PURCHASE AND SALE AGREEMENT BETWEEN CAPCO OFFSHORE, INC. As Seller AND HOACTZIN PARTNERS, L.P. As Buyer May 4, 2005

Exhibit 10.16

PURCHASE AND SALE AGREEMENT

BETWEEN

CAPCO OFFSHORE, INC.

As Seller

AND

HOACTZIN PARTNERS, L.P.

As Buyer

May 4, 2005

ARTICLE 1.		DEFINITIONS
1.01		Additional Instruments
1.02		Ad Valorem Taxes
1.03		Allocation
1.04		Associated Parties
1.05		Base Purchase Price
1.06		Brazos Interest or Brazos Interests
1.07		Business Day
1.08		Chandeleur Interest or Chandeleur Interests
1.09		Claim or Claims
1.10		Closing
1.11		Closing Date
1.12		Condition
1.13		Disputed Claim
1.14		Effective Time. 7 a.m. local time where the Interests are located, as follows for the respective Interests:
1.15		Environmental Laws
1.16		Execution Date
1.17		Galveston Interest or Galveston Interests
1.18		High Island Interest or High Island Interests
1.19		Interest or Interests
1.20		Liability or Liabilities
1.21		Manager
1.22		NORM
1.23		Oil
1.24		Operator. The person, company, or other entity recognized as operator of an Interest by the applicable regulatory agency
1.25		Permitted Encumbrances
1.26		Property or Properties
1.27		Related Agreements
1.28		Strict Liability
1.29		Well or Xxxxx

ARTICLE 2.		PURCHASE AND SALE
2.01		Sale of the Interests
2.02		Option Well
2.03		Subsequent Interests
ARTICLE 3.		PURCHASE PRICE
3.01		Base Purchase Prices
3.02		Allocation of Base Purchase Price
3.03		Adjustments to Base Purchase Price.
3.04		Closing Settlement Statement - Chandeleur Interests
3.05		Closing Settlement Statement - Brazos, Galveston and High Island Interests
3.06		Final Settlement
ARTICLE 4.		SELLER’S REPRESENTATIONS AND WARRANTIES
4.01		Representations and Warranties Not Exclusive
4.02		Organization; Name; Organizational Identification Number
4.03		Power and Authority; Authorizations; Enforceability; No Conflicts
ARTICLE 5.		COVENANTS OF SELLER
5.01		Designation of Manager
5.02		Management of the Interests; Payment of Costs
5.03		Remedies Upon Default
5.04		Seller Reacquisition of the Interests
5.05		Seller Operation of the Interests
5.06		Preservation of Existence
ARTICLE 6.		TITLE AND TITLE DEFECTS
6.01		Title
6.02		Related Agreements
ARTICLE 7.		PRE-CLOSING OBLIGATIONS
7.01		Preferential Rights
7.02		Third-Party Notifications and Approvals
ARTICLE 8.		CLOSING
8.01		Closing Date
8.02		Buyer’s Right to Delay Closing

8.03		Closing Obligations
8.04		Condition Precedent
8.05		Seller’s Representation by Closing
ARTICLE 9.		POST-CLOSING OBLIGATIONS
9.01		Filing and Recording
9.02		Further Assurances
9.03		Reassignment
9.04		Compliance
9.05		Plugging and Abandoning Xxxxx; Remediation
9.06		Surrender or Abandonment of Interests
ARTICLE 10.		TAXES
10.01		Taxes - Chandeleur Interests
10.02		Taxes - Brazos, Galveston and High Island Interests
ARTICLE 11.		OIL IN STORAGE, PROCEEDS, COSTS, EXPENSES, CLAIMS, AND DISBURSEMENTS
11.01		Oil in Storage
11.02		Proceeds, Costs, and Expenses
11.03		Notice to Remitters of Proceeds
ARTICLE 12.		OPERATION OF THE INTERESTS
12.01		Operation by Seller
12.02		Risk of Loss
ARTICLE 13.		BOND IN FAVOR OF EXXONMOBIL
13.01		Bond in Favor of ExxonMobil
13.02		Financing Statement
ARTICLE 14.		PREFERENTIAL RIGHT TO PURCHASE OIL
		Seller will not reserve any preferential right to purchase oil produced from the Interests. Buyer acknowledges the first right of refusal to purchase production from the Chandeleur Interests which is retained by Manti pursuant to Section 6.03 of the Manti Agreement.
ARTICLE 15.		PREFERENTIAL RIGHT TO PURCHASE GAS
		Seller will not reserve any preferential right to purchase gas produced from the Interests. Buyer acknowledges the first right of refusal to purchase production from the Chandeleur Interests which is retained by Manti pursuant to Section 6.03 of the Manti Agreement.

