIFICATION PROCEDURE-THIRD PARTY CLAIMS.................................    44
6.11     CONSEQUENTIAL DAMAGES........................................................    45

ARTICLE 7 ADJUSTMENTS.................................................................    45

7.1      ACCOUNTING ADJUSTMENTS.......................................................    45
7.2      INTERIM STATEMENT OF ADJUSTMENTS.............................................    46
7.3      POST CLOSING ADJUSTMENTS.....................................................    46


                                 -2-



                                                                                       
7.4      ARBITRATION.................................................................     47
7.5      CASH CALLS, PREPAYMENTS AND DEPOSITS..................,....,................     47

ARTICLE 8 MAINTENANCE AND OPERATION OF THE ASSETS....................................     48

8.1      MAINTENANCE OF ASSETS UNTIL CLOSING.........................................     48
8.2      CONSENT OF PURCHASER TO OPERATIONS BEFORE CLOSING...........................     49
8.3      POST-CLOSING ACCOUNTING.....................................................     49
8.4      TRANSITION PERIOD...........................................................     49
8.5      CCNGP AS AGENT..............................................................     50

ARTICLE 9 RIGHTS OF FIRST REFUSAL....................................................     50

9.1     RIGHT OF FIRST REFUSALS......................................................     50

ARTICLE 10 PRE-CLOSING MATTERS.......................................................     51

10.1    PRODUCTION OF DOCUMENTS......................................................     51

ARTICLE 11 TITLE REVIEW..............................................................     51

11.1     NOTICE OF TITLE DEFECTS.....................................................     51
11.2     CURING, INDEMNIFICATION AND UNCURED TITLE DEFECTS VALUE.....................     52
11.3     UNCURED TITLE DEFECTS.......................................................     52
11.4     DISPUTES....................................................................     53

ARTICLE 12 ACCESS TO BOOKS AND RECORDS...............................................     54

12.1     ACCESS TO INFORMATION.......................................................     54
12.2     MAINTENANCE OF INFORMATION..................................................     55

ARTICLE 13 EMPLOYMENT MATTERS........................................................     55

13.1     LISTED EMPLOYEES, LISTED CONSULTANTS AND TRANSITION.........................     55
13.2     COVENANT REGARDING PRIVACY..................................................     57

ARTICLE 14 LICENCE TRANSFERS.........................................................     57

14.1     LICENCE TRANSFERS...........................................................     57



                                 -3-




                                                                                 
ARTICLE 15 GENERAL................................................................  58

15.1     DISPUTE RESOLUTION.......................................................  58
15.2     COSTS AND EXPENSES.......................................................  58
15.3     FURTHER ASSURANCES.......................................................  58
15.4     NO MERGER................................................................  58
15.5     ENTIRE AGREEMENT.........................................................  59
15.6     GOVERNING LAW............................................................  59
15.7     SIGNS AND NOTIFICATIONS..................................................  59
15.8     NO TRANSFER OF OPERATORSHIP..............................................  59
15.9     INTEREST ACCRUES ON AMOUNTS OWING........................................  59
15.10    ASSIGNMENT...............................................................  59
15.11    TIME OF ESSENCE..........................................................  60
15.12    NOTICES..................................................................  60
15.13    INVALIDITY OF PROVISIONS.................................................  61
15.14    WAIVER...................................................................  61
15.15    AMENDMENT................................................................  61
15.16    AGREEMENT NOT SEVERABLE..................................................  61
15.17    PUBLIC ANNOUNCEMENTS.....................................................  62
15.18    COUNTERPART EXECUTION....................................................  62
15.19    PRICE SHARING............................................................  62
15.20    NO LIABILITY OF UNITHOLDERS, THIRD PARTIES...............................  63

ARTICLE 16 PARENTAL GUARANTEE.....................................................  63



                                         -4-




 SCHEDULES

 Schedule "A"
  Part 1       White Map Area Land Plat(s)
  Part 2       Description of Scheduled Petroleum and Natural Gas Rights
 Schedule "B"  Facilities
 Schedule "C"  General Conveyance
 Schedule "D"  Claims
 Schedule "E"  Seismic
 Schedule "F"  Contracts Disclosure
 Schedule "G"  Wells
 Schedule "H"  Officer's Certificate
 Schedule "I"  Outstanding AFEs
 Schedule "J"  Call on Production Agreement
 Schedule "K"  ROFRs
 Schedule "L"  Listed Material Agreements

                                 -5-


                              ASSET AND TRUST UNIT
                          PURCHASE AND SALE AGREEMENT

      THIS AGREEMENT made as of the 1st day of July, 2004

      AMONG:

            CALPINE CANADA NATURAL GAS PARTNERSHIP, a general partnership,
            having an office and carrying on business in Calgary, Alberta
            (hereinafter referred to as "CCNGP")

                                    - and -

            CALPINE ENERGY HOLDINGS LIMITED, a body corporate, having an office
            and carrying on business in Calgary, Alberta (hereinafter referred
            to as "CEHL")

            (CCNGP and CEHL are hereinafter collectively referred to as
            "VENDOR")

                                    - and -

            CALPINE CORPORATION, a body corporate incorporated under the laws of
            Delaware, USA (hereinafter referred to as "CALPINE")

                                    - and -

            PRIMEWEST GAS CORP., a body corporate, having an office and carrying
            on business in Calgary, Alberta (hereinafter referred to as "GAS
            CORP.")

                                    - and -

            PRIMEWEST ENERGY TRUST, a trust, having an office and carrying on
            business in Calgary, Alberta (hereinafter referred to as the
            "TRUST")

            (Gas Corp. and the Trust are hereinafter collectively referred to as
            "PURCHASER")

WHEREAS CCNGP wishes to sell the Assets to Gas Corp. and Gas Corp. wishes to
purchase the Assets from CCNGP, subject to and in accordance with the terms and
conditions hereof.

WHEREAS CEHL, wishes to sell the Trust Units to the Trust and the Trust wishes
to purchase the Trust Units from CEHL, subject to and in accordance with the
terms and conditions hereof.

IN CONSIDERATION of the premises and the mutual covenants and agreements
hereinafter set forth, the Parties agree as follows:

                                     - 6 -



                                    ARTICLE 1
                                 INTERPRETATION

1.1   DEFINITIONS

In this Agreement, including the recitals and the Schedules, the following terms
have the following meanings:

"ABANDONMENT AND RECLAMATION OBLIGATIONS" means all past, present and future
obligations under contracts, Applicable Law, equity or common law to:

      (a)   abandon the Wells;

      (b)   close, decommission, dismantle and remove the Tangibles including
            associated foundations and structures;

      (c)   restore, remediate and reclaim the surface or subsurface of the
            lands used in connection with the Wells or the Tangibles, including
            lands in or on which they are or were located and lands which are or
            were used to gain access to them; and

      (d)   restore, remediate and reclaim the surface or subsurface of lands
            affected by seismic or other geological or geophysical exploration
            activities conducted by or on behalf of Vendor or any of its
            Affiliates in the White Map Area prior to the Effective Time.

"ACCEPTING CONSULTANTS" means those Listed Consultants who agree to provide
services to Gas Corp.

"ACCEPTING EMPLOYEES" means those Employees who accept employment with Gas
Corp.

"ADJUSTED ASSET PURCHASE PRICE" has the meaning specified in Section 2.2.

"ADJUSTED TRUST UNIT PURCHASE PRICE" has the meaning specified in Section 2.2.

"AFEs" means authorities for expenditures, cash calls or mail ballots issued
under the Title and Operating Documents agreements relating to any of the Assets
authorizing expenditures and similar items.

"AFFILIATE" means with respect to CCNGP and CEHL, the other respectively,
Calpine Canada Resources Company and Calpine Canada Energy Ltd. and with respect
to the Trust and Gas Corp., the other respectively, and PrimeWest Energy Inc.

"AGREEMENT" means this Asset and Trust Unit Purchase and Sale Agreement
including the recitals hereto, this Section 1.1 and all schedules hereto.

"APPLICABLE LAW" means all laws, statutes, rules, regulations, official
directives and orders of Government Authorities (whether administrative,
legislative, executive or otherwise) including judgments, orders and decrees of
courts, commissions or bodies exercising similar functions, as amended, and
includes, without limitation, the provisions and conditions of any permit,
license or other governmental or regulatory authorization in respect of the
Assets, the Trust Units or any of them;

                                     - 7 -


"ASSET BID PRICE" has the meaning specified in Section 2.2.

"ASSET PURCHASE PRICE" means the amount set forth in Section 2.2.

"ASSETS" means the Petroleum and Natural Gas Rights, the Tangibles, the Seismic
Data and the Miscellaneous Interests, including the Scheduled Assets, but
excluding the Excluded Assets.

"BUSINESS DAY" means a day other than a Saturday, a Sunday or a statutory
holiday in Calgary, Alberta.

"CALL ON PRODUCTION AGREEMENT" means that call on production agreement attached
hereto as Schedule "J", to be entered into at Closing by Calpine Energy Services
Canada Partnership and Gas Corp. and which provides for the purchase of natural
gas by Calpine Energy Services Canada Partnership from the White Map Area.

"CLAIM" means any claim, demand, lawsuit, proceeding, arbitration or
governmental proceeding or investigation other than a claim in respect of Taxes.

"CLOSING" means the transfer of beneficial ownership of the Assets from CCNGP to
Gas Corp., the payment by Gas Corp. of the amount specified in Section 2.3(b),
the transfer of beneficial ownership of the Trust Units from CEHL to the Trust,
the payment by the Trust of the amount specified in Section 2.3 and the delivery
of all items required to be delivered at Closing pursuant hereto.

"CLOSING DATE" means 10:00 a.m., Calgary time, on the 2nd day of September, 2004
or such other time and date as may be agreed upon in writing by the Parties or
as may otherwise be determined pursuant to the provisions hereof.

"CLOSING PLACE" means the offices of Vendor in Calgary, Alberta or such other
place as may be agreed upon in writing by the Parties.

"CNGT" means Calpine Natural Gas Trust, an unincorporated open-ended trust
established under the laws of Alberta.

"COMPETITION ACT" means the Competition Act R.S.C. 1985, c. C-34.

"COMPETITION ACT APPROVAL" means that:

(a)   the Commissioner of Competition (the "COMMISSIONER") appointed under the
      Competition Act has issued an advance ruling certificate pursuant to
      section 102 of the Competition Act in respect of the Transaction on terms
      and conditions satisfactory to the Parties acting reasonably; or

(b)   notification of the Transaction pursuant to section 114 of the Competition
      Act has been waived pursuant to Section 113(c) of the Competition Act or
      given and either:

            (i)   the applicable waiting period under section 123 of the
                  Competition Act has expired without the Commissioner having
                  advised the Parties that he intends to apply to the
                  Competition Tribunal established by subsection 3(1) of the
                  Competition Tribunal Act

                                     - 8 -


                  for an order under section 92 or section 100 of the
                  Competition Act in respect of the Transaction; or

            (ii)  the Commissioner has advised Purchaser that the Commissioner
                  does not intend to apply to the Competition Tribunal for an
                  order under section 92 of the Competition Act in respect of
                  the Transaction.

"CONFIDENTIAL INFORMATION MEMORANDUM" means the confidential information
memorandum issued by Waterous & Co. on or about June, 2004 in respect of the
Assets and the Trust Units.

"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated June 16,
2004 between CCNGP and PrimeWest Energy Inc.;

"CONTRACT OPERATING AGREEMENTS" means all contracts pursuant to which the Vendor
operates, on a fee for services basis, wells or facilities owned by Third
Parties and located in the White Map Area.

"CONTRACTS DISCLOSURE SCHEDULE" means Schedule "F".

"CUSTOMARY POST CLOSING CONSENTS" means consents and approvals from Government
Authorities or Third Parties that are customarily obtained after closing in
connection with transactions similar to the Transaction.

"DATA ROOM" means the room established on behalf of Vendor containing books,
accounts, records, maps, documents, files, materials and information relating to
the Assets, for the purposes of the Transaction; the Confidential Information
Memorandum in respect of assets of the Vendor provided to Gas Corp. or its
Affiliates pursuant to the sale process that resulted in this Agreement, the
computer discs provided to Gas Corp. or its Affiliates in the course of such
sale process and the Waterous Securities' web site established as part of that
sale process.

"DEFAULT" means a Purchaser Default or a Vendor Default.

"DEPOSIT" has the meaning given to such term in Section 2.4.

"DISPUTE" has the meaning specified in Subsection 11.4(a).

"DISPUTE NOTICE" has the meaning specified in Subsection 11.4(a).

"DISTRIBUTIONS" has the meaning set forth in Section 2.2.

"DOLLAR" or "$" means, unless otherwise provided herein, a dollar in the lawful
money of Canada.

"EFFECTIVE TIME" means 8:00 a.m., Calgary time, on the 1st day of July, 2004.

"ENCUMBRANCE" means a lien, mortgage, pledge, claim, option, encumbrance,
charge, Security Interest, penalty, royalty, burden, net profits interest,
carried working interest or other adverse claim.

                                     - 9 -


"ENVIRONMENT" means the atmosphere, the surface and sub-surface of the earth,
groundwater and surface water and plants and animals and "ENVIRONMENTAL" means
relating to or in respect of the Environment.

"ENVIRONMENTAL LIABILITIES" means all past, present and future Liabilities and
obligations associated with or arising from any of the following and all costs
associated therewith:

      (a)   the manufacture, construction, processing, distribution, use,
            holding, collection, accumulation, generation, treatment,
            stabilization, storage, disposal, handling or transportation of
            Hazardous Substances, Petroleum Substances, oilfield wastes or
            produced water;

      (b)   compliance with present and future Applicable Law relating to the
            Environment or the protection thereof and Applicable Law related to
            employee and public health and safety matters;

      (c)   Abandonment and Reclamation Obligations;

      (d)   Releases of Hazardous Substances, Petroleum Substances, oilfield
            wastes, produced water or other substances;

      (e)   sampling, assessment and monitoring of the Environment;

      (f)   the removal, assessment, monitoring, sampling, response, abatement,
            clean-up, investigation and reporting of contamination or pollution
            of or other adverse effects on the Environment, including
            compensation of Third Parties for Losses suffered by them in respect
            thereof;

      (g)   the protection, reclamation, remediation or restoration of the
            Environment, including related human health and safety;

that relate to the Assets, or that have arisen or hereafter arise from or in
respect of any past, present or future operations and activities (including
Operations) related to the Assets conducted by or on behalf of Vendor or its
Affiliates in the White Map Area.

"EUB" means the Alberta Energy and Utilities Board.

"ESCROW AGENT" means Heenan Blaikie LLP in its capacity as Escrow Agent.

"EXAMINATION PERIOD" means the period commencing on the date of this Agreement
and terminating at 4:00 p.m. (Calgary time) on August 26, 2004.

"EXCLUDED ASSETS" means:

      (a)   Retained Production;

      (b)   unexpended cash call and operating fund advances and deposits made
            to or deposited with operators, Government Authorities or other
            Persons by Vendor, or any of its Affiliates prior to the Effective
            Time to secure obligations or as prepayments of costs or expenses;

                                     - 10 -


      (c)   insurance policies, insurance proceeds and rights to insurance
            proceeds, including rights to proceeds of JV Insurance except any
            insurance proceeds payable in the event of any physical loss to
            Tangibles occurring after the Effective Date;

      (d)   items used, consumed or otherwise disposed of in the ordinary course
            of business prior to Closing or with Gas Corp.'s consent;

      (e)   forecasts, evaluations and reserve estimates;

      (f)   tax and financial records related to Vendor;

      (g)   legal opinions except title opinions;

      (h)   documents prepared by or on behalf of Vendor or any of its
            Affiliates in contemplation of litigation (with the exception of
            title opinions) and any other documents within the possession of
            Vendor or any of its Affiliates which are subject to
            solicitor-client privilege under the laws of the Province of Alberta
            or any other jurisdiction;

      (i)   technology which cannot be transferred by Vendor to Gas Corp. unless
            one or both of the following occurs: (i) the consent of a Third
            Party is obtained (other than a consent which cannot be unreasonably
            withheld); or (ii) a transfer fee is paid, provided that if Gas
            Corp. obtains such consent or agrees to pay such transfer fee, such
            technology shall not be considered Excluded Assets;

      (j)   all computer hardware and software (excluding such computer hardware
            located in field locations and all items described in Subsection (e)
            of the definition of Miscellaneous Interests) and all files,
            documents, reports, data, intellectual property and geological
            information and data, that is owned or licensed by Third Parties
            with restrictions on their deliverability or disclosure to Gas
            Corp., provided that if Gas Corp. obtains the agreement of Third
            Parties to waive such restrictions, such items shall not be
            considered Excluded Assets;

      (k)   Vendors' Calgary office and all leasehold improvements, furniture
            and office equipment and supplies located therein; and

      (l)   subject to subclauses (i) and (j) above, any proprietary policies,
            manuals and other confidential business or technical information not
            used exclusively in the operation of the Assets.

"FACILITIES" means the gas plants, oil batteries, gas gathering systems and
pipelines described in Schedule "B".

"FINAL STATEMENT OF ADJUSTMENTS" has the meaning given to such term in Section
7.3(a).

 "GENERAL CONVEYANCE" means a  General Conveyance in the form of Schedule "C".

 "GOVERNMENT AUTHORITY" means a federal, provincial, territorial, municipal or
 other government or government department, agency, board or other authority
 (including a court of law).

"GST" means the goods and services tax prescribed by the GST Legislation.

                                     - 11 -


"GST LEGISLATION" means the Excise Tax Act, R.S.C. 1985, c. E-15, as amended,
and the regulations thereunder.

"HAZARDOUS SUBSTANCES" means hazardous, deleterious, or toxic substances;
oilfield wastes; radioactive material; asbestos; polychlorinated biphenyls;
pollutants; contaminants; dangerous goods; and unrefined and refined petroleum
products; including all substances, materials and wastes regulated under
Applicable Law relating to Environmental or health and safety matters.

"HUMAN RIGHTS LEGISLATION" means the Human Rights, Citizenship and
Multiculturalism Act, R.S.A. 2000, C.H-14, as amended and the regulations
thereunder.

"INCOME TAX ACT" means the Income Tax Act R.S.C. 1985, c. l (5th Supplement), as
amended, and the Income Tax Regulations.

"INDEMNITEE" has the meaning specified in Section 6.10.

"INDEMNITOR" has the meaning specified in Section 6.10.

"INTEREST ON THE ASSET PURCHASE PRICE" means an adjustment to the Asset Purchase
Price computed as an amount equivalent to simple interest on the Asset Purchase
Price from (and including) the Effective Time to (but excluding) the Closing
Date at the Prime Rate plus one (1%), provided that if Closing is delayed beyond
September 3, 2004 due to the direct and proximate fault of CCNGP or CEHL,
interest shall cease to accrue upon the commencement of such delay.

"INTEREST ON THE TRUST UNIT PURCHASE PRICE" means an adjustment to the Trust
Unit Purchase Price computed as an amount equivalent to simple interest on the
Trust Unit Purchase Price from (and including) the Effective Time to (but
excluding) the Closing Date at the Prime Rate plus one percent (1%), provided
that if Closing is delayed beyond September 3, 2004 due to the direct and
proximate fault of CCNGP or CEHL, interest shall cease to accrue upon the
commencement of such delay.

"INTERIM PERIOD" means the period from the Effective Time until the Closing
Date.

"INTERIM PERIOD NET OPERATION REVENUES" has the meaning given to such term in
Section 7. 1(i).

"INTERIM PERIOD PRODUCTION" means Petroleum Substances which are (i) produced
from the White Map Area during the Interim Period and (ii) owned by the Vendor
at the time they are produced.

"INTERIM STATEMENT OF ADJUSTMENTS" has the meaning given to such term in Section
7.2.

"JV INSURANCE" means insurance, if any, maintained by an operator pursuant to a
Title and Operating Document for the benefit of CCNGP or any of its Affiliates
and one or more Third Parties.

"LIABILITIES" means any and all liabilities and obligations, whether under
common law, in equity, under Applicable Law or otherwise; whether tortious.
contractual, vicarious, statutory or otherwise; whether absolute or contingent;
and whether based on fault, strict liability or otherwise.

                                     - 12 -

"LICENCE TRANSFERS" means the transfers of Permits related to the Assets that
are in the name of CCNGP.

"LICENCEE LIABILITY RATING" means the licensee liability rating as set forth by
the EUB under ID-2001-8 and related EUB regulations, guidelines, interim
directives, information letters and policies.

"LISTED CONSULTANT" means the consultants of Vendor whose names are on the list
provided by Vendor to Gas Corp. pursuant to subsection 13.1(b).

