Common use of Hedging Limitations Clause in Contracts

Hedging Limitations. Borrower and Guarantors shall not enter into any Hedge Transaction related to crude oil, natural gas, or other commodities, except hedging required by Lender and except for Hedge Transactions which meet the following requirements: (i) Hedge Transactions resulting in a cap on the price to be received by Borrower and Guarantors, involving in the aggregate at any time not more than eighty percent (80%) of Guarantors’ anticipated production from their proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties); provided, however, that (1) Hedge Transactions relating to oil volumes from the Wolf Mountain 15-2-7-87 well in Routt County, Colorado, shall be limited to not more than forty percent (40%) of Guarantors’ anticipated production from that well until such time as the well constitutes twenty percent (20%) or less of the total present value of Guarantors’ proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of Infinity Energy Resources, Inc. January 9, 2007 Page 11 of 32 the Properties), and (2) there shall be no limitation on the volume of Hedge Transactions resulting only in a floor price per barrel or mcf; and (ii) Hedge Transactions that would not result in a fixed price per barrel or mcf lower than the base case price used by Lender in the most-recent engineering evaluation of Guarantors’ oil and gas properties, adjusted for variances between the hedging price and Guarantors’ actual product price as determined by Lender, in each case as disclosed by Lender to Borrower, or otherwise at hedging prices acceptable to Lender as disclosed to Borrower; and (iii) Hedge Transactions that are each for a period not to exceed forty-eight (48) months; and (iv) To the extent that Lender requires Hedge Transactions in connection with a Borrowing Base, Hedge Transactions where, in each case, the underlying contracts are with Lender or Hedge Provider, as counterparty, with a counter-party (or the parent entity thereof) who at the time the contract is made has long-term obligations rated BBB or better by Standard & Poor’s Ratings Group or Baa or better by M▇▇▇▇’▇ Investors Services, Inc., or with a counter-party that is otherwise approved by Lender in writing; and (v) Hedge Transactions that are not effective at concurrent or overlapping periods of time on the same volumes of production on both a physical and financial basis, unless the combined volumes are in compliance with the volume limitations set forth above. Borrower may enter into swaps, collars, floors, caps, options, corridors, or other contracts, as such terms are commonly known within the capital markets, which are intended to reduce or eliminate the risk of fluctuation in interest rates for the purpose and effect of fixing and capping interest rates on a principal amount of indebtedness of Borrower; provided that (A) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness of Borrower to be hedged by such contract and the interest rate exposure would not cause the notional amount of all such Hedge Transactions then in effect for the purpose of hedging interest rate exposure to exceed one hundred percent (100%) of the total consolidated indebtedness of Borrower projected to be outstanding for any period covered by such Hedge Transaction, and (B) Borrower shall not establish or maintain any margin accounts with respect to such contracts.

Hedging Limitations. Borrower and Guarantors shall not enter into any Hedge Transaction related to crude oil, natural gas, or other commodities, except hedging required by Lender and except for Hedge Transactions which meet the following requirements: (i) Hedge Transactions resulting in a cap on the price to be received by Borrower and Guarantors, involving in the aggregate at any time not more than eighty percent (80%) of Guarantors’ anticipated production from their proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties); provided, however, that (1) Hedge Transactions relating to oil volumes from the Wolf Mountain 15-2-7-87 well in Routt County, Colorado, shall be limited to not more than forty percent (40%) of Guarantors’ anticipated production from that well until such time as the well constitutes twenty percent (20%) or less of the total present value of Guarantors’ proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of Infinity Energy Resources, Inc. January 9, 2007 Page 11 of 32 the Properties), and (2) there shall be no limitation on the volume of Hedge Transactions resulting only in a floor price per barrel or mcf; and (ii) Hedge Transactions that would not result in a fixed price per barrel or mcf lower than the base case price used by Lender in the most-recent engineering evaluation of Guarantors’ oil and gas properties, adjusted for variances between the hedging price and Guarantors’ actual product price as determined by Lender, in each case as disclosed by Lender to Borrower, or otherwise at hedging prices acceptable to Lender as disclosed to Borrower; and (iii) Hedge Transactions that are each for a period not to exceed forty-eight (48) months; and (iv) To the extent that Lender requires Hedge Transactions in connection with a Borrowing Base, Hedge Transactions where, in each case, the underlying contracts are with Lender or Hedge Provider, as counterparty, with a counter-party (or the parent entity thereof) who at the time the contract is made has long-term obligations rated BBB or better by Standard & Poor’s Ratings Group or Baa or better by M▇▇▇▇▇’▇ Investors Services, Inc., or with a counter-party that is otherwise approved by Lender in writing; and (v) Hedge Transactions that are not effective at concurrent or overlapping periods of time on the same volumes of production on both a physical and financial basis, unless the combined volumes are in compliance with the volume limitations set forth above. Borrower may enter into swaps, collars, floors, caps, options, corridors, or other contracts, as such terms are commonly known within the capital markets, which are intended to reduce or eliminate the risk of fluctuation in interest rates for the purpose and effect of fixing and capping interest rates on a principal amount of indebtedness of Borrower; provided that (A) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness of Borrower to be hedged by such contract and the interest rate exposure would not cause the notional amount of all such Hedge Transactions then in effect for the purpose of hedging interest rate exposure to exceed one hundred percent (100%) of the total consolidated indebtedness of Borrower projected to be outstanding for any period covered by such Hedge Transaction, and (B) Borrower shall not establish or maintain any margin accounts with respect to such contracts.