ARTICLE 16.		SELLER'S RELEASE, DISCHARGE, AND COVENANT NOT TO XXX; SELLER'S OBLIGATIONS TO INDEMNIFY, DEFEND, AND HOLD HARMLESS; DISPUTE RESOLUTION
16.01		Seller's Release and Discharge of Buyer and its Associated Parties
16.02		Seller’s Covenant Not to Xxx Buyer or its Associated Parties
16.03		Seller's Obligations to Indemnify, Defend, and Hold Buyer and its Associated Parties Harmless
16.04		Seller's Obligations
16.05		Seller’s Duty to Defend
16.06		Alternate Dispute Resolution and Arbitration
16.07		Retroactive Effect
16.08		Inducement to Buyer
ARTICLE 17.		ENVIRONMENTAL MATTERS
17.01		Acknowledgment Concerning Possible Contamination of the Interests and Property
17.02		Seller Assumption of Environmental Liabilities
ARTICLE 18.		BUYER'S REPRESENTATIONS AND COVENANTS
18.01		Organization
18.02		Power and Authority; Authorization; Enforceability; No Conflicts; Etc
18.03		Securities Laws
18.04		Seller Qualification
ARTICLE 19.		GAS IMBALANCES
19.01		Seller's and Buyer's Respective Obligations
ARTICLE 20.		FINAL SETTLEMENT STATEMENT
20.01		Preparation
20.02		Final Settlement
ARTICLE 21.		BROKER'S AND FINDER'S FEES
ARTICLE 22.		COMMUNICATIONS
ARTICLE 23.		SELLER’S DEFAULT
ARTICLE 24.		XXXX-XXXXX-XXXXXX ANTITRUST IMPROVEMENTS ACT OF 1976
ARTICLE 25.		MISCELLANEOUS
25.01		Entire Agreement

25.02		Successors and Assigns; Amendment; Survival
25.03		Choice of Law
25.04		Assignment
25.05		No Admissions
25.06		No Third-Party Beneficiaries
25.07		Public Communications
25.08		Headings and Titles
25.09		Exhibits
25.10		Includes
25.11		Severability
25.12		Counterparts
25.13		Conflicts
25.14		Not to Be Construed against the Drafter
25.15		No Waiver
25.16		Conspicuousness
25.17		Execution by the Parties

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement ("Agreement") is between Capco Offshore, Inc., a Texas corporation with an address of 0000 Xxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (“Seller"), as seller, and Hoactzin Partners, L.P., a Delaware limited partnership with an address of 00 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 (“Buyer”), as buyer, effective on the Execution Date.

WHEREAS, Seller owns the Brazos Interests and the Galveston Interests (as each is hereinafter defined);

WHEREAS, Seller has acquired the Chandeleur Interests (as hereinafter defined) pursuant to that certain Asset Purchase Agreement between Manti Resources, et al (“Manti”) and Seller, executed March 11, 2005 with an effective time of January 1, 2005 (the “Manti Agreement”);

WHEREAS, Seller has acquired the High Island Interests (as hereinafter defined) from Exxon Mobil Corporation (“ExxonMobil”) pursuant to that certain Purchase and Sale Agreement between ExxonMobil and Seller, executed December 1 and 2, 2004 and with an effective time of November 1, 2004 (the “ExxonMobil Agreement”);

WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, all of the Chandeleur Interests, all of the High Island Interests, undivided portions of the Brazos Interests, undivided portions of the Galveston Interests, and an option to acquire an undivided portion of additional Brazos Interests;

WHEREAS, an affiliate of Buyer has advanced to the parent entity of Seller $6,435,960.85 pursuant to that certain Amended and Restated Note Purchase Agreement between Dolphin Direct Equity Partners, L.P. and Capco Energy, Inc., et al dated February 7, 2004, as evidenced by that certain Amended and Restated Secured Promissory Note of same date (the “Bridge Note”);

WHEREAS, Buyer desires for Seller to operate and manage the Interests in Buyer’s place and stead, and the parties wish to provide for future funding of capital requirements with respect to the Interests; and

WHEREAS, Seller and Buyer desire, after the occurrence of certain events, that Seller reacquire the Interests.