"LISTED EMPLOYEES" means the employees of Vendor whose names are on the list
provided by Vendor to Gas Corp. pursuant to Subsection 13.1 (a).

"LOSSES" means, in respect of a Person and in relation to a matter, any and all
losses, damages, costs, expenses, charges (including all penalties, assessments
and fines) which such Person suffers, sustains, pays or incurs in connection
with such matter and includes reasonable costs of legal counsel (on a solicitor
and client basis) and other professional advisors and consultants and reasonable
costs of investigating and defending Claims arising from the matter, regardless
of whether such Claims are sustained and also includes Taxes on a settlement
payment or damage award in respect of such matter, but does not include
consequential or indirect losses.

"MATERIAL CONTRACTS" means any agreement that has, or to Vendors' knowledge may
have, a material adverse effect on the Assets or the Trust Units arising as a
result of the Trust's acquisition of the Trust Units, including without
limitation, those agreements listed in Schedule "L" (the "LISTED MATERIAL
CONTRACTS").

"MISCELLANEOUS INTERESTS" means the entire right, title, estate and interest of
CCNGP and its Affiliates (whether absolute or contingent, legal or beneficial)
in and to all property, assets, interests and rights associated with, or used in
connection with the Petroleum and Natural Gas Rights, the Tangibles or the
Seismic Data (other than the Petroleum and Natural Gas Rights, the Tangibles and
the Seismic Data), including the following to the extent they relate to the
Petroleum and Natural Gas Rights, the Tangibles or the Seismic Data:

      (a)   contracts and agreements, including the Title and Operating
            Documents;

      (b)   records, files, reports, data and information, including well files,
            lease files, agreement files and production records;

      (c)   Surface Interests;

      (d)   Wells, including the wellbores thereof and the casing therein;

      (e)   computer hardware, printers, routers and software used exclusively
            with SCADA and maintenance management systems and other computer
            hardware and software used exclusively with field measurement
            facilities;

      (f)   the Contract Operating Agreements; and

      (g)   production, accounting, environmental, facility and other records,
            files, reports, data, correspondence and documents that, in CCNGP's
            reasonable judgment, relate to the Assets, all title reports and
            opinions relating to the Assets and all other reports, files, data,
            and records prepared for the joint account,

                                             - 13 -


but excluding only the Excluded Assets.

"OPERATIONS" means any and all operations on or in respect of lands in the White
Map Area including drilling, completion, testing, recompleting, deepening,
plugging back, side tracking, whipstocking, fracing, stimulating, equipping,
operating and abandoning wells; construction, repair, expansion,
decommissioning, maintenance and operation of oilfield facilities and equipment;
production, treatment, storage, processing, gathering, compression and
transportation of Petroleum Substances (including processing, treatment and
storage of sulphur); and geological, geophysical and seismic activities.

"ORIGINAL CLOSING DATE" has the meaning specified in Subsection 11.4(a).

"PARTY" means CCNGP, CEHL, Gas Corp. or the Trust and "PARTIES" means CCNGP,
CEHL, Gas Corp. and the Trust, collectively.

"PERMITS" means permits, licenses, approvals and authorizations issued or
granted by Government Authorities.

"PERMITTED ENCUMBRANCES" means:

      (a)   liens for Taxes, assessments and governmental charges which are not
            due or delinquent or if due the validity of which is being
            diligently contested in good faith by or on behalf of Vendor,
            provided that any such lien which is being contested must be
            disclosed in this Agreement in order to qualify as a Permitted
            Encumbrance;

      (b)   mechanics', builders' and materialmen's liens in respect of services
            rendered or goods supplied for which payment is not due;

      (c)   easements, rights of way, servitudes and other similar rights in
            land, including rights of way and servitudes for highways and other
            roads, railways, sewers, drains, gas and oil pipelines, gas and
            water mains and electric light, power, telephone, telegraph and
            cable television conduits, poles, wires and cables;

      (d)   the right reserved to or vested in any Government Authority by the
            terms of any lease, license, franchise, grant or permit or by any
            Applicable Law, to terminate any such lease, license, franchise,
            grant or permit or to require payment of rent or other periodic
            payments as a condition of the continuance thereof, provided that
            any existing right of termination that has arisen as a result of a
            default of the lessee shall not be considered a Permitted
            Encumbrance;

      (e)   undetermined or inchoate liens (including processors', operators',
            mechanics', builders', materialmen's and similar liens) incurred or
            created as security in favour of the Person conducting Operations
            arising in the ordinary course of business for the Vendors'
            proportionate share of the costs and expenses of such Operations
            which are not due or delinquent;

      (f)   liens or security granted in the ordinary course of business to a
            public utility, municipality or Government Authority in connection
            with Operations;

      (g)   the reservations, limitations, provisos and conditions in any
            original grants or transfers from the Crown and exceptions to title
            under Applicable Law;

                                     - 14 -


      (h)   rights of general application reserved to or vested in any
            Government Authority to levy taxes on any of the Assets or the
            income therefrom, or to limit, control or regulate any of the Assets
            or Operations in any manner;

      (i)   any Security Interest held by a Person encumbering CCNGP's interest
            in the Assets or any part or portion thereof, in respect of which
            the Vendor delivers a release or no interest letter to Purchaser at
            or prior to Closing in accordance with Section 4.1(g);

      (j)   the terms and conditions of the Title and Operating Documents,
            including provisions for penalties and forfeitures arising under or
            pursuant to any of the Title and Operating Documents, provided that
            the following items must be identified in a Schedule to this
            Agreement to qualify as Permitted Encumbrances:

            (i)   any overriding royalties, net profits interests or other
                  Encumbrances applicable to the Assets for which Purchaser will
                  assume responsibility;

            (ii)  any existing or potential alteration of the Vendor's interest
                  in the Assets because of a payout conversion or farmin,
                  farmout or other such agreement or as a result of any other
                  disposition of an interest in any of the Assets; and

            (iii) any penalty or forfeiture that applies to the Assets at the
                  Effective Time because of Vendor's election not to participate
                  in a particular operation;

      (k)   the Rights of First Refusal applicable to the Assets described in
            Schedule "A";

      (l)   the Encumbrances described in Schedules "A" and "D";

      (m)   the rights of Third Parties to purchase Petroleum Substances
            pursuant to production sale contracts listed in Schedule "F" and any
            other production sales contract terminable by Vendor on notice of 60
            days or less;

      (n)   any Security Interest held by any Third Party encumbering any Third
            Party's interest in and to lands within the White Map Area or any
            part or portion thereof; and

      (o)   any defects or deficiencies in title to the Assets disclosed in this
            Agreement and any Schedule and Title Defects that are waived or
            deemed to be waived under Article 11.

"PERSON" means any individual or entity, including any partnership, body
corporate, trust, unincorporated organization, union, government or Government
Authority and any heir, executor, administrator or other legal representative of
an individual.

"PERSONAL INFORMATION" means the personal information of the Listed Employees
and Listed Consultants to be disclosed or conveyed to Gas Corp. or any of its
Related Parties by or on behalf of Vendor as a result of or in connection with
the Transaction, and includes all such personal information disclosed to Gas
Corp. or any of its Related Parties prior to the Closing Date.

"PETROLEUM AND NATURAL GAS RIGHTS" means all of the right, title, estate and
interest of CCNGP and its Affiliates (whether absolute or contingent, legal or
beneficial) in:

                                     - 15 -



      (a)   rights (including fee simple interests, leasehold interests and
            working interests) to drill for and produce, save and market
            Petroleum Substances from the White Map Area;

      (b)   lessor royalties, overriding royalties, net profits interests and
            similar interests entitling the holder thereof to a share of the
            Petroleum Substances produced from the White Map Area or to a
            payment calculated by reference to the quantity of such production,
            the proceeds from the sale thereof or the profits therefrom; and

      (c)   rights to acquire any of the foregoing.

"PETROLEUM SUBSTANCES" means petroleum, natural gas and all related hydrocarbons
(including liquid hydrocarbons) and all other substances, whether liquids, gases
or solids and whether hydrocarbons or not (including sulphur) produced in
association with petroleum, natural gas or related hydrocarbons to the extent
rights in respect of which are granted by the Title and Operating Documents.

"PRIME RATE" means for any day, the rate of interest expressed as a rate per
annum which The Bank of Nova Scotia, Main Branch, Calgary, Alberta, announces
publicly in Calgary, Alberta, from time to time as the reference rate used by it
for determining the rates of interest on Canadian dollar commercial loans made
by it in Canada and which it refers to as its "prime rate".

"PRODUCTION" means the Retained Production and the Interim Period Production.

"PURCHASE PRICE" means the amount set forth in Section 2.2.

"PURCHASER DEFAULT" means a breach of a representation or warranty made by Gas
Corp. or the Trust in Sections 5.4 or 5.5 or a breach by Gas Corp. or the Trust
of a covenant or agreement in this Agreement.

"RELATED PARTY" means, in reference to a Party: (i) its Affiliates, successors
and assigns; (ii) its directors, officers and employees; (iii) its Affiliates'
directors, officers and employees and (iv) its Representatives.

"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration of a Hazardous
Substance, oilfield wastes or produced water into or through the Environment.

"REPLY" has the meaning specified in Subsection 11.4(g).

"REPRESENTATIVES" means, in reference to a Party, its and its Affiliates'
representatives, agents, legal counsel, consultants and advisors.

"RETAINED PRODUCTION" means Petroleum Substances that are (i) produced from the
White Map Area prior to the Effective Time (ii) owned by CCNGP or its Affiliates
when produced and (iii) not past the point of delivery to the buyer thereof at
the Effective Time.

"RIGHT OF FIRST REFUSAL" or "ROFR" means a right of first refusal, pre-emptive
right of purchase or similar right whereby a Person, other than Gas Corp. or its
Affiliates, has the right to acquire or purchase all or a portion of the Assets
in accordance herewith.

                                     - 16 -



"ROFR ASSETS" has the meaning specified in Section 9.1.

"SCADA" means supervisory control and data acquisition.

"SCHEDULED ASSETS" means (i) the Petroleum and Natural Gas Rights set forth in
Part 2 of Schedule "A" and the Tangibles and Miscellaneous Interests directly
related thereto; and (ii) the Facilities interests set forth in Schedule "B".

"SECURITY INTEREST" means any mortgage, charge, pledge, lien, hypothec,
assignment by way of or in effect as security, or security interest whatsoever,
but does not include a right of set-off or a set-off.

"SEISMIC DATA" means all of the right, title, estate and interest of CCNGP and
its Affiliates (whether absolute or contingent, legal or beneficial) in data and
information including without limitation, interpretations and reprocessing in
respect of the seismic in the White Map Areas including the seismic described in
Schedule "E", to the extent such information is proprietary to CCNGP, or such
seismic which can be transferred lawfully by CCNGP to Gas Corp. and excluding
any and all other data and information that is owned by a Third Party and
licensed to CCNGP, provided that CCNGP shall use its reasonable efforts to allow
Gas Corp. to review such Third Party and licensed data at Vendors' offices as
requested by Gas Corp. up to the expiration of the Transition Period;

"SPECIFIC CONVEYANCES" means all conveyances, assignments, transfers, novations
and other documents or instruments that are reasonably required or desirable, in
accordance with normal oil and gas industry practices, to convey, assign and
transfer CCNGP's and its Affiliate's title to the Assets to Gas Corp. and to
novate Gas Corp. into the Title and Operating Documents that are contracts in
the place and stead of CCNGP and its Affiliates to the extent they relate to the
Assets.

"SUBMISSION DATE" has the meaning specified in Subsection 11.4(e).

"SURFACE INTERESTS" means all rights of CCNGP to enter upon, use, occupy and
enjoy the surface of lands for purposes related to the use, ownership or
operation of the Petroleum and Natural Gas Rights, the Wells or the Tangibles or
gaining access thereto, whether the same are held in fee simple, by lease, by
right-of-way, or otherwise.

"SUPPORTING STATEMENT" has the meaning specified in Subsection 11.4(e).

"TANGIBLES" means all of the right, title, estate and interest of CCNGP and its
Affiliates (including leasehold interests and whether absolute or contingent,
legal or beneficial) in:

      (a)   the Facilities; and

      (b)   the following that are used or held for use in respect of the
            Petroleum and Natural Gas Rights, the Wells or the Facilities and
            that are located in the White Map Area:

            (i)   all tangible depreciable equipment and facilities used in the
                  production, dehydration, processing, gathering, treatment,
                  measurement, storage or transportation of Petroleum
                  Substances, including: gas plants; oil batteries; buildings;
                  compressors; production equipment; active, inactive or
                  decommissioned pipelines and tangible equipment;

                                     - 17 -



                  wellheads, pipelines, gathering lines; flow lines; pipeline
                  connections; meters; generators; motors; compressors;
                  treaters; dehydrators; scrubbers; separators; pumps;
                  pumpjacks; tanks and boilers;

            (ii)  field offices, including all leasehold improvements, furniture
                  and office supplies located therein;

            (iii) motorized vehicles;

            (iv)  tangible equipment used exclusively with SCADA, maintenance
                  management systems and field measurement facilities;

            (v)   satellite communications equipment, excluding satellite
                  communications equipment used to send information from the
                  field to CCNGP's head office in Calgary; and

            (vi)  all inventory located within the White Map Area and all other
                  inventory wherever located that was purchased for, is used or
                  is intended to be used in association with the Assets and the
                  proceeds of the sale of all inventory sold from and after the
                  Effective Date,

but excluding only Excluded Assets.

"TAXES" means all income, capital, sales, excise, value added, goods and
services, customs, duties and property taxes; all other fees, assessments
withholdings and charges imposed by Government Authorities; and all penalties,
interest and fines or additions attributable to or imposed on or with respect to
such taxes, fees, assessments withholdings and charges.

"THIRD PARTY" means any Person other than Vendor, Gas Corp., the Trust and their
respective Affiliates.

"THIRTEENTH MONTH ADJUSTMENT" means a reconciliation payment made pursuant to an
agreement which provides that during a period (usually a calendar year) revenues
and/or expenses will be distributed to or paid by one or more parties to the
agreement on the basis of estimates thereof and following the end of the period
(usually the first calendar month after the end of the period), the actual
amount of the revenues or costs will be determined and a reconciliation between
the estimated amounts and the actual amounts will be made.

"TITLE AND OPERATING DOCUMENTS" means:

      (a)   petroleum and/or natural gas leases, permits and licenses (whether
            freehold or Crown), titles evidencing fee simple interests and
            similar instruments;

      (b)   agreements relating to the ownership, operation or development of
            the Assets entered into in the normal course of the oil and gas
            business, including, without limitation: operating procedures; unit
            agreements; unit operating agreements; agreements for the
            construction, ownership and operation of gas plants, batteries,
            pipelines, gas gathering systems and similar facilities; pooling
            agreements; royalty agreements; farmin and farmout agreements; joint
            operating agreements, participation and subparticipation agreements;
            trust declarations and agreements; purchase and sale agreements,
            asset exchange agreements; agreements providing for the gathering,
            measurement, processing, compression or transportation of Petroleum

                                     - 18 -



            Substances; common stream agreements; well operating contracts and
            surface leases, pipeline easements, road use agreements and other
            contracts granting Surface Interests; and

      (c)   Permits pertaining to the ownership of the Assets or Operations;

      (d)   but excluding only Excluded Assets.

"TITLE DEFECT" means a defect, discrepancy or deficiency in the title of CCNGP
to any of the Assets which is such that a reasonable, prudent and otherwise
willing buyer of the Assets affected thereby would refuse to purchase such
Assets for a price equal to the fair market value thereof (determined as if such
defect, discrepancy or deficiency did not exist) solely because of such defect,
discrepancy or deficiency; but specifically excludes:

      (a)   CCNGP's interests as described in Schedule "A" having converted from
            a before-payout interest to an after-payout interest as a result of
            payout having occurred prior to Closing;

      (b)   Permitted Encumbrances;

      (c)   failure to confirm delay rental payments, where the failure to pay
            such payments will not result in termination or an obligation to pay
            material costs or expenses;

      (d)   CCNGP's or any predecessor's interest being a beneficial interest
            rather than a legal interest;

      (e)   items disclosed in the Schedules hereto; or

      (f)   any missing or unsigned documents the terms of which could not
            result in a reduction of CCNGP's interest or an Encumbrance on
            CCNGP's interest reflected in Schedule "A".

"TITLE DEFECT NOTICE" has the meaning specified in Subsection 11.1(a).

"TITLE DEFECT VALUE" has the meaning specified in Subsection 11.1(a).

"TITLE EVALUATOR" has the meaning specified in Subsection 11.4(c).

"TRANSACTION" means the sale and purchase of the Assets and the Trust Units as
contemplated by this Agreement.

"TRANSITION PERIOD" means the period commencing on the day after the Closing
Date and terminating at 4:00 p.m. (Calgary time) on approximately October 29,
2004.

"TRANSITIONAL EMPLOYEES" means those Listed Employees who remain employed by
CCNGP during the Transition Period.

"TRANSITIONAL CONSULTANTS" means those Listed Consultants who agree to provide
services during the Transition Period.

"TRUST UNIT PURCHASE PRICE" means the amount set forth in Section 2.2.

                                     - 19 -



"TRUST UNITS" means 6,766.540 trust units of CNGT, representing 25% of all of
the issued and outstanding securities of CNGT, including without limitation, all
rights to acquire any such securities;

"UNCURED TITLE DEFECT" has the meaning specified in Subsection 11.2(b).

"UNCURED TITLE DEFECTS VALUE" has the meaning specified in Subsection 11.2(b).

"VENDOR DEFAULT" means a breach of a representation or warranty made by Vendor
in Section 5.1 or Section 5.2, or a breach by Vendor of a covenant or agreement
in this Agreement.

"WELLS" means all wells located in the White Map Area in which CCNGP has an
interest, including all producing, shut-in, suspended, abandoned, capped,
injection and disposal wells, and without limiting the foregoing, includes any
well set out in Schedule "G".

"WHITE MAP AREA" means all lands outlined on the plat(s) comprising Part 1 of
Schedule "A" and includes, as the context requires, the surface of such lands
and the Petroleum Substances within such lands.

1.2   INTERPRETATION

Unless otherwise stated or the context otherwise necessarily requires, in this
Agreement:

      (a)   references herein to any agreement or instrument, including this
            Agreement, shall be a reference to the agreement or instrument as
            varied, amended, modified, supplemented or replaced from time to
            time;

      (b)   the terms "in writing" or "written" include printing, typewriting or
            facsimile transmission;

      (c)   references to a statute shall be a reference to (i) such enactment
            as amended or reenacted from time to time and every statute that may
            be substituted therefor; and (ii) the regulations, bylaws or other
            subsidiary legislation made pursuant to such statute;

      (d)   words importing the singular number only shall include the plural
            and vice versa, and words importing the use of any gender shall
            include all genders,

      (e)   a reference to time shall, unless otherwise specified, refer to
            Mountain Standard Time or Mountain Daylight Savings Time during the
            respective intervals in which each is in force in Alberta;

      (f)   "including", "includes" and like terms means "including without
            limitation" and "includes without limitation";

      (g)   the headings of Articles, Sections, Subsections and Paragraphs in
            this Agreement are for convenience of reference only and shall not
            affect the construction or interpretation of this Agreement;

      (h)   the terms "this Agreement", "hereof, "hereunder" and similar
            expressions refer to this Agreement in its entirety and include any
            agreement supplemental hereto;

                                     - 20 -



      (i)   unless something in the subject matter or context is inconsistent
            therewith, references herein to Articles, Sections, Subsections and
            Paragraphs are to Articles, Sections, Subsections and Paragraphs of
            this Agreement and references herein to Schedules are references to
            Schedules to this Agreement, and

      (j)   subject to Article 16, all references to Vendor and Purchaser in
            this Agreement shall be deemed to include Vendor and Vendors'
            Affiliates and Purchaser and Purchasers' Affiliates (as applicable)
            and, where appropriate, Vendors' Related Parties and Purchaser's
            Related Parties (as applicable) and all such references to Vendor
            and Purchaser shall be read according to the context of the
            Agreement with respect to applicability to the Assets or the Trust
            Units.

1.3   INTERPRETATION IF CLOSING DOES NOT OCCUR

In the event that Closing does not occur, each provision of this Agreement which
presumes that Gas Corp. has acquired the Assets and the Trust has acquired the
Trust Units shall be construed as having been contingent upon Closing having
occurred.

1.4   CONFLICTS

If there is any conflict or inconsistency between a provision of the body of
this Agreement and that of a Schedule or a conveyance document, the provision of
the body of this Agreement shall prevail.

1.5   SCHEDULES

The following Schedules are incorporated herein by reference and made a part of
this Agreement:

      Schedule "A"

        Part 1        White Map Area Land Plat(s)

        Part 2        Description of Scheduled Petroleum and Natural Gas Rights

      Schedule "B"    Facilities

      Schedule "C"    General Conveyance

      Schedule "D"    Claims

      Schedule "E"    Seismic

      Schedule "F"    Contracts Disclosure

      Schedule "G"    Wells

      Schedule "H"    Officer's Certificate

      Schedule "I"    Outstanding AFEs

      Schedule "J"    Call on Production Agreement

      Schedule "K"    ROFRs

      Schedule "L"    Listed Material Agreements

1.6   VENDORS' KNOWLEDGE

For all purposes of this Agreement, the knowledge of Vendor consists of the
actual knowledge of its current employees at or above the supervisory level and
who are primarily responsible for the matter in question in the course of their
normal duties after reasonable inquiry. For these purposes, knowledge does not
include the knowledge of any other Person or constructive knowledge. Neither
Vendor nor any of such employees has any obligation to make additional inquiry
of any Person, any files and records or any Government Authority in connection
with representations and warranties that are made to Vendor's knowledge.

                                     - 21 -



                                   ARTICLE 2
                               PURCHASE AND SALE

2.1   PURCHASE AND SALE

Upon the terms and subject to the conditions of this Agreement: (a) CCNGP agrees
to sell the Assets to Gas Corp., and Gas Corp. agrees to purchase the Assets
from CCNGP on the Closing Date; and (b) CEHL agrees to sell the Trust Units to
the Trust, and the Trust agrees to purchase the Trust Units from CEHL on the
Closing Date.

2.2   BID PRICE, PURCHASE PRICE AND ADJUSTED PURCHASE PRICE

The price to be paid by Gas Corp. to CCNGP for the Assets shall be the following
amount:

      (a)   SEVEN HUNDRED FORTY SEVEN MILLION DOLLARS ($747,000,000) to CCNGP as
            full consideration for the purchase of the Assets (the "ASSET BID
            PRICE") less the adjustments (if any) to the Asset Bid Price on
            account of exercised Rights of First Refusal and Uncured Title
            Defects pursuant to Article 9 and Article 11 (the Asset Bid Price
            less the amount of such adjustments is the "ASSET PURCHASE PRICE");
            plus

      (b)   the Interest on the Asset Purchase Price; plus or minus

      (c)   the net amount of the adjustment pursuant to Article 7 in respect of
            the Interim Period;

(collectively the "ADJUSTED ASSET PURCHASE PRICE").

The price to be paid by the Trust to CEHL for the Trust Units shall be the
following amount:

      (d)   Seventy-Eight Million Dollars ($78,000,000) to CEHL as full
            consideration for the purchase of the Trust Units (the "TRUST UNIT
            PURCHASE PRICE"); plus

      (e)   the Interest on the Trust Unit Purchase Price; minus

      (f)   the aggregate amount of any and all distributions or any other
            benefits paid or payable by or on behalf of CNGT to CEHL in respect
            of the Trust Units for the period from July 1, 2004 up to the day
            immediately prior to the Closing Date (the "DISTRIBUTIONS");

(collectively the "ADJUSTED TRUST UNIT PURCHASE PRICE"). The Adjusted Asset
Purchase Price and the Adjusted Trust Unit Purchase Price shall hereinafter be
referred to collectively as the "PURCHASE PRICE".

2.3   PAYMENT OF ADJUSTED ASSET PURCHASE PRICE AND ADJUSTED TRUST UNIT PURCHASE
      PRICE

The Adjusted Asset Purchase Price shall be paid by Gas Corp. to CCNGP as
follows:

      (a)   the Deposit shall be paid to CCNGP in accordance with Section 2.4;

      (b)   at Closing, subject to Section 4.4, Gas Corp. shall pay to CCNGP an
            amount equal to the aggregate of:

                                     - 22 -



            (i)   the Adjusted Asset Purchase Price, minus

            (ii)  the Deposit (and any interest earned thereon in accordance
                  with Subsection 2.4(a)).

At Closing, subject to Section 4.4, the Trust shall pay to CEHL an amount equal
to the Adjusted Trust Unit Purchase Price.

2.4 DEPOSIT

      (a)   Upon execution and delivery of this Agreement, Gas Corp. shall pay
            an amount equal to Thirty Seven Million Five Hundred Thousand
            ($37,500,000) (the "DEPOSIT") as a deposit against the payment of
            the Asset Purchase Price. The Deposit shall be held in escrow in an
            interest bearing account by the Escrow Agent and shall be dealt with
            by the Escrow Agent, all in accordance with the terms of this
            Agreement.

      (b)   If Closing occurs, the Deposit shall be applied to payment of the
            Adjusted Asset Purchase Price.

      (c)   If Closing does not occur due to a Purchaser Default, the Deposit
            and the interest earned thereon while held by Escrow Agent shall be
            forfeited to CCNGP for its own account absolutely as the genuine
            pre-estimate by CCNGP and Gas Corp. of CCNGP's liquidated damages as
            a result of Closing not occurring, in full and final satisfaction of
            Gas Corp.'s obligations under this Agreement and CCNGP shall have no
            further rights or remedies whatsoever under this Agreement or
            otherwise as a result of any Purchaser Default.

      (d)   If Closing does not occur for any reason or circumstance other than
            a Purchaser Default, the Deposit plus interest thereon at the Prime
            Rate plus one percent (1%) shall be returned to Gas Corp. for the
            account of Gas Corp. absolutely.

2.5   GST AND OTHER SALES TAXES

      (a)   The Asset Purchase Price does not include GST or any provincial
            sales taxes that may be applicable to the sale of the Assets
            hereunder. Unless Gas Corp. elects to proceed under Subclause 2.5(d)
            at Closing, Gas Corp. shall pay to CCNGP an amount equal to seven
            percent (7%) of the portion of the Adjusted Asset Purchase Price
            allocated to Tangibles, Seismic Data and Miscellaneous Interests
            pursuant to Section 2.6. CCNGP shall remit such amount to the
            appropriate taxation authorities in accordance with the GST
            Legislation. Each of CCNGP and Gas Corp. represents that it holds a
            valid GST registration account number at the date of Closing and
            that its registration number for GST purposes is:

            CCNGP:          897181517

            Gas Corp.:      89963 1105 RT0001

      (b)   At Closing, Gas Corp. will also remit to CCNGP any provincial sales
            taxes that CCNGP is required to collect from Gas Corp. under
            Applicable Law in respect of the Transaction. CCNGP shall remit such
            amounts to the appropriate taxation authorities in accordance with
            Applicable Law.

                                     - 23 -



      (c)   After Closing, Gas Corp. shall be responsible for, and shall
            indemnify and save CCNGP and its Related Parties harmless in respect
            of, any and all GST and sales taxes imposed by a Government
            Authority (including interest and penalties) in respect of the
            Transaction which are in excess of the amounts collected by CCNGP
            from Gas Corp. at Closing.

      (d)   If requested by Gas Corp., CCNGP and Gas Corp. shall jointly elect
            at Closing pursuant to Section 167 of the Excise Tax Act (Canada) to
            have the provisions thereof concerning the acquisition of part of a
            business applied to this Transaction and Gas Corp. undertakes to
            file such election with the Canada Revenue Agency in a timely and
            proper fashion. Gas Corp. shall be liable for and, in addition,
            shall indemnify CCNGP from any and all claims, liabilities, actions,
            proceedings, demands, losses, costs, penalties, GST payable, fines,
            damages, interest and expenses suffered by or sustained by CCNGP
            pertaining to this election.

2.6   ALLOCATION OF ADJUSTED ASSET PURCHASE PRICE

      (a)   CCNGP and Gas Corp. shall allocate the Adjusted Asset Purchase Price
            for all purposes (including for purposes of the Income Tax Act and
            the GST Legislation) as follows:

                                   
(i) Petroleum & Natural Gas Rights:   $591,919,999.20

(ii) Tangibles:                       $147,979,999.80

(iii) Seismic Data:                   $  7,100,000.00

(iv) Miscellaneous Interests:         $          1.00
                                      ---------------
                                      $747,000,000.00



      (b)   CCNGP and Gas Corp. shall allocate the Interest on the Asset
            Purchase Price and all adjustments to the Asset Purchase Price
            calculated pursuant to Article 7 for all purposes (including for
            purposes of the Income Tax Act and the GST Legislation) to the
            Petroleum and Natural Gas Rights.

2.7   FORM OF PAYMENT

All payments to be made pursuant to this Agreement shall be made in immediately
available Canadian funds. Payments to be made at or prior to Closing shall be
made by wire transfer while payments to be made after Closing may be made by
wire transfer, certified cheque or bank draft.

                                    ARTICLE 3
                                    CLOSING

3.1   PLACE AND DATE OF CLOSING

Closing shall take place at the Closing Place on the Closing Date if there has
been satisfaction or waiver of the conditions of Closing herein contained.

                                     - 24 -



3.2   TRANSFER OF OWNERSHIP AND RISK

The transfer of the Assets from CCNGP to Gas Corp. and the transfer of the Trust
Units from CEHL to the Trust and the assumption of the benefits, obligations and
risks associated with the Assets by Gas Corp. and the Trust Units by the Trust
will be effective as of the Effective Time, provided Closing occurs. Possession
of the Assets will pass to Gas Corp. upon Closing and transfer of ownership of
the Trust Units to the Trust will occur upon Closing.

3.3   VENDOR DELIVERIES AT CLOSING

At Closing, CCNGP shall deliver, or cause to be delivered, to Gas Corp., the
following:

      (a)   the General Conveyance executed by CCNGP;

      (b)   a receipt for payment of the Adjusted Asset Purchase Price payable
            pursuant to Subsection 2.3(b);

      (c)   copies of all Third Party consents to the sale of the Assets
            pursuant hereto obtained prior to Closing and copies of all Right of
            First Refusal notices sent by CCNGP and notices of exercise and
            waivers of Rights of First Refusal provided by Third Parties at or
            prior to Closing;

      (d)   the Specific Conveyances referred to in Section 3.5 executed by
            CCNGP;

      (e)   an officer's certificate of CCNGP in the form of Schedule "H"
            attached hereto;

      (f)   the Call on Production Agreement and any agreed security related
            thereto, in each case duly executed by the parties (other than Gas
            Corp.) expressed to be party thereto;

      (g)   the election referred to in Schedule 2.5(d), if applicable, duly
            executed by CCNGP;

      (h)   a certified copy of a partners' resolution approving the
            Transaction; and

      (i)   any other documents required to be delivered by CCNGP to Gas Corp.
            at Closing pursuant to this Agreement.

At Closing, CEHL shall deliver, or cause to be delivered, to the Trust, the
following:

      (j)   documentation evidencing the transfer of ownership of the Trust
            Units from CEHL to the Trust in form satisfactory to the Trust, in
            its sole discretion;

      (k)   information acceptable to the Trust, acting reasonably, of the
            status and plans relating to following agreements:

            (i)   the Services Agreement dated October 15, 2003 among Calpine
                  Natural Gas, L.P., Calpine Natural Gas Limited, Calpine
                  Natural Gas Holdings Limited and Calpine Natural Gas Services
                  Limited; and

            (ii)  the Energy Management Services Agreement dated October 15,
                  2003 between Calpine Canada Natural Gas Partnership and
                  Calpine Natural Gas, L.P.;

                                     - 25 -



      (l)   a certified copy of a resolution of the board of directors of CEHL
            approving the sale of the Trust Units from CEHL to the Trust; and

      (m)   any other documents required to be delivered by CEHL to the Trust at
            Closing pursuant to this Agreement.

3.4   DELIVERIES OF GAS CORP. AND THE TRUST AT CLOSING

At Closing, Gas Corp. shall deliver, or cause to be delivered, to CCNGP, the
following:

      (a)   the amount payable by Gas Corp. at the Closing pursuant to Section
            2.3(b);

      (b)   an officer's certificate of Gas Corp. in the form of Schedule "H";

      (c)   the election referred to in Section 2.5(d), if applicable, duly
            executed by Gas Corp;

      (d)   copies of the Competition Act Approval; and

      (e)   any other documents required to be delivered by Gas Corp. to CCNGP
            at the Closing pursuant to this Agreement.

In addition, at or before Closing, Gas Corp. shall execute the Specific
Conveyances and the General Conveyance tabled by CCNGP pursuant to Section 3.3.

At Closing, the Trust shall deliver, or cause to be delivered, to CEHL, the
following:

      (f)   the amount payable by the Trust at the Closing pursuant to Section
            2.3;

      (g)   an officer's certificate of the Trust substantially in the form of
            Schedule "H"; and

      (h)   any other documents required to he delivered by the Trust to CEHL at
            the Closing pursuant to this Agreement.

3.5   SPECIFIC CONVEYANCES

      (a)   CCNGP shall use commercially reasonable efforts to prepare the
            Specific Conveyances at its cost prior to Closing, provided that if
            all Specific Conveyances are not delivered at Closing, the balance
            of the Specific Conveyances outstanding shall be delivered within 30
            days following Closing. None of the Specific Conveyances shall
            confer or impose upon a Party any greater right or obligation than
            contemplated in this Agreement. It shall not be necessary for those
            Specific Conveyances that are prepared and circulated to Gas Corp.
            in a reasonable time prior to Closing to have been executed prior to
            or at Closing by Third Parties. Promptly after Closing, and at Gas
            Corp.'s cost, CCNGP shall deliver all Specific Conveyances to Third
            Parties and Government Authorities in accordance with normal
            industry practices and shall attend to the registration of Specific
            Conveyances with Government Authorities in accordance with normal
            industry practices. Gas Corp. shall use all reasonable efforts to
            become, as soon as reasonably practicable following Closing, the
            recognized and beneficial holder of the Assets in the place and
            stead of CCNGP, and shall where CCNGP is the registering party,
            promptly take whatever steps are necessary to verify such
            registrations.

                                     - 26 -



      (b)   Gas Corp. shall bear all costs, fees and deposits of every nature
            and kind incurred (whether by CCNGP or Gas Corp.) in registering any
            Specific Conveyances and registering any further assurances required
            to convey the Assets to Gas Corp.

      (c)   By notice delivered to Gas Corp. not later than three Business Days
            prior to the Closing Date, CCNGP may request Gas Corp. to pay to
            CCNGP at Closing CCNGP's bona fide estimate as set forth in the
            notice of the costs, fees and deposits referred to in Subsection
            3.5(b). In that event, Gas Corp. shall pay such amount to CCNGP at
            Closing and if the estimate is less than the actual amount of the
            costs, fees and deposits, Gas Corp. shall pay the deficiency
            shortfall to CCNGP promptly after receipt of a request therefor, and
            if the estimate exceeds the actual amount of the costs, fees and
            deposits, CCNGP shall reimburse the excess to Gas Corp.

3.6   POST - CLOSING DELIVERIES

CCNGP shall deliver or cause to be delivered to Gas Corp. within 30 days
following Closing, the original copies of the Title and Operating Documents and
the original copies of records, documents, licenses, reports and data including,
to the extent available, electronic records comprising Miscellaneous Interests,
which are now in the possession of CCNGP or to which CCNGP has reasonable
access. Notwithstanding the foregoing, if and to the extent such contracts,
agreements, records, documents, licenses, reports and data also pertain to
interests other than the Assets, photocopies or other copies may be provided to
Gas Corp. in lieu of original copies.

                                    ARTICLE 4
                             CONDITIONS OF CLOSING

4.1   CONDITIONS OF GAS CORP. AND THE TRUST

The obligation of Gas Corp. to complete the acquisition of the Assets pursuant
hereto is subject to the following conditions, which are for the exclusive
benefit of Gas Corp. and may be waived in whole or in part by Gas Corp. by
written notice to CCNGP at or before Closing:

      (a)   COMPETITION ACT APPROVAL: The Competition Act Approval shall have
            been obtained on terms acceptable to Gas Corp. acting reasonably;

      (b)   REPRESENTATIONS AND WARRANTIES: The representations and warranties
            of CCNGP in Section 5.1 shall be true when made and as of the
            Closing Date except to the extent that does not, in the aggregate,
            have a material adverse effect on the value of the Assets and CCNGP
            shall have delivered an officer's certificate in the form of
            Schedule "H" to that effect to Gas Corp. at Closing;

      (c)   COMPLIANCE WITH COVENANTS: CCNGP shall have performed or complied in
            all material respects with all of its obligations, covenants and
            agreements contained in this Agreement to be performed or complied
            with by CCNGP at or prior to Closing, except to the extent that dues
            not, in the aggregate, have a material adverse effect on the value
            of the Assets;

      (d)   NO ACTION OR PROCEEDING: At the time Closing occurs, no Claim shall
            be pending before any court or Government Authority seeking to
            restrain or prohibit the purchase and sale of the Assets
            contemplated hereby or to obtain material damages or other relief in
            connection with the consummation of the Transaction, excluding
            Claims in respect of Rights of First Refusal;

                                     - 27 -



      (e)   DAMAGE TO THE TANGIBLES: If there has been physical damage to the
            Tangibles, between the date hereof and the Closing Date, the costs
            of repairing all of such damage shall not exceed $20,000,000;

      (f)   CLOSING DELIVERIES: CCNGP shall have complied with its obligations
            under Section 3.3; and

      (g)   DISCHARGES: CCNGP shall have delivered to Gas Corp. releases and
            registerable discharges or no-interest letters in form and substance
            satisfactory to Gas Corp., acting reasonably, from all parties
            holding security interests or similar encumbrances in the Assets,
            except to the extent that such security interests or encumbrances do
            not, in the aggregate, exceed $20,000,000.

The obligation of the Trust to complete the acquisition of the Trust Units
pursuant hereto is subject to the following conditions, which are for the
exclusive benefit of the Trust and may be waived in whole or in part by the
Trust by written notice to CEHL at or before Closing:

      (h)   REPRESENTATIONS AND WARRANTIES: The representations and warranties
            of CEHL in Section 5.2 shall be true when made and as of the Closing
            Date except to the extent that does not, in the aggregate, have a
            material adverse effect on the value of the Trust Units and CEHL
            shall have delivered an officer's certificate in the form of
            Schedule "H" to that effect to the Trust at Closing;

      (i)   COMPLIANCE WITH COVENANTS: CEHL shall have performed or complied in
            all material respects with all of its obligations, covenants and
            agreements contained in this Agreement to be performed or complied
            with by CEHL at or prior to Closing, except to the extent that does
            not, in the aggregate, have a material adverse effect on the value
            of the Trust Units;

      (j)   NO ACTION OR PROCEEDING: At the time Closing occurs, no Claim shall
            be pending before any court or Government Authority seeking to
            restrain or prohibit the purchase and sale of the Trust Units
            contemplated hereby or to obtain material damages or other relief
            from CEHL in connection with the completion of the purchase and sale
            of the Trust Units contemplated hereby;

      (k)   RESIGNATION OF DIRECTORS: Bill A. Berilgen, Toby Austin and John
            King shall have resigned as directors of Calpine Natural Gas Limited
            and each of its Affiliates;

      (I)   AVAILABLE EXEMPTION: If the purchase price per Trust Unit exceeds
            115% of the "market price" of the trust units of CNGT, determined in
            accordance with section 161(l)(c) of the Securities Act (Alberta)
            and section 172 of the Alberta Securities Commission Rules (General)
            (and the equivalent provisions of other applicable securities laws),
            the Trust shall have available to it an alternative and proper
            exemption(s) to satisfy applicable securities laws with respect to
            prospectus, registration and take-over bid requirements:

      (m)   COMPLETION OF ASSET ACQUISITION: Gas Corp. shall have completed the
            acquisition of the Assets; and

      (n)   CLOSING DELIVERIES: CEHL shall have complied with its obligations
            under Section 3.3.

      (o)   AGREEMENTS UNAMENDED: At the time Closing occurs, none of the Listed
            Material Contracts shall have been amended, modified or assigned.