NOW, THEREFORE, in consideration of their mutual promises under this Agreement, the benefits to be derived by each party, and other good and valuable consideration, Buyer and Seller agree as follows:

ARTICLE 1. DEFINITIONS

The following terms, when used in this Agreement, will have the following definitions:

Additional Instruments.The instruments executed by Buyer before and at Closing and delivered to Seller in connection with this transaction.

Ad Valorem Taxes. Defined in Section 10.01.

Allocation. The amount allocated to each individual part of the Interests, in the case of the Chandeleur Interests by Buyer pursuant to the Manti Agreement and in the case of the Brazos Interests, the Galveston Interests, and the High Island Interests by Seller.

Associated Parties. Successors, assigns, directors, officers, employees, agents, contractors, subcontractors, and affiliates.

Base Purchase Price. The respective amounts set forth in Section 3.01 for the Brazos Interests, the Chandeleur Interests, the Galveston Interests, and the High Island Interests, respectively.

Brazos Interest or Brazos Interests. Seller's interest in the oil and gas leasehold estates or other interests set forth on Exhibit A-1, together with Seller's interest in the following:

each Well located on the leases and land described on Exhibit A-1.

the easements, permits, licenses, surface and subsurface leases, rights-of-way, servitudes, and other surface and subsurface rights affecting the land and leases described on Exhibit A-1.

material, equipment, and facilities in and on the land and used solely in connection with the use or operation of the leasehold estates and other interests described on Exhibit A-1 for Oil or gas purposes.

the facilities and pipelines located pursuant to the rights described in (b) above and necessary to market the production from the Brazos Interests.

contracts affecting the Brazos Interests, including agreements for sale or purchase of oil, gas, and other hydrocarbons; processing agreements; division orders; unit agreements; operating agreements; and other contracts and agreements arising out of, connected with, or attributable to production from the Brazos Interests.

The Brazos Interests do not include the reservations, exceptions, and exclusions listed on Exhibit A-1 or the following:

(A)

pipelines, fixtures, equipment, and interests in land owned by third parties such as lessors, purchasers, or transporters of Oil or gas;

(B)

personal property, fixtures, equipment, pipelines, facilities, and buildings located on the Property, but currently in use in connection with the ownership or operation of other property not included in the Brazos Interests; and

(C)

Seller's gas-production-imbalance accounts for the Brazos Interests.

Business Day. Any day that the headquarters offices of ExxonMobil Production Company, in Houston, Texas, are scheduled to be and are open for business.

Chandeleur Interest or Chandeleur Interests. Seller's interest in the oil and gas leasehold estates or other interests set forth on Exhibit A-2, together with Seller's interest in the following:

each Well located on the leases and land described on Exhibit A-2.

the easements, permits, licenses, surface and subsurface leases, rights-of-way, servitudes, and other surface and subsurface rights affecting the land and leases described on Exhibit A-2.

the facilities and pipelines located pursuant to the rights described in (b) above and necessary to market the production from the Chandeleur Interests.

contracts affecting the Chandeleur Interests, including agreements for sale or purchase of oil, gas, and other hydrocarbons; processing agreements; division orders; unit agreements; operating agreements; and other contracts and agreements arising out of, connected with, or attributable to production from the Chandeleur Interests.

The Chandeleur Interests do not include the reservations, exceptions, and exclusions listed on Exhibit A-2 or the following:

(A)

pipelines, fixtures, equipment, and interests in land owned by third parties such as lessors, purchasers, or transporters of Oil or gas;

(B)

(C)

Seller's gas-production-imbalance accounts for the Chandeleur Interests.

Claim or Claims. Collectively, claims, demands, causes of action, and lawsuits asserted or filed by any person, including an artificial or natural person; a local, state, or federal governmental entity; a person holding rights under any Related Agreement; an Associated Party of Buyer or Seller; or a third party.

Closing. The delivery of the conveyancing instruments and funds by the parties to close the purchase and sale of the Interests.

Closing Date. The date on which Closing is scheduled to and does occur.

Condition. Defined in Section 17.02 of the Exxon Mobil Agreemeent.