                                     - 28 -



4.2   VENDOR CONDITIONS

The obligation of CCNGP to complete the sale of the Assets pursuant hereto is
subject to the following conditions, which are for the exclusive benefit of
GCNGP and may be waived in whole or in part by CCNGP by written notice to Gas
Corp. at or before Closing:

      (a)   COMPETITION ACT APPROVAL: The Competition Act Approval shall have
            been obtained at or prior to Closing, on terms acceptable to CCNGP
            acting reasonably;

      (b)   REPRESENTATIONS AND WARRANTIES: The representations and warranties
            of Gas Corp. in Section 5.4 shall be true when made and as of the
            Closing Date, except to the extent that does not, in the aggregate,
            have a material adverse effect on CCNGP, and Gas Corp. shall have
            delivered an officer's certificate in the form of Schedule "II" to
            that effect to CCNGP at Closing;

      (c)   COMPLIANCE WITH COVENANTS: Gas Corp. shall have performed or
            complied in all material respects with all of its obligations,
            covenants and agreements contained in this Agreement to be performed
            or complied with by Gas Corp. at or prior to Closing, except to the
            extent that such non-compliance does not have an adverse effect on
            Gas Corp.'s ability to complete the acquisition of the Assets;

      (d)   TENDER: Gas Corp. shall have tendered or caused to be tendered to
            CCNGP, all amounts to be paid by Gas Corp. to CCNGP at Closing in
            the form stipulated in this Agreement;

      (e)   NO ACTION OR PROCEEDING: At the time Closing occurs, no Claim shall
            be pending before any court or Government Authority seeking to
            restrain or prohibit the purchase and sale of the Assets
            contemplated hereby or to obtain material damages or other relief
            from CCNGP in connection with the completion of the purchase and
            sale of the Assets contemplated hereby excluding Claims in respect
            of Rights of First Refusal; and

      (f)   CLOSING DELIVERIES: Gas Corp. shall have complied with its
            obligations under Section 3.4.

      (g)   CORPORATE APPROVAL: Calpine Corporation shall have approved the
            Transaction on behalf of Vendor on or before August 16, 2004.

The obligation of CEHL to complete the sale of the Trust Units pursuant hereto
is subject to the following conditions, which are for the exclusive benefit of
CEHL and may be waived in whole or in part by CEHL by written notice to the
Trust at or before Closing:

      (h)   REPRESENTATIONS AND WARRANTIES: The representations and warranties
            of the Trust in Section 5.5 shall be true when made and as of the
            Closing Date, except to the extent that does not, in the aggregate,
            have a material adverse effect on CEHL, and the Trust shall have
            delivered an officer's certificate substantially in the form of
            Schedule "H" to that effect to CEHL at Closing;

      (i)   COMPLIANCE WITH COVENANTS: The Trust shall have performed or
            complied in all material respects with all of its obligations,
            covenants and agreements contained in this Agreement to be performed
            or complied with by the Trust at or prior to Closing, except to the
            extent that such non-compliance does not have an adverse effect on
            the Trust's ability to complete the acquisition of the Trust Units;

                                     - 29 -



      (j)   TENDER: The Trust shall have tendered or caused to be tendered to
            CEHL, all amounts to be paid by the Trust to CEHL at Closing in the
            form stipulated in this Agreement;

      (k)   NO ACTION OR PROCEEDING: At the time Closing occurs, no Claim shall
            be pending before any court or Government Authority seeking to
            restrain or prohibit the purchase and sale of the Trust Units
            contemplated hereby or to obtain material damages or other relief
            from CEHL in connection with the completion of the purchase and sale
            of the Trust Units contemplated hereby; and

      (l)   CLOSING DELIVERIES: The Trust shall have complied with its
            obligations under Section 3.4.

4.3   EFFORTS TO FULFILL CONDITIONS

      (a)   Each of the Parties shall proceed diligently, honestly and in good
            faith and use all reasonable efforts to satisfy and comply with and
            assist in the satisfaction of and compliance with the conditions set
            forth in Sections 4.1 and 4.2.

      (b)   Gas Corp. shall provide Vendor with copies of the Competition Act
            Approval immediately upon receipt of same.

      (c)   The Parties shall use all reasonable efforts to obtain the
            Competition Act Approval prior to Closing. Gas Corp. shall promptly
            (and in any event, within 14 days following the date of execution of
            this Agreement) give the requisite notice of the Transaction under
            Section 114 of the Competition Act and/or file a request for an
            advance ruling certificate under Section 102 of the Competition Act
            in respect of the Transaction and Gas Corp. shall pay the applicable
            filing fee and all Taxes thereon. Notwithstanding the foregoing,
            Vendor shall co-operate with and provide reasonable assistance to
            Gas Corp. in the preparation of such notice and/or request.
            Purchaser shall provide to Vendor in advance copies of all
            applications and filings for approval by Vendor, not to be
            unreasonably withheld.

      (d)   Notwithstanding Section 3.5, any transfer or assignment of Title and
            Operating Documents requiring notice to or consent from a Third
            Party (including transfers of Permits requiring approvals of
            Government Authorities other than Customary Post Closing Consents)
            shall not be assigned or transferred to Gas Corp. until and unless
            the notice or consent requirements have been satisfied. Each Party
            shall use commercially reasonable efforts, as to matters within its
            control, to satisfy such requirements as of the Closing Date, and
            Gas Corp. shall furnish any deposits or security reasonably required
            to complete such transfers and assignments in accordance with normal
            industry practices or the provisions of the Title and Operating
            Documents or Applicable Law after the applicable consent or approval
            has been obtained. If any such consent or notice requirement (other
            than Customary Post Closing Consents) is not satisfied as of
            Closing, the Parties shall consider whether to exclude the affected
            Title and Operating Documents from the sale of the Assets pursuant
            hereto or to enter into alternative arrangements, including escrow
            arrangements but, regardless of such circumstances (and subject to a
            reasonable materiality standard), the sale of the Assets shall be
            completed.

      (e)   On or after the Closing Date, Gas Corp. shall take reasonable steps
            to cause to be released and returned to CCNGP any guarantees, bonds
            or other security provided by CCNGP or any of its Affiliates to
            Government Authorities or other Third Parties in connection with the
            Assets by arranging for and providing substitute security therefor
            provided that such obligation shall not arise until after any
            required consent or approval has been obtained.

                                     - 30 -



        (f)    If a Party for whose benefit a condition has been included in
               Section 4.1 or 4.2 fails to notify the other applicable Party at
               or prior to Closing as to whether or not the condition has been
               satisfied or complied with, the condition shall be conclusively
               deemed to have been waived by such Party.

4.4    FAILURE OF A CONDITION

If a condition in Sections 4.1 or 4.2 has not been satisfied on or before the
Closing Date and such condition has not been waived in writing by the Party for
whose benefit such condition has been included herein, such Party may terminate
this Agreement by written notice to the other Parties prior to the Closing,
provided that a Party shall not be permitted to exercise or purport to exercise
any right of termination pursuant to this Section 4.4 if the event or
circumstances giving rise to such right is due to a Default by such Party.

4.5    EFFECT OF TERMINATION

If this Agreement is terminated prior to the Closing occurring pursuant to
Section 4.3(d), 4.4 or 11.3(a)(iii), the Parties shall be released from all
obligations under this Agreement except as follows:

      (a)   subject to Section 2.4, a Party shall remain liable for Defaults by
            it prior to the termination;

      (b)   the provisions of Section 2.4 shall remain in effect and be binding
            and enforceable in accordance with its terms; and

      (c)   the Confidentiality Agreement shall remain in full force and effect
            in accordance with its terms.

Subject to the foregoing provisions of this Section, following such termination,
each Party shall be responsible for the costs and expenses incurred by it in
connection with this Agreement and the Transaction.

                                    ARTICLE 5
                         REPRESENTATIONS AND WARRANTIES

5.1   REPRESENTATIONS AND WARRANTIES OF CCNGP

CCNGP represents and warrants to Gas Corp., that, except for matters disclosed
in the Schedules and subject in all instances to the Permitted Encumbrances:

      (a)   ORGANIZATION AND STANDING: CCNGP is a general partnership, duly
            organized and validly subsisting under the laws of its jurisdiction
            of organization and is duly qualified under the jurisdictions in
            which it is required to be qualified in order for it to own the
            Assets;

      (b)   CAPACITY, POWER, AUTHORIZATION, EXECUTION AND ENFORCEABILITY: CCNGP
            has the requisite capacity, power and authority to execute, deliver
            and perform its obligations under this Agreement and all of the
            agreements, instruments and other documents contemplated hereby. The
            execution, delivery and performance of this Agreement and the
            completion of the Transaction have been duly and validly authorized
            by any and all requisite actions of CCNGP and provided the
            Competition Act Approval is obtained, do not and will not result in
            any violation of, be in conflict with, or constitute a default
            under, its articles, charter, by-laws, partnership agreement or
            other governing documents, as the case may be and no other
            authorization or approval or other action by. and no notice to or
            filing with any Governmental

                                     - 31 -



            Authority or regulatory body exercising jurisdiction over the Assets
            or CCNGP is required for the due execution, delivery and performance
            by CCNGP. This Agreement and any other agreement delivered in
            connection herewith, to which CCNGP is party, has been or will at
            the appropriate time be validly executed and delivered by CCNGP and
            constitute valid and binding obligations of CCNGP and provided the
            Competition Act Approval is obtained, will be enforceable against
            CCNGP in accordance with their terms, subject to (i) bankruptcy,
            insolvency, fraudulent preference, reorganization or other laws
            affecting creditors' rights generally, and (ii) general principles
            of equity (regardless of whether such enforceability is considered
            in a proceeding at law or equity);

      (c)   NO CONFLICT: The execution and delivery of this Agreement are not,
            and, provided the Competition Act Approval is obtained and except
            for Customary Post Closing Consents, the completion of the
            Transaction in accordance with the terms of this Agreement will not
            be, in violation or breach of or in conflict with or require any
            consent, authorization or approval under:

            (i)   any term or provision of the constating documents of CCNGP;

            (ii)  any agreement, instrument, license, permit or other
                  governmental authorization to which CCNGP is a party or by
                  which CCNGP is bound; or

            (iii) any judgment, decree, order, statute, regulation, rule, or
                  license applicable to CCNGP (other than Licence Transfer
                  approvals);

      (d)   NO FINDER'S FEE: CCNGP has not incurred any obligation or liability,
            contingent or otherwise, for brokers' or finders' fees in respect of
            this Agreement or the Transaction for which Gas Corp. or any of its
            Affiliates shall have any obligation or liability;

      (e)   RESIDENCY: Neither of the partners of CCNGP is a "non-resident" of
            Canada for the purposes of the Income Tax Act;

      (f)   JUDGMENTS AND CLAIMS: Except as set forth in the Schedule "D", there
            are no unsatisfied judgments nor any Claims in existence against
            CCNGP that relate to the Assets, and to the knowledge of CCNGP no
            such Claims have been threatened and there are no particular
            circumstances that exist which could give rise to any such judgments
            or Claims;

      (g)   TITLE TO ASSETS: CCNGP does not warrant title to the Assets but does
            warrant that it has not done any act or thing whereby any of the
            Scheduled Assets may be encumbered, alienated, cancelled or
            determined and that the Scheduled Assets are now and will be at the
            Closing Date, free and clear of all Encumbrances created by, through
            or under CCNGP, or of which CCNGP is aware, except Permitted
            Encumbrances;

      (h)   COMPLIANCE WITH AGREEMENTS: Except as described in Schedule "D", to
            CCNGP's knowledge:

            (i)   CCNGP is not in default under Applicable Law or the Title and
                  Operating Documents; and

            (ii)  CCNGP has not failed to comply with, perform, observe or
                  satisfy, in all material respects, any term, condition,
                  obligation or liability which has heretofore arisen under the
                  provisions of Applicable Law or any of the Title and Operating
                  Documents.

                                     - 32 -



            which default or failure would reasonably be expected to materially
            adversely affect the value of the Assets taken as a whole;

      (i)   NO DEFAULT NOTICES: Except as described in Schedule "D", CCNGP has
            not received notice of violation of or default under any other
            obligation, agreement, document, order, writ, injunction or decree
            of any Government Authority that relates to the Assets and to
            CCNGP's knowledge, no particular circumstance presently exists which
            may give rise to any such violation or default and, additionally, to
            CCNGP's knowledge, there are no such outstanding defaults or notices
            of default in relation to any Third Party;

      (j)   FINANCIAL COMMITMENTS: Except as set forth in Schedule "I", and
            except for operating costs incurred in the ordinary course of
            business, there are no outstanding AFE's or other financial
            commitments respecting the Assets which are due as at the date
            hereof, pursuant to which individual expenditures of greater than
            One Hundred Thousand Dollars ($100,000) may be required by the Gas
            Corp. after the Effective Time;

      (k)   ROYALTIES: All ad valorem, property, royalties, production,
            severance and similar taxes and assessments based on or measured by
            the ownership of the Assets or the production of Petroleum
            Substances or the receipt of proceeds therefrom payable by CCNGP in
            respect of the Assets have been paid and discharged, and to CCNGP's
            knowledge, all such obligations which are the responsibility of
            Third Parties related to the Assets have been paid and discharged;

      (l)   ENVIRONMENTAL MATTERS: Except as set out in Schedule "D", CCNGP has
            not received, nor is it aware that any Third Party has received:

            (i)   any notice, order or directive under Applicable Law which
                  relates to Environmental Liabilities and which requires any
                  work, repairs, construction or capital expenditures which is
                  outstanding, where such orders or directives have not been
                  complied with in all material respects; or

            (ii)  any demand or notice issued with respect to the breach of
                  Applicable Law from any Third Party pertaining to the Assets
                  that relates to the Environment, health or safety, including,
                  without limitation, any matter respecting the release, use,
                  storage, treatment, transportation or disposition of
                  environmental contaminants which demand or notice remains
                  outstanding;

            and to CCNGP's knowledge, no particular circumstance presently
            exists which may give rise to any such orders, directives, demands
            or notices;

      (m)   OPERATION OF TANGIBLES AND WELLS: All operations in respect of the
            Tangibles and the Wells have been conducted in accordance with good
            oilfield industry practices, and to CCNGP's knowledge, all
            Applicable Law, all Permits and the requirements of all Government
            Authorities have been complied with in all material respects and all
            operations in respect of the Tangibles and Wells conducted by Third
            Parties have been conducted in accordance with good oilfield
            industry practices, (subject to the representations and warranties
            set forth in this Section 5.1);

      (n)   CONTRACTS: Except for contracts disclosed in Schedule "F" and
            agreements that can be terminated by CCNGP without penalty on notice
            of 60 days or less, to CCNGP's knowledge, CCNGP is not a party to or
            bound by any:

                                     - 33 -



            (i)   contracts for the sale of Petroleum Substances;

            (ii)  gas balancing, prepayment or similar agreements;

            (iii) agreements for the gathering, transportation, compression,
                  processing treatment, storage or disposal of Petroleum
                  Substances;

            (iv)  take or pay arrangements or any other arrangements which
                  obligate the Vendor to sell or deliver Petroleum Substances
                  without being entitled to receive and retain full payment for
                  such Petroleum Substances; or

            (v)   Contract Operating Agreements or agreements to provide
                  transportation, processing or disposal capacity or service to
                  any Third Party

            that relate to the Assets;

      (o)   PERMIT TRANSFERS: CCNGP is eligible under Applicable Law to transfer
            the Permits for the Assets operated by it and no circumstance exists
            which could reasonably be expected to result in an undue delay or an
            inability to register any of the Permit Transfers;

      (p)   RIGHTS OF FIRST REFUSAL: To CCNGP's knowledge, there are no Rights
            of First Refusal by which CCNGP or any Affiliate thereof is bound,
            other than those which shall be disclosed in Schedule "K" to this
            Agreement;

      (q)   NO THREATENED COLLECTIVE AGREEMENTS: CCNGP is not the subject of any
            existing, threatened or apparent union organizing activities
            involving any of the Accepting Employees, Transitional Employees,
            Accepting Consultants or Transitional Consultants;

      (r)   COMPLAINTS OR PROCEEDINGS: There are no claims or complaints against
            CCNGP pursuant to any Applicable Law relating to the Accepting
            Employees, Transitional Employees, Accepting Consultants or
            Transitional Consultants, including employment standards,
            occupational health and safety, human rights, labour relations,
            worker's compensation, pay equity and employment equity, and to
            CCNGP's knowledge, no particular circumstance presently exists which
            may give rise to any such claims or complaints;

      (s)   QUIET ENJOYMENT: Subject to the rents, covenants, conditions and
            stipulations in the Leases and subject to the Permitted
            Encumbrances, from and after Closing, Gas Corp. will be entitled to
            hold and enjoy the interests in the Assets attributed to CCNGP in
            the Schedules hereto for Gas Corp.'s own use and benefit without any
            interruption of or by CCNGP or any Third Party claiming by, through
            or under CCNGP;

      (t)   EXAMINATION OF ASSETS: CCNGP shall have exercised reasonable efforts
            to make available to Gas Corp., prior to Closing, all of the Title
            and Operating Documents and documents comprising the Miscellaneous
            Interests in its possession or to which it has access and any other
            information, documents and agreements that are relevant to the
            Assets, including without limitation, information, documents and
            agreements relevant to CCNGP's title to the Assets, Abandonment and
            Reclamation Obligations, Environmental Liabilities pertaining to the
            Assets, production or revenue from the Assets and other information,
            documents and agreements that that are reasonably required by Gas
            Corp. or which have otherwise been reasonably requested by Gas Corp.
            In addition, CCNGP has not knowingly withheld from Gas Corp. any
            information, documents and agreements relevant to the Assets;

                                     - 34 -



      (u)   REDUCTION OF INTERESTS: To CCNGP's knowledge, except as otherwise
            disclosed on Schedule "A", CCNGP's interests in the Assets are not
            subject to reduction by reference to a payout or production penalty
            or otherwise through any right or interest granted by. through or
            under CCNGP or of which it has knowledge;

      (v)   RECEIPT OF REVENUE: To CCNGP's knowledge, CCNGP has been receiving
            the share of the net proceeds of production from the Assets
            attributable to its interests as shown in the schedules hereto;

      (w)   INTEREST IN TANGIBLES: To CCNGP's knowledge, the interest ascribed
            to CCNGP in the Facilities in Schedule "B" and CCNGP's interest in
            the other tangibles, are beneficially owned by CCNGP free and clear
            of all Security Interests, Encumbrances, and other third party
            claims and interests of any nature whatsoever, except Permitted
            Encumbrances, and none of the Tangibles are held through any lease,
            license, conditional sale or other similar arrangement, the terms of
            which are not disclosed in Schedule "B; and

      (x)   MATERIAL CONTRACTS: Gas Corp. will not become a party to or be
            otherwise bound by the Listed Material Contracts, there are no other
            Material Contracts and to CCNGP's knowledge the Listed Material
            Contracts will not impose any obligations, Losses or Liabilities on
            Gas Corp.

5.2   REPRESENTATIONS AND WARRANTIES OF CEHL

CEHL represents and warrants to the Trust, that:

      (a)   ORGANIZATION AND STANDING: CEHL is a corporation, duly incorporated
            and validly subsisting under the laws of its jurisdiction of
            organization and is duly qualified under the jurisdictions in which
            it is required to be qualified in order for it to own the Trust
            Units;

      (b)   CAPACITY, POWER, AUTHORIZATION, EXECUTION AND ENFORCEABILITY: CEHL
            has the requisite capacity, power and authority to execute, deliver
            and perform its obligations under this Agreement and all of the
            agreements, instruments and other documents contemplated hereby. The
            execution, delivery and performance of this Agreement and the
            completion of the Transaction have been duly and validly authorized
            by any and all requisite actions of CEHL and provided the
            Competition Approval is obtained, do not and will not result in any
            violation of, be in conflict with, or constitute a default under,
            its articles, charter, by-laws or other governing documents, as the
            case may be. This Agreement and any other agreement delivered in
            connection herewith, to which CEHL is party, has been or will at the
            appropriate time be validly executed and delivered by CEHL and
            constitute valid and binding obligations of CEHL and provided the
            Competition Act Approval is obtained, will be enforceable against
            CEHL in accordance with their terms, subject to (i) bankruptcy,
            insolvency, fraudulent preference, reorganization or other laws
            affecting creditors' rights generally, and (ii) general principles
            of equity (regardless of whether such enforceability is considered
            in a proceeding at law or equity);

      (c)   NO CONFLICT: The execution and delivery of this Agreement are not,
            and, provided the Competition Act Approval is obtained and except
            for Customary Post Closing Consents, the completion of the
            Transaction in accordance with the terms of this Agreement will not
            be in violation or breach of or in conflict with or require any
            consent, authorization or approval under:

                                     - 35 -



            (i)   any term or provision of the constating documents of CEIIL;

            (ii)  any agreement, instrument, license, permit or other
                  governmental authorization to which CEHL is a party or by
                  which CEHL is bound; or

            (iii) any judgment, decree, order, statute, regulation, rule, or
                  license applicable to CEHL, except such as may be required
                  under applicable securities laws;

      (d)   NO FINDER'S FEE: CEHL has not incurred any obligation or liability,
            contingent or otherwise, for brokers' or finders' fees in respect of
            this Agreement or the Transaction for which the Trust or any of its
            Affiliates shall have any obligation or liability;

      (e)   TRUST UNITS HELD: CEHL is the beneficial and immediately prior to
            Closing will be the registered owner of the Trust Units, free and
            clear of all Encumbrances. To CEHL's knowledge, all of the Trust
            Units were duly authorized and validly issued as fully paid and non
            assessable trust units of CNGT;

      (f)   STATUS OF TRUST UNITS:

            (i)   There is no contract, option or any other right of another
                  binding upon CEHL to sell, transfer, assign, pledge, charge,
                  mortgage or in any other way dispose of or encumber any of the
                  Trust Units other than pursuant to the provisions of this
                  Agreement;

            (ii)  other than the Trust, no Person, firm or corporation has any
                  right, under preferential rights of purchase clauses or
                  otherwise, which has not been waived prior to the Closing
                  Date, to acquire any interest in the Trust Units held by CEHL;

            (iii) no securities commission or other regulatory body has issued
                  any order preventing or suspending trading of Trust Units; and

            (iv)  there is no restriction on the trade of any of the Trust Units
                  except that the Trust Units are subject to "control block"
                  resale restrictions under Canadian provincial securities laws;

      (g)   JUDGMENTS AND CLAIMS: There are no unsatisfied judgments nor any
            Claims in existence against CEHL that relate to the Trust Units, and
            to the knowledge of CEHL no such Claims have been threatened and
            there are no particular circumstances that exist which could rise to
            any such judgments or Claims;

      (h)   RESIDENCY: CEHL is not a "non-resident" of Canada for the purposes
            of the Income Tax Act;

      (i)   CAPITAL PROPERTY: To CEHL's knowledge, all of the Trust Units are
            "capital property" (as that term is defined in the Income Tax Act)
            to CEHL;

      (j)   NO MATERIAL CHANGE: Other than the Transaction, CEHL has no
            knowledge of any material fact or material change (as those terms
            are defined in the Securities Act (Alberta)) with respect to CNGT
            that has not been generally disclosed;

      (k)   EXAMINATION OF TRUST UNITS: CEHL shall have exercised reasonable
            efforts to make available to the Trust, prior to Closing, all
            information, documents and agreements in its possession or to which
            it has access that are relevant to the Trust Units, including
            without

                                     - 36 -



            limitation, information, documents and agreements relating to
            CEIIL's title to the Trust Units, Liabilities pertaining to the
            Trust Units and other information, documents and agreements that
            that are reasonably required by the Trust or which have otherwise
            been reasonably requested by the Trust, In addition, CEHL has not
            knowingly withheld from the Trust any information, documents and
            agreements directly related to ownership of the Trust Units; and

      (l)   MATERIAL CONTRACTS: The Trust will not become a party to or be
            otherwise bound by the Listed Material Contracts, there are no other
            Material Contracts and to CEHL's knowledge the Listed Material
            Contracts will not impose any obligations, Losses or Liabilities on
            the Trust.

5.3   LIMITATION OF REPRESENTATIONS AND WARRANTIES

      (a)   Vendor makes no representations or warranties of any kind or nature,
            express or implied, at law or in equity except as expressly set
            forth in Sections 5.1 and 5.2, as applicable, and in particular, and
            without limiting the generality of the foregoing, Vendor hereby
            expressly negates and disclaims, and shall not be liable for, any
            and all representations or warranties which may have been made or
            alleged to have been made in any other document or instrument or in
            any statement or information made or communicated to Gas Corp., the
            Trust or their Related Parties in any manner, except for those
            expressly set forth in Sections 5.1 and 5.2, as applicable.

      (b)   Vendor hereby expressly negates and disclaims, and shall not be
            liable for, any representations or warranties made or alleged to
            have been made to Gas Corp., the Trust or their Related Parties in
            this Agreement or otherwise with respect to any of the following
            matters:

            (i)    except for the representations and warranties expressly set
                   forth in Sections 5.1 and 5.2, as applicable, any data or
                   information provided or made available to Gas Corp. or the
                   Trust by Vendors' Representatives in the Data Room, on plant
                   or site visits, in management presentations, in meetings with
                   Vendors' management or employees or otherwise;

            (ii)   the value of the Assets or the future cash flow therefrom;

            (iii)  except as expressly provided in Section 5.1, the
                   Environmental condition of any lands or asset or any
                   Environmental Liability;

            (iv)   except as provided in Section 5.1, the quality, condition,
                   fitness, merchantability or suitability of use for any
                   purpose, of any tangible, depreciable equipment or property
                   that forms part of the Assets;

            (v)    any engineering or geological information or interpretations
                   thereof or any economic evaluations;

            (vi)   except as provided in Section 5.1, title to the Assets;

            (vii)  except as expressly provided in Section 5.1, any Liabilities
                   or Claims related to the Assets or Operations; or

            (viii) the value of the Trust Units or the future distributions
                   generated therefrom.

                                     - 37 -



      (e)   Gas Corp. acknowledges and confirms that except as expressly
            provided in this Agreement that: (i) it is acquiring the Assets on
            an "as is-where is" basis without representation and warranty; (ii)
            it has performed its own due diligence and it has not relied on any
            data, information, statement or advice provided to Gas Corp. or its
            Related Parties by Vendor or its Related Parties, and (iii) in
            agreeing to enter into and to consummate the Transaction, it has
            relied on its own: (A) inspections and evaluations of the Assets,
            the Environmental Liabilities and the Liabilities and obligations
            assumed by Gas Corp. pursuant to Section 6.4, and (B) due diligence
            on and evaluation of the Trust Units.

      (d)   Except for its rights under this Agreement, each of Gas Corp. and
            the Trust hereby waives all rights and remedies (whether now
            existing or hereafter arising and including all common law, tort,
            contractual, equitable and statutory rights and remedies) against
            Vendor or its Related Parties in respect of any representations or
            statements made, or information or data furnished, to Gas Corp., the
            Trust or any of their Related Parties in connection herewith or
            otherwise (whether made or furnished by Vendor or any of its Related
            Parties or Third Parties and whether made or furnished orally or by
            electronic, faxed, written or other means).

5.4   REPRESENTATIONS AND WARRANTIES OF GAS CORP.

Gas Corp. represents and warrants to CCNGP that:

      (a)   ORGANIZATION AND STANDING: Gas Corp. is an Alberta corporation, duly
            organized and validly subsisting under the laws of its jurisdiction
            or organization and is duly qualified under the jurisdictions in
            which it is required to be qualified in order for it to own the
            Assets;

      (b)   CAPACITY, POWER, AUTHORIZATION, EXECUTION AND ENFORCEABILITY: Gas
            Corp. has the requisite power and authority to execute, delivery and
            perform its obligations under this Agreement and all the agreements,
            instruments and other documents contemplated hereby. The execution,
            delivery and performance of this Agreement and the acquisition of
            the Assets have been duly and validly authorized by any and all
            requisite actions and provided the Competition Act Approval is
            obtained, do not and will not result in any violation of, be in
            conflict with, or constitute a default under, its articles, charter,
            by-laws or other governing documents, as the case may be. This
            Agreement and any other agreement delivered in connection herewith,
            to which Gas Corp. is party, has been or will at the appropriate
            time be validly executed and delivered by Gas Corp. and constitute
            valid and binding obligations of Gas Corp. and provided the
            Competition Act Approval is obtained, will be enforceable against
            Gas Corp. in accordance with their terms, subject to (i) bankruptcy,
            insolvency, fraudulent preference, reorganization or other laws
            affecting creditors' rights generally, and (ii) general principles
            of equity (regardless of whether such enforceability is considered
            in a proceeding at law or equity);

      (c)   NO CONFLICT: The execution and delivery of this Agreement are not,
            and, provided the Competition Act Approval is obtained and except
            for Customary Post Closing Consents, the acquisition of the Assets
            in accordance with the terms of this Agreement will not be, in
            material violation or breach of or in material conflict with or
            require any material consent, authorization or approval under:

            (i)   any term or provision of the constating documents of Gas
                  Corp.;

            (ii)  any agreement, instrument, license, permit or other
                  governmental authorization to which Gas Corp. is a party or by
                  which Gas Corp. is bound; or

                                     - 38 -



            (iii) any judgment, decree, order, statute, regulation, rule, or
                  license applicable to Gas Corp. (other than Licence Transfer
                  approvals);

      (d)   RESIDENCY: Gas Corp. is not a non-Canadian for the purposes of the
            Investment Canada Act;

      (e)   QUALIFICATION: At Closing, Gas Corp. shall meet all qualification
            requirements of Government Authorities to take such transfers,
            including the transfer of all Permits for all Wells, Facilities and
            Tangibles for which Vendor or an Affiliate is currently the operator
            or licensee and shall accede to, comply with and perform the
            requirements of such Government Authorities, acting reasonably;

      (f)   LICENCEE LIABILITY RATING: Gas Corp. is, or at Closing, shall be, a
            registrant with the EUB and Purchaser's Licencee Liability Rating:

            (i)   is greater than or equal to one (1);

            (ii)  shall, as a result of the acquisition of the Assets, be
                  greater than or equal to one (1); and

            (iii) shall be greater than or equal to one (1) at the time the EUB
                  considers approval of any specific conveyance documentation
                  pursuant to this Agreement;

      (g)   NO CLAIMS: There are no Claims (i) filed by, on behalf of, or
            against Gas Corp., or (ii) imposed by any Government Authority or
            regulatory body, in either case, whether or not insured and which
            may adversely affect Gas Corp.'s ability to acquire the Assets;

      (h)   AVAILABILITY OF FUNDS: At Closing, Gas Corp. shall have sufficient
            cash, available lines of credit, or other sources of immediately
            available funds to enable Gas Corp. to make payment of the Adjusted
            Asset Purchase Price at Closing and all other amounts to be paid by
            Gas Corp. hereunder;

      (i)   REGULATORY APPROVALS: Except for the Competition Act Approval, there
            are no regulatory approvals or rulings required to be obtained by
            Gas Corp. in respect of the acquisition of the Assets; and

      (j)   NO FINDER'S FEE: Gas Corp. has not incurred any obligation or
            liability, contingent or otherwise, for broker's or finder's fees in
            respect of this Agreement or the acquisition of the Assets for which
            Vendor shall have any obligation or liability.

5.5   REPRESENTATIONS AND WARRANTIES OF THE TRUST

The Trust represents and warrants to CEHL that:

      (a)   ORGANIZATION AND STANDING: The Trust is an Alberta trust, duly
            organized and validly subsisting under the laws of its jurisdiction
            or organization and is duly qualified under the jurisdictions in
            which it is required to be qualified in order for it to own the
            Trust Units;

      (b)   CAPACITY, POWER, AUTHORIZATION, EXECUTION AND ENFORCEABILITY: The
            Trust has the requisite power and authority to execute, delivery and
            perform its obligations under this Agreement and all the agreements,
            instruments and other documents contemplated hereby. The execution,
            delivery and performance of this Agreement and the acquisition of
            the Trust Units have been

                                     - 39 -



            duly and validly authorized by any and all requisite actions and
            provided the Competition Act Approval is obtained, do not and will
            not result in any violation of, be in conflict with, or constitute a
            default under, its articles, charter, by-laws or other governing
            documents, as the case may be. This Agreement and any other
            agreement delivered in connection herewith, to which the Trust is
            party, has been or will at the appropriate time be validly executed
            and delivered by the Trust and constitute valid and binding
            obligations of the Trust and provided the Competition Act Approval
            is obtained, will be enforceable against the Trust in accordance
            with their terms, subject to (i) bankruptcy, insolvency, fraudulent
            preference, reorganization or other laws affecting creditors' rights
            generally, and (ii) general principles of equity (regardless of
            whether such enforceability is considered in a proceeding at law or
            equity);

      (c)   NO CONFLICT: The execution and delivery of this Agreement are not,
            and, provided the Competition Act Approval is obtained and except
            for Customary Post Closing Consents, the acquisition of the Trust
            Units in accordance with the terms of this Agreement will not be, in
            material violation or breach of or in material conflict with or
            require any material consent, authorization or approval under:

            (i)   any term or provision of the constating documents of the
                  Trust;

            (ii)  any agreement, instrument, license, permit or other
                  governmental authorization to which the Trust is a party or by
                  which the Trust is bound; or

            (iii) any judgment, decree, order, statute, regulation, rule, or
                  license applicable to the Trust;

      (d)   RESIDENCY: The Trust is not a non-Canadian for the purposes of the
            Investment Canada Act;

      (e)   NO CLAIMS: There are no Claims (i) filed by, on behalf of, or
            against the Trust, or (ii) imposed by any Government Authority or
            regulatory body, in either case, whether or not insured and which
            may adversely affect the Trust's ability to acquire the Trust Units;

      (f)   AVAILABILITY OF FUNDS: At Closing, the Trust shall have sufficient
            cash, available lines of credit, or other sources of immediately
            available funds to enable the Trust to make payment of the Adjusted
            Trust Unit Purchase Price at Closing and all other amounts to be
            paid by the Trust hereunder;

      (g)   PURCHASING AS PRINCIPAL: The Trust is purchasing the Trust Units as
            principal for its own account and not as agent for any other
            Persons;

      (h)   REGULATORY APPROVALS: Except for the Competition Act Approval, there
            are no regulatory approvals or rulings required to be obtained by
            the Trust in respect of the acquisition of the Trust Units; and

      (i)   NO FINDER'S FEE: The Trust has not incurred any obligation or
            liability, contingent or otherwise, for broker's or finder's fees in
            respect of this Agreement or the acquisition of the Trust Units for
            which Vendor shall have any obligation or liability.

                                     - 40 -



                                   ARTICLE 6
                          LIABILITIES AND INDEMNITIES

6.1   VENDOR INDEMNITIES

Subject to Sections 6.3, 6.6, 6.7 and 6.9, Vendor shall:

      (a)   be liable to Purchaser and its Related Parties for all Losses and
            Liabilities they suffer, sustain, pay or incur; and

      (b)   indemnify and save Purchaser and its Related Parties harmless from
            and against all Claims made against them;

insofar as such Losses, Liabilities and Claims are a direct result of any Vendor
Default; provided that Vendor shall not be liable to, or be required to
indemnify and save harmless, Purchaser or any of its Related Parties pursuant to
this Section 6.1 in respect of: (i) any representation or warranty in Sections
5.1 or Section 5.2 if Purchaser did not rely upon such representations or
warranty; (ii) any Losses, Liabilities or Claims to the extent they result from
a Purchaser Default; or (iii) Losses, Liabilities or Claims to the extent they
are caused by or result from the gross negligence or wilful misconduct of
Purchaser or its Related Parties.

6.2   PURCHASER'S INDEMNITIES

Subject to Section 6.8, Purchaser shall:

      (a)   be liable to Vendor and its Related Parties for all Losses and
            Liabilities they suffer, sustain, pay or incur; and

      (b)   indemnify and save harmless Vendor and its Related Parties from and
            against all Claims made against them;

insofar as such Losses, Liabilities and Claims are a direct result of any
Purchaser Default; provided that Purchaser shall not be liable to, or be
required to indemnify and save harmless, Vendor or any of its Related Parties
pursuant to this Section 6.2 in respect of: (i) any representation or warranty
in Sections 5.4 or 5.5 if Vendor did not rely upon such representation or
warranty; (ii) any Losses, Liabilities or Claims to the extent they result from
a Vendor Default; or (iii) Losses, Liabilities or Claims to the extent they are
caused by or result from the gross negligence or wilful misconduct of Vendor or
its Related Parties.

6.3   ENVIRONMENTAL LIABILITIES

Subject to Closing occurring, Purchaser hereby:

      (a)   assumes and agrees to duly and punctually perform, pay and
            discharge;

      (b)   agrees to be liable to Vendor and its Related Parties for all Losses
            and Liabilities they suffer, sustain, pay or incur in respect of;
            and

      (c)   agrees to indemnify and save harmless Vendor and its Related Parties
            from and against all Claims made against them in respect of;

                                     - 41 -



any and all past, present and future Environmental Liabilities, provided that
Purchaser shall not be liable to, or required to indemnify and save harmless,
Vendor or its Related Parties pursuant to this Section 6.3 in respect of Losses,
Liabilities or Claims to the extent they result from a breach of the
representation and warranty set forth in Section 5.1.

6.4   ASSUMED OBLIGATIONS

Subject to Closing occurring, Purchaser hereby:

      (a)   assumes and agrees to duly and punctually perform, pay and
            discharge;

      (b)   agrees to be liable to Vendor and its Related Parties for all Losses
            and Liabilities they suffer, sustain, pay or incur in respect of;
            and

      (c)   agrees to indemnify and save harmless Vendor and its Related Parties
            from and against all Claims made against them in respect of

the following:

      (d)   all obligations related to the Assets required to be performed or
            observed after the Closing Date under Applicable Law or the Title
            and Operating Documents; and

      (e)   all obligations and Liabilities relating to the Assets that arise
            from or relate to acts, omissions, events or circumstances occurring
            after the Closing Date, including Liabilities and Claims arising
            from or related to Operations conducted after the Closing Date;

provided that Purchaser shall not be liable to, or required to indemnify and
save harmless, Vendor or its Related Parties pursuant to this Section 6.4 in
respect of Losses, Liabilities or Claims to the extent they: (i) are caused by
or result from the gross negligence or wilful misconduct of Vendor or any of its
Related Parties; or (ii) result from a breach of a representation and warranty
set forth in Sections 5.1 or 5.2.

6.5   POST-CLOSING EMPLOYMENT INDEMNITIES OF GAS CORP.

      (a)   Gas Corp. shall assume, bear and discharge all obligations and
            Liabilities in respect of the employment of each Accepting Employee
            that accrue after such Accepting Employee commences employment with
            Gas Corp. (including all such obligations and Liabilities that
            result from the termination of the employment of an Accepting
            Employee after such Accepting Employee commences employment with Gas
            Corp.) and Gas Corp. shall indemnify and save harmless each of
            Vendor and its Related Parties from any Losses, Liabilities and
            Claims suffered, sustained, paid or incurred: (i) in respect of such
            obligations and Liabilities; (ii) with respect to the disclosure of
            Vendor's employee records or other records maintained by Vendor that
            have been provided to Gas Corp.; and (iii) with respect to employee
            evaluation, selection and offer actions taken after the date of this
            Agreement and during the Transition Period by Gas Corp. in
            connection with the Transaction.

      (b)   Gas Corp. shall assume, bear and discharge all obligations and
            Liabilities in respect of each Accepting Consultant that accrue
            after such Accepting Consultant commences the provision of services
            to Gas Corp., and Gas Corp. shall indemnify and save harmless each
            of Vendor and its Related Parties from any Losses, Liabilities and
            Claims suffered, sustained, paid or incurred in respect of such
            obligations and Liabilities.

                                     - 42 -



6.6   POST-CLOSING EMPLOYMENT INDEMNITIES OF VENDOR

      (a)   Subject only to Purchaser's obligations pursuant to Sections 13.1(f)
            and 13.1(g), and without application of the limitations contained in
            Section 6.9, Vendor shall indemnify and save harmless Purchaser from
            and against all Losses and Liabilities that accrue in respect of the
            employment of the Listed Employees including without limitation
            Losses and Liabilities arising from a breach of Human Rights
            Legislation, related to severance, termination, notice or payment in
            lieu thereof or related to retention benefits to which such Listed
            Employees are entitled;

      (b)   Subject only to Purchaser's obligations pursuant to Sections 13.1(f)
            and 13.1(g), and without application of the limitations contained in
            Section 6.9, Vendor shall indemnify and save harmless Purchaser from
            and against all Losses and Liabilities that accrue in respect of the
            Listed Consultants, including without limitation Losses and
            Liabilities arising from a breach of Human Rights Legislation,
            related to severance, termination, notice or payment in lieu thereof
            or related to retention benefits to which such Listed Consultants
            are entitled.

6.7   VENDOR'S ADDITIONAL INDEMNITIES

 Without application of the limitations contained in Section 6.9, Vendor hereby:

      (a)   assumes and agrees to duly and punctually perform, pay and
            discharge;

      (b)   agrees to be liable to Purchaser and its Related Parties for all
            Losses and Liabilities they suffer, sustain, pay or incur in respect
            of; and

      (c)   agrees to indemnify and save harmless Purchaser and its Related
            Parties from and against,

all Losses and Liabilities in respect of the Claims and Security Interests set
out and described in Schedule "D".

6.8   SURVIVAL OF REPRESENTATIONS AND WARRANTIES

No Claim under Section 6.1 or Section 6.2 in respect of a representation or
warranty in Sections 5.1, 5.2, 5.4 or 5.5 shall be made or be enforceable by a
Party, whether by legal proceedings or otherwise, unless written notice of such
Claim, with reasonable particulars, is given by such Party to the Party against
whom such Claim is made within a period of 12 months from the Closing Date. No
Claim shall be made by a Party in respect of the representations and warranties
made by another Party in this Agreement except pursuant to this Article 6.

6.9   LIMITATIONS ON VENDOR LIABILITIES

Subject to Vendor's Liabilities and indemnities contained in Section 6.6:

      (a)   Vendor shall not be liable to Purchaser or its Related Parties in
            respect of any individual Vendor Default unless the aggregate amount
            of the Losses and Liabilities suffered, sustained, paid or incurred
            by or made against Purchaser and its Related Parties in respect of
            such individual Vendor Default exceeds $2,000.000, and then only to
            the extent that the limitations on the Vendors' liability contained
            in Subsections 6.9(b) and 6.9(c) do not apply.

                                     - 43 -



      (b)   Vendor shall not be liable to Purchaser or its Related Parties in
            respect of any Vendor Defaults hereunder unless the aggregate amount
            of all of the Losses and Liabilities suffered, sustained, paid or
            incurred by Purchaser and its Related Parties in respect of all of
            such Vendor Defaults exceeds $15,000,000 and, in that event, Vendor
            shall be liable to Purchaser and its Related Parties for all Losses
            and Liabilities which exceed $15,000,000.

      (c)   The aggregate liability of Vendor under this Agreement for all
            Losses and Liabilities of Purchaser and its Related Parties in
            respect of all Vendor Defaults shall be limited to fifty percent
            (50%) of the Purchase Price.

6.10  INDEMNIFICATION PROCEDURE-THIRD PARTY CLAIMS

The following procedures shall be applicable to any Claim by a Party (the
"INDEMNITEE") for indemnification pursuant to this Agreement from another Party
(the "INDEMNITOR") in respect of a Claim by a Third Party:

      (a)   upon the Third Party Claim being made against or commenced against
            the Indemnitee, the Indemnitee shall promptly provide notice thereof
            to the Indemnitor. The notice shall describe the Third Party Claim
            in reasonable detail and indicate the estimated amount, if
            practicable, of the indemnifiable Liabilities and Losses that have
            been or may be sustained by the Indemnitee in respect thereof. If
            the Indemnitee does not give timely notice to the Indemnitor as
            aforesaid, then such failure shall only lessen or limit the
            Indemnitee's rights to indemnity hereunder to the extent that the
            defence of the Third Party Claim was prejudiced by such lack of
            timely notice;

      (b)   if the Indemnitor acknowledges to the Indemnitee in writing that the
            Indemnitor is responsible to indemnify the Indemnitee in respect of
            the Third Party Claim pursuant hereto, the Indemnitor shall have the
            right to do either or both of the following:

            (i)   assume carriage of the defence of the Third Party Claim using
                  legal counsel of its choice and at its sole cost; and\or

            (ii)  settle the Third Party Claim provided the Indemnitor pays the
                  full monetary amount of the settlement and the settlement does
                  not impose any restrictions or obligations on the Indemnitee;
                  and

      (c)   if the Indemnitor does not assume carriage of the defence of any
            Third Party Claim and/or settle the Third Party Claim, the
            Indemnitee shall be entitled to defend and/or settle the Third Party
            Claim. If it is determined that such Third Party Claim is a matter
            for which the Indemnitor should have indemnified the Indemnitee
            pursuant to this Agreement, the Indemnitee shall be entitled to
            reimbursement from the Indemnitor of all of its Losses and
            Liabilities associated with such Third Party Claim;

      (d)   each Party shall cooperate with the other in the defence of the
            Third Party Claim, including making available to the other Party,
            its directors, officers, employees and consultants whose assistance,
            testimony or presence is of material assistance in evaluating and
            defending the Third Party Claim;

      (e)   the Indemnitee shall not enter into any settlement, consent order or
            other compromise with respect to the Third Party Claim without the
            prior written consent of the Indemnitor, (which consent shall not be
            unreasonably withheld or delayed) unless the Indemnitee waives its
            rights to indemnification in respect of the Third Party Claim;

                                     - 44 -



      (f)   upon payment of the Third Party Claim, the Indemnitor shall be
            subrogatcd to all claims the Indemnitee may have relating thereto.
            The Indemnitee shall give such further assurances and cooperate with
            the Indemnitor to permit the Indemnitor to pursue such subrogated
            claims as reasonably requested by it; and

      (g)   if the Indemnitor has paid an amount pursuant to the indemnification
            obligations herein and the Indemnitee shall subsequently be
            reimbursed from any source in respect of the Third Party Claim from
            any other Person, the Indemnitee shall promptly pay the amount of
            the reimbursement (including interest actually received) to the
            Indemnitor, net of Taxes required to be paid by the Indemnitee as a
            result of any such receipt.

6.11  CONSEQUENTIAL DAMAGES

In no event shall a Party be liable in respect of the covenants, agreements,
representations, warranties and indemnities contained in this Agreement or in
any certificate, agreement or other document furnished pursuant to this
Agreement for consequential, indirect or punitive damages suffered, sustained,
paid or incurred by another Party or its Related Parties.

                                   ARTICLE 7
                                  ADJUSTMENTS

7.1   ACCOUNTING ADJUSTMENTS

      (a)   There will be an adjustment to the Asset Purchase Price equal to the
            net amount of the adjustments made pursuant to this Section 7.1.

      (b)   Except as otherwise provided in this Article 7, the Parties will
            adjust and apportion all costs and revenues of every kind and nature
            incurred, payable or paid in respect of the Assets as at the
            Effective Time, including: capital and non-capital costs of
            Operations, proceeds from the sale of Production, royalties and
            Taxes (other than capital taxes and income taxes). Such adjustments
            shall be made on an accrual basis, in accordance with accepted
            Canadian oil and gas industry practices, subject to the provisions
            of this Article 7.

      (c)   For purposes of the adjustments made pursuant to this Article 7, all
            costs incurred in connection with work performed or goods or
            services provided in respect of the Assets shall be deemed to have
            accrued as of the date the work was performed or the goods or
            services were delivered, regardless of the times such costs become
            payable.

      (d)   Production will be adjusted as follows:

            (i)   Retained Production is not included in the Assets and will
                  remain the property of CCNGP; and

            (ii)  Production will be deemed to be sold on a first in first out
                  basis.

      (e)   Where CCNGP is the operator under a Title and Operating Document,
            CCNGP will be entitled to all overhead recoveries and operator's
            fees payable pursuant thereto for all periods up to the end of the
            calendar month in which the Closing occurs, but will not otherwise
            be entitled to reimbursement pursuant to this Agreement in respect
            of its overhead costs, subject to Section 8.4.

                                     - 45 -



      (f)   In the adjustments made pursuant to this Article 7, all rentals and
            similar payments, property taxes (including Alberta and Saskatchewan
            freehold mineral taxes, if applicable) and other periodic costs
            (other than capital taxes and income taxes) that relate to the
            Assets and are payable in respect of a period of time that straddles
            the Effective Time shall be apportioned between CCNGP and Gas Corp.
            on a per diem basis as of the Effective Time.

      (g)   Except as provided in Subsection (e), there will be no adjustments
            for general and administrative expenses related to operating and
            maintaining CCNGP's head office in Calgary or for royalty tax
            credits or similar incentives that accrue to a Party because of
            financial or organizational attributes specific to it; provided that
            gas cost allowances (or similar cost allowances) shall not be
            considered incentives for these purposes.

      (h)   A Thirteenth Month Adjustment shall be apportioned between CCNGP and
            Gas Corp. as at the Effective Time on the same basis (whether on a
            throughput, per diem or other basis) as the Thirteenth Month
            Adjustment is allocated to the parties to the Title and Operating
            Document under which it is made.

      (i)   There will be no adjustment in favour of CCNGP on account of income
            taxes attributable to income from the Assets for the Interim Period.

      (j)   There will be an adjustment in favour of Purchaser for any
            remaining, unpaid portion of the Distributions that Vendor was
            unable to calculate and include in the Adjusted Trust Unit Purchase
            Price.

      (k)   There will be an interim cash adjustment to the Asset Purchase Price
            in favour of Purchaser in the amount of $5,000,000.

7.2   INTERIM STATEMENT OF ADJUSTMENTS

On or before five Business Days prior to the Closing Date, Vendor shall deliver
to Purchaser an interim statement of all adjustments ("INTERIM STATEMENT OF
ADJUSTMENTS") to be made pursuant to Section 7.1 in respect of the costs paid
and revenues received by Vendor prior to Closing. The Interim Statement of
Adjustments shall be prepared on the basis of Vendors' good faith estimate of
the costs and revenues and Distributions paid or payable and received or
receivable in respect of the Interim Period. Vendor shall make available to
Purchaser all information reasonably necessary for Purchaser to understand and
confirm the calculations in such statement and any amount deemed owing by one
Party to another pursuant to the Interim Statement of Adjustments shall be used
to calculate the payment made by Gas Corp. at Closing pursuant to Section 2.3.

7.3   POST CLOSING ADJUSTMENTS

      (a)   Within 180 days following the Closing Date, the Parties shall
            cooperate in preparing, on the basis of information available within
            such period, a final statement of all adjustments and payments
            ("FINAL STATEMENT OF ADJUSTMENTS") to be made pursuant to Section
            7.1 and upon agreement on such adjustments, the net amount thereof
            shall be remitted by the Party who is obliged to make payment within
            thirty (30) days of determination of such net amount. If amounts are
            not paid when due, such amounts will thereafter bear interest until
            paid in accordance with Section 15.9.

      (b)   During the 12 months after the calendar month in which Closing
            occurs, the Vendor and the Purchaser may have access to the records
            of the other Farty respecting the Assets for the

                                     - 46 -


            limited purpose of calculating or verifying adjustments pursuant to
            this Article. Any such access shall be provided upon reasonable
            notice to the Party whose records are being examined, at such
            Party's offices during its normal business hours and shall be
            conducted at the sole expense of the examining Party.

      (c)   After the adjustments pursuant to Section 7.3(a), further
            adjustments pursuant to this Article will be made as and when items
            arise, provided that, subject to Subsections 7.3(b) and 7.3(d) of
            this Section, the Parties shall not be obligated to make an
            adjustment more than 12 months after the calendar month in which
            Closing occurs, unless such adjustment has been specifically
            requested by written notice from one Party to the other Party prior
            to the expiry of the 12-month period or through an audit commenced
            within such 12-month period.

      (d)   Notwithstanding Subsection 7.3(c), a Party will be required to make
            an adjustment pursuant to this Section more than 12 months after the
            calendar month in which Closing occurs if:

            (i)   the adjustment arises from a Crown royalty audit commenced not
                  later than 48 months after the calendar year in which Closing
                  occurs and a written request for the adjustment is given by
                  one Party to the other Party within one hundred and twenty
                  (120) days of the requesting Party's receipt of the results of
                  the audit;

            (ii)  the adjustment arises from a joint venture audit under a Title
                  and Operating Document commenced not later than 26 months
                  after the end of the calendar year in which Closing occurs and
                  a written request for the adjustment is given by one Party to
                  the other Party within one hundred and twenty (120) days of
                  the requesting Party's receipt of the results of the audit; or

            (iii) the adjustment arises from a Thirteenth Month Adjustment
                  within 12 months after the Closing Date and a written request
                  for the adjustment is given by one Party to the other Party
                  within One Hundred and Twenty (120) days of the requesting
                  Party's receipt of the results of the Thirteenth Month
                  Adjustment.

7.4 ARBITRATION

Any Party may, at any time, refer to arbitration a dispute between the Parties
respecting the requirement for or the amount of an adjustment pursuant to the
provisions of Section 15.1. The decision of the arbitrator shall be final and
binding on the Parties and shall not be subject to review or appeal. All costs
of the arbitration shall be borne by the Parties equally.

7.5 CASH CALLS, PREPAYMENTS AND DEPOSITS

      (a)   Subject to Subsections 7.5(b) or 7.5(c) unexpended cash or security
            deposited by the Vendor to or with operators, Government Authorities
            or other Persons prior to the Effective Time to secure Vendors'
            obligations or as prepayments of costs or Liabilities shall not be
            included in the Assets and shall be returned to Vendor.

      (b)   No later than three Business Days prior to Closing, provided that
            any associated Third Party consents or approvals have been obtained.
            Vendor may elect that any cash amount referred to in Subsection
            7.5(a) be transferred to Gas Corp., in which event Vendor shall take
            all reasonable steps to transfer it to Gas Corp. and Gas Corp. shall
            agree to an adjustment to Vendor at Closing equal to the amount of
            such item.

                                      -47-


      (c)   At any time after Closing, provided that any associated Third Party
            consents or approvals have been obtained, Vendor may elect that any
            item referred to in Subsection 7.5(a) be transferred to Gas Corp.,
            in which event Vendor shall take all reasonable steps to transfer
            such item to Gas Corp, and Gas Corp. shall make a payment to Vendor
            within three Business Days after such election is made, equal to the
            amount of such item.

      (d)   At any time before or after Closing, Vendor may elect that any item
            referred to in Subsection 7.5(a) be refunded or returned by the
            Third Party or Government Authority who is holding it, in which
            event, the Parties will use all reasonable efforts to cause the
            Third Party or Government Authority to refund or return the item to
            Vendor and Gas Corp. shall provide a replacement for such item to
            the Third Party or Government Authority if it is necessary to do so
            to cause the Third Party or Government Authority to make the refund
            or return the item.

                                    ARTICLE 8
                    MAINTENANCE AND OPERATION OF THE ASSETS

8.1   MAINTENANCE OF ASSETS UNTIL CLOSING

From the date hereof until the Closing Date, CCNGP shall (to the extent that
CCNGP is reasonably able to do so, having regard to the nature of CCNGP's
interests in the Assets and the Title and Operating Documents):

      (a)   maintain the Assets in a proper and prudent manner in accordance
            with good oilfield practices;

      (b)   pay or cause to be paid all costs and expenses relating to the
            Assets which become due from the date hereof to the Closing Date;
            and

      (c)   perform and comply in all material respects with all of its
            obligations under the Title and Operating Documents;

provided that where CCNGP is not the operator, CCNGP shall be obligated to do
only that which a prudent non-operator would be expected to do in similar
circumstances in accordance with accepted industry practices.

Upon the execution of this Agreement, at such times prior to Closing as the
Parties may agree, representatives of Vendor and Purchaser shall meet in
Vendor's offices in Calgary, Alberta to discuss Vendor's plans for drilling,
reworking or other capital expenditure commitments with respect to the Assets,
which proposed expenditures are in excess of $100,000 and are proposed to be
incurred during the period between execution of this Agreement and Closing. At
such meeting(s), Vendor's technical staff will present an overview of the
proposed operations in reasonably sufficient detail to be evaluated by
Purchaser, together with the proposed costs thereof. As soon as reasonably
practicable thereafter, Purchaser will notify Vendor of any objections to the
proposed operations presented by Vendor.

Upon execution of this Agreement, at Purchaser's direction, Vendor shall take
all reasonable steps necessary to prepare for operations that Purchaser plans to
conduct after Closing, including without limitation, submitting applications for
Permits, obtaining necessary consents and arranging for the procurement of
contractors, equipment and supplies.

                                      -48-


8.2   CONSENT OF PURCHASER TO OPERATIONS BEFORE CLOSING

Subject to Section 8.1, CCNGP shall have the right to operate and maintain the
Assets in accordance with good oilfield practices, provided that,
notwithstanding Section 8.1, CCNGP shall not, without the written consent of
Purchaser, which consent shall not be unreasonably withheld and which, if
provided, shall be provided in a timely manner:

      (a)   make any commitment or propose, initiate or authorize any single
            capital expenditure with respect to the Assets if the CCNGP's share
            thereof is in excess of $100,000, except in case of: (i) an
            emergency; or (ii) amounts which the CCNGP may be committed to
            expend, pursuant to an existing approved budget disclosed to
            Purchaser, or be deemed to authorize for expenditure without its
            consent;

      (b)   surrender or abandon any of the Assets, except those which have
            become obsolete where the rights of CCNGP thereto have expired or
            terminated as disclosed in this Agreement or otherwise in the
            ordinary course of business;

      (c)   amend or terminate any agreement or document to which the Assets are
            subject, or enter into any new agreement or commitment relating to
            the Assets, except in the ordinary course of business and subject to
            providing notice to Purchaser of such action(s) taken; or

      (d)   sell, encumber or otherwise dispose of any of the Assets or any part
            or portion thereof, except for the Sale of Petroleum Substances in
            the ordinary course of business.

8.3   POST-CLOSING ACCOUNTING

With respect to Assets for which CCNGP is the operator, CCNGP shall invoice all
joint interest owners for all billable costs attributable to such operations for
those periods from the Effective Time until the end of the month after the month
in which Closing occurs. All subsequent joint interest billings for such Assets
shall be prepared and distributed by Purchaser. For a period of one (1) year
after Closing, the Parties shall provide reasonable assistance to each other in
the collection or recoupment of any overpayment or underpayment of accounts
receivable related to the joint operation of the Assets.

8.4 TRANSITION PERIOD

During the Transition Period, which shall extend for approximately 8 weeks after
the Closing Date, Vendor shall make available to Gas Corp. employees which Gas
Corp. requests (such employees to be mutually agreed upon by the Parties) to
facilitate an orderly transition of the operations of Vendor to Gas Corp., Gas
Corp. shall be responsible to pay all costs and expenses associated with such
employees to the extent that their activities relate to the operation of the
Assets. For the avoidance of doubt, such costs and expenses shall include each
employees' base salary, proportionate share of overtime (if applicable),
transportation and parking allowances, statutory holiday pay and actual benefit
burden (which includes vacation accrual) all to be determined in accordance with
reasonable documentation to be supplied by Vendor. During the Transition Period,
Gas Corp. shall have reasonable access to Vendor's office space and equipment,
information technology hardware and software and services (subject to applicable
contractual restrictions related thereto) and support from Transitional
Employees and contractors, as reasonably required. Without restriction, Gas
Corp. shall be responsible to pay all reasonable costs and expenses associated
with office space and equipment, information technology hardware and software
and services during the Transition Period to the extent that these costs relate
to the operation of the Assets.

                                      -49-


8.5   CCNGP AS AGENT

Until Gas Corp. is novated into the Title and Operating Documents to which the
Assets are subject, CCNGP shall act as the Gas Corp.'s agent to receive notices
and information and serve notices as Gas Corp. reasonably and lawfully directs
and shall carry out Gas Corp.'s instructions in relation to the maintenance and
operation of the Assets. Gas Corp. shall be liable to CCNGP and shall, in
addition, indemnify each of CCNGP and its Related Parties from and against, all
Losses, Liabilities and Claims suffered, sustained, paid or incurred by CCNGP or
its Related Parties or made against them in relation to acts or omissions of
CCNGP in its capacity as agent of the Gas Corp. under this Section 8.5, except
to the extent such acts or omissions are caused by or result from CCNGP's or any
of its Related Parties' gross negligence or wilful misconduct. An act or
omission will not be regarded as gross negligence or wilful misconduct under
this Article 8 to the extent that it was done or omitted to be done in
accordance with Gas Corp.'s instructions or concurrence.

                                    ARTICLE 9
                            RIGHTS OF FIRST REFUSAL

9.1   RIGHT OF FIRST REFUSALS

      (a)   Vendor and Gas Corp. acknowledge that the some of the Assets are
            subject to the Rights of First Refusal as set forth in Schedule "K".
            Within five Business Days after the date hereof, Vendor shall
            provide to Gas Corp. a written list setting forth the Assets ("ROFR
            ASSETS") which are subject to each Right of First Refusal. Within
            three Business Days after its receipt of such list, Gas Corp. shall
            provide Vendor, in good faith and on a reasonable basis, a written
            statement setting forth the portion of the Asset Purchase Price it
            proposes to allocate to the ROFR Assets that are subject to each
            Right of First Refusal. The Parties will consult with respect to the
            allocations as appropriate in the circumstances. Promptly after such
            allocations are determined, Vendor shall send notices to the Persons
            (and Purchaser) holding Rights of First Refusal in accordance with
            the terms of the Right of First Refusal. Such notices shall use the
            allocations provided by Gas Corp. to Vendor. Gas Corp. shall be
            liable to Vendor and its Related Parties for, and shall, in
            addition, indemnify Vendor and its Related Parties from and against,
            all Losses, Liabilities and Claims suffered, sustained, paid or
            incurred by, or made against, them as a result of, arising out of,
            or in connection with, the use of such allocations in respect of the
            Rights of First Refusal. Vendor shall notify Gas Corp. forthwith
            upon each Person exercising or waiving a Right of First Refusal.

      (b)   If any Person elects to exercise a Right of First Refusal prior to
            Closing:

            (i)   the terms "ASSETS", "FACILITIES", "MISCELLANEOUS INTERESTS",
                  "PETROLEUM AND NATURAL GAS RIGHTS", "TANGIBLES" and "WELLS"
                  will be deemed to have been amended to reflect the exclusion
                  of the ROFR Assets to which the Right of First Refusal applies
                  and such ROFR Assets shall not be conveyed to Gas Corp. and
                  the Schedules hereto will be deemed to be amended accordingly;

            (ii)  the Asset Bid Price shall be reduced by the value allocated in
                  accordance with Section 9.1(a) to such ROFR Assets and the
                  adjustments will be revised accordingly; and

            (iii) Vendor shall promptly amend or revise any filings with
                  Government Authorities in connection herewith or any
                  documentation or material provided with or pursuant to such
                  filings to reflect the amended definition of the Assets and
                  the amended Purchase Price and adjustments and Gas Corp. shall
                  co-operate with Vendor in such amendments and revisions.

                                      -50-


      (c)   If at the Closing Date there is a Right of First Refusal which:

            (i)   has not been exercised, but has not been extinguished by lapse
                  of time, waiver or otherwise; or

            (ii)  is subject to an outstanding Third Party Claim that challenges
                  the validity of the notice in respect thereof served in
                  accordance with Section 9.1(a):

            (an "OUTSTANDING ROFR"), the Parties will proceed with Closing in
            accordance with the other provisions of this Agreement on the basis
            that the Outstanding ROFR has been extinguished and without any
            reduction in the Asset Bid Price and Gas Corp. shall be responsible
            for addressing any Third Party Claim associated with the value
            attributed to the ROFR Assets by Gas Corp. and shall indemnify and
            hold harmless Vendor from any Claims associated therewith.

                                   ARTICLE 10
                              PRE-CLOSING MATTERS

10.1  PRODUCTION OF DOCUMENTS

      (a)   At all reasonable times from the date hereof until the Closing Date,
            Vendor shall make available to Purchaser and Purchaser's
            Representatives, subject to contractual restrictions of Third
            Parties relative to disclosure, in Vendors' offices in Calgary, the
            following information pertaining to the Assets and the Trust Units
            which are in Vendors' or any of their Affiliates' possession or
            control, including:

            (i)   any agreement and document to which the Assets or the Trust
                  Units are subject or to which the applicable Vendor is a party
                  or by which the Vendor is bound and relate to the Assets or
                  Trust Units, as applicable, including agreements for the
                  contract operation of the Assets or any of them; and

            (ii)  all documents and information relevant to Environmental
                  Liabilities related to the Assets (if any).

      (b)   Prior to Closing, Purchaser and its Representatives shall keep
            confidential all such information disclosed to it by Vendor in
            accordance with the Confidentiality Agreement.

                                   ARTICLE 11
                                  TITLE REVIEW

11.1  NOTICE OF TITLE DEFECTS

      (a)   No later than the last day of the Examination Period, Purchaser may
            notify Vendor in writing of Title Defects. Such notice (a "TITLE
            DEFECT NOTICE") shall include a detailed description of each Title
            Defect and the Scheduled Assets affected thereby, the amount (in
            Purchaser's reasonable opinion) by which the value of the Assets has
            been reduced by the Title Defect (the "TITLE DEFECT VALUE") and
            Purchaser's requirements for remedying such Title Defect.

      (b)   In determining a Title Defect Value, only the reduction in the value
            of the Assets adversely affected by the Title Defect shall be taken
            into account.

                                      -51-


      (c)   Failure to provide a Title Defect Notice in respect of a Title
            Defect in accordance with this Section 11.1 prior to expiration of
            the Examination Period shall be deemed to be a waiver by Purchaser
            of such Title Defect for the purposes of this Agreement.

11.2  CURING, INDEMNIFICATION AND UNCURED TITLE DEFECTS VALUE

      (a)   Between its receipt of a Title Defect Notice and the third Business
            Day prior to the Closing Date, Vendor shall have the obligation to
            make reasonable commercial efforts to cure the Title Defect.

      (b)   In this Agreement:

            (i)   "UNCURED TITLE DEFECT" means a Title Defect described in the
                  Title Defect Notice other than a Title Defect which:

                  (A)   is cured to the reasonable satisfaction of Gas Corp. on
                        or before three Business Days before the Closing Date;

                  (B)   is waived by Gas Corp.; or

                  (C)   has a Title Defect Value of less than $ 1,000,000; and

            (ii)  "UNCURED TITLE DEFECTS VALUE" means the aggregate amount of
                  the Title Defects Value of all Uncured Title Defects under
                  this Agreement.

11.3  UNCURED TITLE DEFECTS

      (a)   If there are Uncured Title Defects:

            (i)   if the Uncured Title Defects Value is equal to or less than
                  five (5%) percent of the Asset Bid Price, the Parties shall
                  complete the purchase and sale of the Assets pursuant hereto
                  without adjustment to the Purchase Price on account of such
                  Title Defects;

            (ii)  subject to Subsections 11.3(a)(iii) and 11.3(b), if the
                  aggregate Uncured Title Defects Value in respect of the Assets
                  is greater than the five (5%) percent of the Asset Bid Price,
                  the Asset Bid Price shall be reduced in respect of the Assets
                  by the amount by which the Uncured Title Defects Value in
                  respect of the Assets exceeds five (5%) percent of the Asset
                  Bid Price;

            (iii) subject to Subsection 11.3(b), if the aggregate of the Uncured
                  Title Defects Value for the Assets under this Agreement
                  exceeds fifteen percent (15%) of the Asset Bid Price, either
                  Vendor or Purchaser may terminate this Agreement upon written
                  notice to the other Parties at or before Closing (but not
                  thereafter), in which case Subsection 2.4(d) shall be
                  applicable and the Parties shall have no further obligation to
                  each other under this Agreement.

      (b)   Notwithstanding Subsections 11.3(a)(ii) and 11,3(a)(iii), if the
            Uncured Title Defects Value is greater than five (5%) percent of the
            Asset Bid Price and the Parties agree to delay Closing:

            (i)   Vendor shall make reasonable attempts to cure or remove the
                  Uncured Title Defects prior to the new Closing Date; and

                                      -52-


            (ii)  The provisions of Sections 11.2, 11.3 and 11.4 shall again be
                  applicable.

11.4  DISPUTES

      (a)   If there is a bona fide, good faith dispute (a "DISPUTE") between
            the Parties regarding:

            (i)   the existence of a Title Defect;

            (ii)  whether a Title Defect has been cured; or

            (iii) a Title Defects Value,

            (iv)  which results in uncertainty as to whether there should be an
                  adjustment to the Asset Purchase Price pursuant to Section
                  113(a)(ii) or the amount of such adjustment or whether the
                  Parties have the right to terminate this Agreement pursuant to
                  Subsection 11.3(a)(iii), then any Party may give notice (a
                  "DISPUTE NOTICE") of such dispute to the other Parties not
                  later than the Business Day prior to the date the Closing
                  would have occurred but for such Dispute (the "ORIGINAL
                  CLOSING DATE") specifying the Dispute in reasonable detail. A
                  Dispute Notice may relate to more than one Dispute.

      (b)   If a Dispute Notice in respect of the existence or curing of a Title
            Defect or the amount of a Title Defect Value is not delivered by any
            Party, the last written statement of Purchaser's position in respect
            thereof shall be binding on the Parties for all purposes of this
            Article 11.

      (c)   All Disputes raised in the Dispute Notices shall be submitted to
            Sproule & Associates ("SPROULE"), or such other firm as may be
            agreed to by the Parties if Sproule cannot or will not accept the
            engagement (the "TITLE EVALUATOR"). If Sproule is not the Title
            Evaluator and the Parties have not agreed on the Title Evaluator
            prior to the Original Closing Date, either of them may apply to the
            Court of Queen's Bench of Alberta at any time thereafter (unless the
            Parties have subsequently agreed on the Tile Evaluator) to appoint a
            Title Evaluator.

      (d)   Vendor shall cause the submission of Disputes to the Title Evaluator
            by promptly delivering copies of all of the Dispute Notices to the
            Title Evaluator together with written instructions that:

            (i)   the Title Evaluator may retain legal counsel of its choice to
                  advise the Title Evaluator on the legal aspects of the
                  Dispute, provided that such counsel does not have a conflict
                  of interest preventing it from providing such advice;

            (ii)  if the Dispute relates to the amount of the Title Defect
                  Value, the Title Evaluator, in accordance with good
                  engineering and evaluation practices, shall select as the
                  Title Defects Value either the value submitted by Vendor or
                  the value submitted by Purchaser and not a compromise or other
                  value; and

            (iii) its determination must be completed within 21 Business Days
                  from the date of submission of the Dispute.

            (iv)  The Disputes shall be submitted to the Title Evaluator not
                  later than the Original Closing Date, provided that if Sproule
                  is not the Title Evaluator, the submission will be made not
                  later than the Business Day after the Title Evaluator is
                  selected.

                                      -53-


      (e)   Within 7 Business Days after the date the Disputes arc submitted to
            the Title Evaluator (the date the Disputes are submitted to the
            Title Evaluator is referred to herein as the "SUBMISSION DATE"),
            each Party shall submit to the Title Evaluator and the other
            Parties:

            (i)   a statement of its position with respect to each Dispute,
                  including its estimate of each Title Defect Value that is in
                  dispute; and

            (ii)  any information or documentation supporting such estimate

            (collectively, a "SUPPORTING STATEMENT").

      (f)   If only one Party timely submits a Supporting Statement in respect
            of a Dispute, then the Title Evaluator shall select as the
            resolution of that Dispute the submission set forth in that
            Supporting Statement.

      (g)   If both Vendor and Purchaser timely submit a Supporting Statement in
            respect of a Dispute, each Party shall have the right to submit to
            the Title Evaluator and the other Parties, not later than 12
            Business Days after the Submission Date, a reply ("Reply") to the
            other Party's Supporting Statement.

      (h)   The Title Evaluator's determination shall be made on the basis of
            the Supporting Statements, the Replies and any evidence introduced
            and arguments made during a hearing, if there is a hearing.

      (i)   The Title Evaluator shall make its determination with respect to all
            Disputes submitted to it within 21 Business Days of the Submission
            Date.

      (j)   If any Disputes are submitted to the Title Evaluator, the Closing
            Date shall be extended automatically to the date that is five
            Business Days after the Title Evaluator's decision has been given to
            the Parties.

      (k)   If, after taking into account the determination of the Title
            Evaluator, the aggregate Uncured Title Defects Value exceeds 15% of
            the Asset Bid Price, each Party shall have the right to elect to
            terminate this Agreement pursuant to Section 11.3(a)(iii) not later
            than 3 Business Days prior to the Closing Date as extended pursuant
            to Subsection 11.4(j).

      (1)   Except as provided in this Section, any submission of a Dispute to
            the Title Evaluator pursuant hereto shall be conducted in accordance
            with the provisions of the Arbitration Act (Alberta).

      (m)   The Vendor and the Purchaser shall each be responsible for one-half
            (1/2) of the fees and reimbursable costs and expenses incurred by
            the Title Evaluator and each Party shall be responsible for its owns
            costs and expenses associated with the arbitration.

                                   ARTICLE 12
                          ACCESS TO BOOKS AND RECORDS

12.1  ACCESS TO INFORMATION

      (a)   After Closing and subject to contractual restrictions in favour of
            Third Parties relative to disclosure, Purchaser shall, upon request
            from Vendor, provide reasonable access to Vendor at Purchaser's
            offices during its normal business hours to the agreements and
            documents to which

                                      -54-


            the Assets and the Trust Units are subject and the contracts,
            agreements, records, books, documents, licenses, reports and data
            included in the Miscellaneous Interests (including Title and
            Operating Documents) which are then in the possession of Purchaser
            and to make copies thereof, as Vendor may require for purposes
            relating to its ownership of the Assets and the Trust Units prior to
            the Closing Date (including taxation matters and Liabilities and
            Claims that arise from or relate to acts, omissions, events,
            circumstances or Operations prior to the Closing Date), including
            for purposes of:

            (i)   audits relating to periods prior to the Closing Date;

            (ii)  Taxes relating to periods prior to the Closing Date;

            (iii) matters relating to Listed Employees relating to a period
                  prior to the Closing Date or a matter occurring prior to the
                  Closing Date;

            (iv)  compliance with Applicable Law in respect of a period prior to
                  the Effective Time or any matter occurring prior to the
                  Closing Date; or

            (v)   any Claim commenced or threatened by any Third Party against
                  Vendor or Related Parties.

      (b)   If Purchaser disposes of any of the Assets or the Trust Units to a
            Third Party, Purchaser will take reasonable steps to enable Vendor
            to have continued reasonable access to those materials, provided
            that Purchaser will not be required to retain copies of those
            materials following any such disposition.

12.2  MAINTENANCE OF INFORMATION

All of the information, materials and other records delivered to Purchaser
pursuant to the terms hereof shall be maintained in good order and good
condition and kept in a reasonably accessible location by Purchaser and its
Affiliates for a period of 4 years from the Closing Date or for any longer
period as may be required under Applicable Law (the "RETENTION PERIOD").

                                   ARTICLE 13
                               EMPLOYMENT MATTERS

13.1  LISTED EMPLOYEES, LISTED CONSULTANTS AND TRANSITION

      (a)   On or about August 6, 2004, Vendor shall provide to Purchaser the
            names and titles of all Employees who may be available to Gas Corp.
            (the "LISTED EMPLOYEES") along with other relevant employment
            information as may be mutually agreed.

      (b)   On or about August 6, 2004, Vendor shall provide a written list to
            Purchaser setting forth the names, rates, description of services
            and term of contract of those consultants who may be available to
            Gas Corp. (the "LISTED CONSULTANTS") and other information as may be
            mutually agreed.

      (c)   It is agreed that the status and termination date of all Listed
            Employees and Listed Consultants will be determined and communicated
            to all Listed Employees and Listed Consultants on or before Closing.

                                      -55-


      (d)   From the Listed Employees and Listed Consultants, on or before
            August 27, 2004 Gas Corp. and Vendor will mutually agree on those
            persons required during the Transition Period for necessary
            operational and administrative requirements (the "TRANSITIONAL
            EMPLOYEES" and the "TRANSITIONAL CONSULTANTS" respectively). It is
            agreed that the length of transitional service shall not extend
            beyond October 28, 2004. Vendor agrees to make reasonable efforts to
            retain those mutually identified Transitional Employees and
            Transitional Consultants for Gas Corp. and to make such Transitional
            Employees and Transitional Consultants available to the extent
            necessary to complete the orderly transition of the operation of the
            Assets during the Transition Period. Vendor shall pay all retention
            benefits payable to the Transitional Employees and the Transitional
            Consultants upon Closing. Vendor shall not pay any severance amounts
            to any Transitional Employee or Transitional Consultant until such
            time as the relevant Transitional Employee or Transitional
            Consultant is severed.

      (e)   All Listed Employees and Listed Consultants not identified as
            Transitional Employees or Transitional Consultants will be
            terminated by Vendor at Vendor's expense.

      (f)   Gas Corp. shall reimburse to Vendor all costs and expenses
            associated with the Transitional Employees and Transitional
            Consultants in accordance with Section 8.4 and this Section 13.1(f).
            At any time, Gas Corp. may by notice to Vendor advise Vendor that it
            no longer requires the services of any Transitional Employee or
            Transitional Consultant and, two weeks after the receipt of such
            notice by Vendor, Gas Corp. shall have no further obligation to
            reimburse Vendor for costs and expenses associated with that
            Transitional Employee or Transitional Consultant. Vendor shall
            terminate all remaining Transitional Employees and Transitional
            Consultants at Vendor's expense.

      (g)   On or before August 27, 2004, Gas Corp. shall post the employment
            and consulting positions that it proposes to fill for the purpose of
            operating and maintaining the Assets. Any Listed Employee or Listed
            Consultant may apply for any of such positions by submitting to Gas
            Corp. a resume and a consent to the release of their resume and
            performance evaluations. Upon the receipt of a Listed Employee's or
            Listed Consultant's resume and duly executed consent, Vendor shall
            provide the released information to Gas Corp. and shall otherwise
            advise Gas Corp. in the evaluation and assessment of Listed Employee
            or Listed Consultant. On or before September 17, 2004, Gas Corp. may
            make offers of employment or consulting offers ("OFFERS") to any
            Listed Employee or Listed Consultant effective as mutually agreed
            between the parties Gas Corp. shall reimburse Vendor for all
            severance or termination payments made to the Listed Employees and
            Listed Consultants who accept Offers within six months of Closing
            (the "ACCEPTING EMPLOYEES AND ACCEPTING CONSULTANTS", respectively).
            Such reimbursement shall be made upon the receipt by Gas Corp of
            payroll documentation from the Vendor evidencing payment to all
            Accepting Employees, provided that under no circumstances whatsoever
            shall Gas Corp. be obligated to reimburse Vendor for the cost of
            retention benefits payable to Listed Employees or Listed
            Consultants.

      (h)   Upon execution of this Agreement, Vendor shall make reasonable
            efforts to provide Gas Corp. access to Applicants for interview
            purposes during normal working hours commencing on August 17, 2004.

      (i)   If Gas Corp. hires a Listed Employee that was not hired in
            accordance with this Article 13, prior to the expiry of six (6)
            months from the Closing Date, Gas Corp. shall reimburse Vendor for
            the severance costs paid to such Listed Employee on a pro rata
            basis.

                                      -56-


13.2  COVENANT REGARDING PRIVACY

Gas Corp. covenants and agrees to use and disclose Personal Information only for
those purposes for which the Personal Information was initially collected from
or in respect of the individual to which such Personal Information relates,
unless:

      (a)   Vendor or Gas Corp. has first notified such individual of such
            additional purpose, and where required by Applicable Law, obtained
            the consent of such individual to such additional purpose; or

      (b)   such use or disclosure is permitted or authorized by Applicable Law,
            without notice to, or consent from, such individual.

                                   ARTICLE 14
                               LICENCE TRANSFERS

14.1  LICENCE TRANSFERS

      (a)   Within ten (10) Business Days following Closing, CCNGP shall prepare
            and where applicable, electronically submit an application to the
            Government Authorities for the Licence Transfers and Gas Corp.
            shall, where applicable, electronically ratify and sign such
            application.

      (b)   Should any Government Authority deny the Licence Transfers because
            of misdescription or other minor deficiencies in the application,
            CCNGP shall within four (4) Business Days correct the application
            and amend and re-submit an application for the Licence Transfers and
            Gas Corp. shall, where applicable, electronically ratify and sign
            such application.

      (c)   If, for any reason, a Government Authority requires a Party to make
            a deposit or furnish any other form of security in order to approve
            the Licence Transfers, such Party shall and covenants to immediately
            either (i) make such deposit; or (ii) furnish such other form of
            security as the Government Authority requires.

      (d)   If a Party (the "DEFAULTING PARTY") fails to make a deposit or
            furnish security it is required to make or furnish under Section
            14.1(c) within ten (10) days of the Defaulting Party's receipt of
            notification from the Government Authority that such deposit or
            security is required, the other applicable Party (the
            "NON-DEFAULTING PARTY") shall have the right to make such deposit or
            furnish such security. In such event, the Defaulting Party shall (as
            applicable) reimburse the amount of such deposit or the costs of
            such security to the Non-Defaulting Party plus interest thereon at
            the Prime Rate plus 2% from the date such deposit or security is
            made or furnished by the Non-Defaulting Party until such
            reimbursement is made and, in the case of security, cause the
            security to be returned to the Non-Defaulting Party as soon as
            possible and indemnify the Non-Defaulting Party for the amount and
            costs of any draws on the security plus interest thereon at the
            Prime Rate plus 2% from the date such draw is made until such
            indemnification is made. In addition to all other rights to enforce
            such reimbursement otherwise available to the Non-Defaulting Party,
            it shall have the right to set-off the amount of such reimbursement
            or indemnification (including interest) against other monies due to
            the Defaulting Party pursuant to this Agreement.

      (e)   Should Gas Corp. fail to perform the obligations requested, ordered
            or directed by a Government Authority respecting Environmental
            Liabilities within the time specified by the Government Authority
            and the Government Authority declines to approve a Licence Transfer

                                      -57-


            as a result thereof, CCNGP shall be entitled to enter upon and
            access the Assets to perform such obligations for and on behalf of
            Gas Corp., without liability to Gas Corp. for trespass or otherwise
            and Gas Corp. shall reimburse CCNGP for all costs, charges and
            expenses incurred by CCNGP in the performance of such obligations,
            by payment thereof to CCNGP, within thirty (30) days of CCNGP's
            delivery to Gas Corp. of an invoice for such costs, charges and
            expenses together with interest thereon at the Prime Rate plus 2%
            from the date such costs, charges or expenses are paid by CCNGP
            until such reimbursement is made.

      (f)   If a Permit in respect of Assets which is currently in the name of
            CCNGP or one of its Affiliates because it is the operator is
            transferred to Gas Corp. and a Third Party becomes the operator of
            the relevant Assets, the transferee will promptly do all
            commercially reasonable acts to transfer such Permit to such Third
            Party.

                                   ARTICLE 15
                                    GENERAL

15.1  DISPUTE RESOLUTION

The Parties will attempt to resolve any dispute arising hereunder through
consultation and negotiation in good faith. If those attempts fail, and the
Parties agree to refer the dispute to binding arbitration for final resolution
or if a provision of this Agreement provides that a dispute will be resolved by
binding arbitration, the arbitration will be conducted under the National
Arbitration Rules of The ADR Institute of Canada Inc.

15.2  COSTS AND EXPENSES

Except as specifically provided herein, all legal and other costs and expenses
in connection with this Agreement and the Transaction shall be paid by the Party
which incurred the same.

15.3  FURTHER ASSURANCES

From time to time, as and when reasonably requested by any Party, the other
Parties shall execute and deliver or cause to be executed and delivered all such
documents and instruments and shall take or cause to be taken all such further
or other actions to implement or give effect to the Transaction, provided such
documents, instruments or actions are consistent with the provisions of this
Agreement and accepted industry practices. All such further documents,
instruments or actions shall be delivered or taken at no additional
consideration other than reimbursement of any expenses reasonably incurred by
the Party providing such further documents or instruments or performing such
further acts, by the Party at whose request such documents or instruments were
delivered or acts performed.

15.4  NO MERGER

There shall not be any merger of any of the covenants, representations,
warranties and indemnities contained in this Agreement in any of the Specific
Conveyances or any other document or instruments delivered pursuant hereto, at
or after Closing, notwithstanding any rule of law, equity or statute to the
contrary and such rules are hereby waived. Each Party will have full right of
substitution and subrogation in and to all covenants and warranties by Third
Parties previously given or made in respect of the Assets or any part thereof to
the extent the provisions of the contracts or other arrangements with the Third
Parties so permit.

                                      -58-


15.5  ENTIRE AGREEMENT

The provisions contained in any and all documents and agreements collateral
hereto (including Specific Conveyances) shall at all times be read subject to
the provisions of this Agreement and, in the event of conflict, the provisions
of this Agreement shall prevail. This Agreement supersedes all other agreements,
documents, writings and verbal understandings among the Parties relating to the
subject matter hereof, other than the Confidentiality Agreement and the Title
and Operating Documents, and other than the Confidentiality Agreement and the
Title and Operating Documents, expresses the entire agreement of the Parties
with respect to the subject matter hereof. In the event of a conflict between
the terms of this Agreement and the terms of the Confidentiality Agreement or
the Title and Operating Documents, the terms of this Agreement shall govern.

15.6  GOVERNING LAW

This Agreement shall, in all respects, be subject to, interpreted, construed and
enforced in accordance with and under the laws of the Province of Alberta and
the laws of Canada applicable therein and shall, in all respects, be treated as
a contract made in the Province of Alberta, provided that this does not affect
the obligation of the Parties to comply with Applicable Law respecting any
Assets located outside of the Province of Alberta. Except as provided in
Sections 7.4, 11.4 and 15.1, the Parties irrevocably attorn and submit to the
exclusive jurisdiction of the courts of the Province of Alberta and courts of
appeal therefrom in respect of all matters arising out of or in connection with
this Agreement.

15.7  SIGNS AND NOTIFICATIONS

Within 60 days following Closing, Gas Corp. shall remove any signage which
indicates CCNGP's ownership or operation of the Assets. It shall be the
responsibility of Gas Corp. to erect or install any signage required by
Government Authorities indicating Gas Corp. to be the owner or operator of the
Assets.

15.8  NO TRANSFER OF OPERATORSHIP

Nothing in this Agreement will be interpreted as an assignment of CCNGP's rights
as operator of any of the Assets under the Title and Operating Documents or as
any assurance by CCNGP that Gas Corp. will be able to serve as operator of any
of the Assets at or after Closing. Notwithstanding the foregoing, CCNGP shall
provide commercially reasonable cooperation as Gas Corp. may request to assist
Gas Corp. in acquiring operatorship of any of the Assets for which CCNGP or any
of its Affiliates is currently the operator.

15.9  INTEREST ACCRUES ON AMOUNTS OWING

Any amount owing to a Party by another Party hereunder after Closing and
remaining unpaid will bear interest, compounded and computed monthly at the rate
of one percent (1%) per annum above the Prime Rate, from the day that the amount
was due to be paid until the day it is paid, regardless of whether the Party has
given the other Party prior notice of the accrual of interest hereunder.

15.10 ASSIGNMENT

Prior to Closing, without in any manner whatsoever affecting Article 16, this
Agreement may be assigned by Vendor in its sole and unfettered discretion to an
Affiliate, provided that no such assignment shall effect Purchaser's rights to
acquire the Assets and the Trust Units in accordance with the terms of this
Agreement.

                                      -59-


Prior to Closing, this Agreement may not be assigned by Purchaser without the
prior written consent of Vendor, which consent may be unreasonably and
arbitrarily withheld. This Agreement shall be binding upon and shall enure to
the benefit of the Parties and their respective administrators, trustees,
receivers, successors and permitted assigns. No Person other than the Parties
and their successors and permitted assigns shall be entitled to any rights or
benefits hereunder.

15.11 TIME OF ESSENCE

Time shall be of the essence in this Agreement.

15.12 NOTICES

The addresses for service of the Parties shall be as follows:

      CCNGP:      CALPINE CANADA NATURAL GAS PARTNERSHIP
                  2900 - 240 - 4th Avenue SW
                  Calgary, AB T2P 4H4

                  Attention:  Vice President and Managing Counsel

                  Fax:        (403) 750-3300

      CEHL:       CALPINE ENERGY HOLDINGS LIMITED
                  2900 - 240 - 4th Avenue SW
                  Calgary, AB T2P 4H4

                  Attention:  Vice President and Managing Counsel

                  Fax:        (403) 750-3300

      Calpine:    CALPINE CORPORATION
                  2900 - 240 - 4th Avenue SW
                  Calgary, AB T2P 4H4

                  Attention:  c/o Vice President and Managing Counsel

                  Fax:        (403) 750-3300

      Gas Corp.:  PRIMEWEST GAS CORP.
                  4700, 150-6th Avenue S. W.
                  Calgary, Alberta
                  T2P 3Y7

                  Attention: Vice President, Business Development
                  Fax:        (403) 699-7411

                                      -60-


      The Trust:  PRIMEWEST ENERGY TRUST
                  c/o PrimeWest Energy Inc.
                  4700, 150 - 6th Avenue S. W.
                  Calgary, Alberta
                  T2P 3Y7

                  Attention:  Vice President, Business Development

                  Fax:        (403) 699-7411

Any notice, communication and statement required, permitted or contemplated
hereunder shall be in writing and sent by personal service or facsimile and
shall be deemed received when delivery or reception of the transmission is
complete except that, if such delivery or transmission is sent on a Saturday,
Sunday or day when the receiving Party's office is not open for the regular
conduct of business, or on or after 4:00 p.m., such notice or communication
shall be deemed to be received on the next Business Day that such office is open
for the regular conduct of business. A Party may from time to time change its
address for service or its fax number or both by giving written notice of such
change to the other Parties at its above address.

15.13 INVALIDITY OF PROVISIONS

In case any of the provisions of this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.

15.14 WAIVER

Except as otherwise provided in this Agreement, no failure on the part of any
Party in exercising any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or the exercise of any right or
remedy in law or in equity or by statute or otherwise conferred. Except as
otherwise provided in this Agreement, no waiver of any provision of this
Agreement, including, this Section 15.14, shall be effective otherwise than by
an instrument in writing dated subsequent to the date hereof, executed by a duly
authorized representative of the Party making such waiver.

15.15 AMENDMENT

Except as provided in Section 9.1 and Section 15.13, this Agreement shall not be
varied in its terms or amended by oral agreement or otherwise other than by an
instrument in writing dated subsequent to the date hereof, executed by a duly
authorized representative of each Party.

15.16 AGREEMENT NOT SEVERABLE

This Agreement extends to the whole of the Assets and the Trust Units and is not
severable without Purchaser's express written consent or as otherwise herein
provided. Notwithstanding the foregoing, and for certainty, the Parties
acknowledge and agree that if the purchase and sale of the Trust Units does not
proceed to Closing, subject to the provisions of this Agreement, the Parties
shall proceed with the Closing of the purchase and sale of the Assets and in
such circumstances, this Agreement shall be amended accordingly.

                                      -61-


15.17 PUBLIC ANNOUNCEMENTS

No Party will make any press release or other public announcement respecting
this Agreement without the consent of the other Parties except to the extent
another Party unreasonably withholds or delays consent and the Party desiring to
make the press release or other public announcement is advised by its counsel
that the release or announcement is required to comply with any Applicable Law
or the rules of any listing authority or stock exchange with which the
disclosing Party is bound to comply. A Party which proposes to make such a
public disclosure shall, to the extent reasonably possible, provide the other
Parties with a draft of such statement at least 5 Business Days prior to its
release to enable the other Parties to review such draft and advise of any
comments it may have with respect thereto. The Party proposing to make the
public disclosures will not unreasonably refuse to incorporate the requested
changes in the public announcement except to the extent its counsel advises that
doing so will result in non-compliance with Applicable Law or the rules of the
applicable listing authority or stock exchange.

15.18 COUNTERPART EXECUTION

This Agreement may be executed by facsimile and in counterpart, no one copy of
which need be executed by all Parties, provided that any Party executing by
facsimile shall promptly provide the other Parties with an original of its
signed execution page of this Agreement. A valid and binding contract shall
arise if and when counterpart execution pages (including as may be delivered by
facsimile) are executed and delivered by all Parties.

15.19 PRICE SHARING

Vendor and Purchaser agree to a price sharing mechanism with respect to the
sales of natural gas by Purchaser to Vendor after the Effective Date. With
respect to such sales of natural gas by Purchaser, if the simple average of the
actual price received for the sale of each mmbtu of natural gas by Purchaser
pursuant to and in accordance with the Call on Production Agreement exceeds the
prices set out herein for the applicable time period (inclusive from July 1,
2004 to and including December 31, 2006) Vendor and Purchaser shall be entitled
to share 50% of all sale proceeds from the natural gas where such sale proceeds
exceed the product of the specific identified prices, in $/mmbtu at AECO, plus
$1.00/mmbtu multiplied by the number of mmbtu's of natural gas sold by Purchaser
pursuant to the Call on Production Agreement. For the purposes of this Section
15.19, the natural gas sold by Purchaser for the period of July 1, 2004 to
October 31, 2004 shall be deemed to be 50,000 mmbtu per day, notwithstanding
that Vendor has not made an election for those months. All such amounts due and
owing by Purchaser to Vendor hereunder shall be calculated by Purchaser and paid
on a quarterly basis by Purchaser to Vendor within thirty (30) days of the end
of the applicable quarter. The price sharing mechanism set forth herein shall
have a quarterly cap of Two Million Five Hundred Thousand Dollars Canadian
($2,500,000) and a maximum cap of Twenty Five Million Dollars Canadian
($25,000,000) with respect to total payments required to be made by Purchaser to
Vendor. For the avoidance of doubt, the deemed production and elected production
in accordance with the Call on Production Agreement used in this calculation
shall be net of any royalties associated with and payable on the sale of natural
gas. After December 31, 2006, all proceeds of the sale of natural gas shall be
solely for Purchaser's account. The dates and relevant prices are:

July 1, 2004 to Sept. 30, 2004:             $6.84 + $1.00 = $7.84

Oct. 1, 2004 to Dec. 31, 2004:              $7.31 + $1.00 = $8.31

                                      -62-


Jan. 1, 2005 to March 31, 2005:            $7.96 + $1.00 - $8.96

April 1, 2005 to June 30, 2005:            $6.91 + $1.00 = $7.91

July 1, 2005 to Sept. 30, 2005:            $6.91 + $1.00 = $7.91

Oct. 1, 2005 to Dec. 31, 2005:             $7.18 + $1.00 = $8.18

Jan. 1, 2006 to March 31, 2006:            $7.54 + $1.00 = $8.54

April 1, 2006 to June 30, 2006:            $6.39 + $1.00 = $7.39

July 1, 2006 to Sept. 30, 2006:            $6.38 + $1.00 = $7.38

Oct. 1, 2006 to Dec. 31, 2006:             $6.74 + $1.00 = $7.74

15.20 NO LIABILITY OF UNITHOLDERS, THIRD PARTIES

The Parties acknowledge that Computershare Trust Company of Canada is entering
into this agreement solely in its capacity as trustee of the Trust and the
obligations of the Trust hereunder shall not be personally binding upon
Computershare Trust Company of Canada or any of the unitholders of the Trust and
that any recourse against the Trust, Computershare Trust Company of Canada or
any unitholder of the Trust in any manner in respect of any indebtedness,
obligation or liability of the Trust arising hereunder or arising in connection
herewith or from the matters to which this Agreement relates, if any, including
without limitation claims based on negligence or otherwise tortious behavior,
shall be limited to, and satisfied only out of, the Trust Fund as defined in the
Declaration of Trust dated August 2, 1996 and restated November 6, 2002, as
amended from time to time.

                                   ARTICLE 16
                               PARENTAL GUARANTEE

Calpine Corporation guarantees to Purchaser the indemnification obligations of
Vendor pursuant to Sections 6.1, 6.6 and 6.7 hereunder (the "GUARANTEED
OBLIGATIONS"). If Vendor fails to pay any amounts due under the Guaranteed
Obligations, Calpine Corporation shall make payments therefor upon demand from
Purchaser; provided, however, that upon such payment, Calpine Corporation shall
be subrogated to the rights of Purchaser with respect to the amount paid under
the Guaranteed Obligation. Except as provided in this Article 16, Calpine
Corporation makes no covenants, representations or warranties, express or
implied, and has no other obligations under this Agreement.

                                      -63-


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

CALPINE CANADA NATURAL GAS                CALPINE CORPORATION
PARTNERSHIP, BY ITS MANAGING PARTNER,
CALPINE CANADA RESOURCES COMPANY

Per: /s/ Dale Mennis                      Per: /s/ Bill Berilgen
     ___________________________               ___________________________
Name:                                     Name:
Title:                                    Title:

Per: /s/ John Nearing
     ___________________________
Name:
Title:

PRIMEWEST GAS CORP.                       CALPINE ENERGY HOLDINGS LIMITED

Per: /s/ Ron Ambrozy                      Per: /s/ John Nearing
     ___________________________               ___________________________
Name:                                     Name:
Title:                                    Title:

                                          Per: /s/ Craig Blackwood
                                               ___________________________
                                          Name:
                                          Title:

PRIMEWEST ENERGY TRUST,
BY ITS TRUSTEE,
COMPUTERSHARE TRUST COMPANY OF CANADA

Per:    /s/ Jacqueline M. Spink
Name:   JACQUELINE M. SPINK, BSc LLB
Title:  PROFESSIONAL, CORPORATE TRUST

           W. ANNE DEWAELE
      MANAGER, CORPORATE TRUST

THIS IS THE EXECUTION PAGE TO THE ASSET AND TRUST UNIT PURCHASE AND SALE
AGREEMENT MADE AS OF THE 1ST DAY OF JULY, 2004 BETWEEN CALPINE CANADA NATURAL
GAS PARTNERSHIP, CALPINE ENERGY HOLDINGS LIMITED AND CALPINE CORPORATION AS
VENDORS AND PRIMEWEST ENERGY GAS CORP. AND PRIMEWEST ENERGY TRUST, AS PURCHASER

                                      -64-

EX-99.4

Exhibit 99.4

NEWS RELEASE CONTACTS: (408) 995-5115

Media Relations: Katherine Potter, Ext. 1168
Investor Relations: Rick Barraza, Ext. 1125

Calpine Completes $223 Million Sale of Rocky Mountain Gas Reserves

     (SAN JOSE, Calif.) /PR Newswire — First Call/ Sept. 2, 2004 — Calpine Corporation [NYSE:CPN] has completed the sale of its natural gas reserves in the Colorado Piceance Basin and New Mexico San Juan Basin for approximately $223 million. As previously announced, two U.S. gas companies acquired these assets for approximately $140 million and approximately $83 million, respectively, less adjustments to reflect a July 1, 2004 effective date.

     Together, these assets represent approximately 120 billion cubic feet equivalent of proved gas reserves, producing approximately 16.3 million net cubic feet equivalent per day of gas. Net proceeds from these sales will be used to reduce the amount outstanding under Calpine’s existing $500 million first lien indebtedness. In conjunction with these sales, Calpine anticipates recognizing a pre-tax gain of approximately $100 million.

     Calpine Corporation, celebrating its 20th year in power, is a North American power company dedicated to providing electric power to customers from clean, efficient, natural gas-fired and geothermal power plants. The company generates power at plants it owns or leases in 21 states in the United States, three provinces in Canada and in the United Kingdom. The company is listed on the S&P 500 and was named FORTUNE’s 2004 Most Admired Energy Company. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information, visit www.calpine.com.

     This news release discusses certain matters that may be considered “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, including statements regarding the intent, belief or current expectations of Calpine Corporation (“the Company”) and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results such as, but not limited to, (i) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity; (ii) other risks identified from time-to-time in the Company’s reports and registration statements filed with the SEC, including the risk factors identified in its Annual Report on Form 10-K for the year ended December 31, 2003 and in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, which can also be found on the Company’s website at www.calpine.com. All information set forth in this news release is as of today’s date, and the Company undertakes no duty to update this information.

###

EX-99.5

Exhibit 99.5

NEWS RELEASE CONTACTS: (408) 995-5115

Media Relations: Katherine Potter, Ext. 1168
Investor Relations: Karen Bunton, Ext. 1121

Calpine Completes Canadian Gas Reserves Sale — Raises $625 Million

     (SAN JOSE, Calif.) /PR Newswire — First Call/ Sept. 2, 2004 — Calpine Corporation [NYSE:CPN] has completed the sale of all of its Canadian natural gas reserves and petroleum assets to PrimeWest Energy Trust and affiliates (PrimeWest) for a total purchase price of Cdn$825 million, or approximately US$625 million, less adjustments to reflect a July 1, 2004, effective date. The U.S. dollars purchase price takes into account a foreign exchange hedge established in connection with this transaction. Together with its recently completed Rocky Mountain natural gas sale, Calpine has raised nearly US$850 million.

     These Canadian assets currently represent approximately 221 billion cubic feet equivalent (bcfe) of proved reserves, producing approximately 61 million cubic feet equivalent of net gas per day (mmcfed). Also included in this sale is Calpine’s 25 percent interest in approximately 80 bcfe of proved reserves (net of royalties) and 32 net mmcfed of production owned by the Calpine Natural Gas Trust (CNGT). As a result of this sale, Calpine anticipates recognizing a pre-tax gain in excess of $100 million on its Canadian natural gas reserves and petroleum assets and its interest in CNGT. With this sale, Calpine no longer has an ownership interest in CNGT.

     Calpine Corporation, celebrating its 20th year in power, is a North American power company dedicated to providing electric power to customers from clean, efficient, natural gas-fired and geothermal power plants. The company generates power at plants it owns or leases in 21 states in the United States, three provinces in Canada and in the United Kingdom. The company is listed on the S&P 500 and was named FORTUNE’s 2004 Most Admired Energy Company. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information, visit www.calpine.com.

     This news release discusses certain matters that may be considered “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, including statements regarding the intent, belief or current expectations of Calpine Corporation (“the Company”) and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results such as, but not limited to, (i) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity; (ii) other risks identified from time-to-time in the Company’s reports and registration statements filed with the SEC, including the risk factors identified in its Annual Report on Form 10-K for the year ended December 31, 2003 and in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, which can also be found on the Company’s website at www.calpine.com. All information set forth in this news release is as of today’s date, and the Company undertakes no duty to update this information.

###