Disputed Claim. Defined in Section 16.06.

Effective Time. 7 a.m. local time where the Interests are located, as follows for the respective Interests:

Brazos Interests: February 1, 2005;

Chandeleur Interests: January 1, 2005;

Galveston Interests: December 30, 2004; and

High Island Interests: November 1, 2004.

Environmental Laws. Applicable federal, state, and local laws, including statutes, regulations, orders and ordinances, previously or currently enacted or enacted in the future, and common law, relating to protection of public health, welfare, and the environment, including those laws relating to storage, handling, and use of chemicals and other hazardous materials; those relating to the generation, processing, treatment, storage, transport, disposal, cleanup, remediation, or other management of waste materials or hazardous substances of any kind; and those relating to the protection of environmentally sensitive or protected areas. "Environmental Laws" includes the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Clean Water Act, the Safe Drinking Water Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, and the Clean Air Act, as each is amended from time to time.

Execution Date. The date on which the last of the parties executes this Agreement.

Galveston Interest or Galveston Interests. Seller's interest in the oil and gas leasehold estates or other interests set forth on Exhibit A-3, together with Seller's interest in the following:

each Well located on the leases and land described on Exhibit A-3.

the easements, permits, licenses, surface and subsurface leases, rights-of-way, servitudes, and other surface and subsurface rights affecting the land and leases described on Exhibit A-3.

the facilities and pipelines located pursuant to the rights described in (b) above and necessary to market the production from the Galveston Interests.

contracts affecting the Galveston Interests, including agreements for sale or purchase of oil, gas, and other hydrocarbons; processing agreements; division orders; unit agreements; operating agreements; and other contracts and agreements arising out of, connected with, or attributable to production from the Galveston Interests.

The Galveston Interests do not include the reservations, exceptions, and exclusions listed on Exhibit A-3 or the following:

(A)

pipelines, fixtures, equipment, and interests in land owned by third parties such as lessors, purchasers, or transporters of Oil or gas;

(B)

(C)

Seller's gas-production-imbalance accounts for the Galveston Interests.

High Island Interest or High Island Interests. Seller's interest in the oil and gas leasehold estates or other interests set forth on Exhibit A-4, together with Seller's interest in the following:

each Well located on the leases and land described on Exhibit A-4.

the easements, permits, licenses, surface and subsurface leases, rights-of-way, servitudes, and other surface and subsurface rights affecting the land and leases described on Exhibit A-4.

the facilities and pipelines located pursuant to the rights described in (b) above and necessary to market the production from the High Island Interests.

contracts affecting the High Island Interests, including agreements for sale or purchase of oil, gas, and other hydrocarbons; processing agreements; division orders; unit agreements; operating agreements; and other contracts and agreements arising out of, connected with, or attributable to production from the High Island Interests.

The High Island Interests do not include the reservations, exceptions, and exclusions listed on Exhibit A-4 or the following:

(A)

pipelines, fixtures, equipment, and interests in land owned by third parties such as lessors, purchasers, or transporters of Oil or gas;

(B)

(E)

Seller's gas-production-imbalance accounts for the High Island Interests.

Interest or Interests. Collectively, the Brazos Interests, the Chandeleur Interests, the Galveston Interests, and the High Island Interests.

Liability or Liabilities. Collectively, all damages (including consequential and punitive damages), including those for personal injury, death, or damage to personal or real property (both surface and subsurface) and costs for remediation, restoration, or clean up of contamination, whether the injury, death, or damage occurred or occurs on or off the Property by migration, disposal, or otherwise; losses; fines; penalties, expenses; costs to remove or modify facilities on or under the Property; plugging liabilities for all Xxxxx; attorneys' fees; court and other costs incurred in defending a Claim; liens; and judgments; in each instance, whether these damages and other costs are foreseeable or unforeseeable.

Manager. Defined in Section 5.01.

NORM. Naturally occurring radioactive material.

Oil. Crude oil, distillate, drip gasoline, condensate, and other liquid hydrocarbons.

Operator. The person, company, or other entity recognized as operator of an Interest by the applicable regulatory agency.

Permitted Encumbrances. (i) royalties, overriding royalties, reversionary interests, production payments and similar burdens which are in existence on the date hereof; (ii) sales contracts or other arrangements for the sale of production hydrocarbons which would not (when considered cumulatively with the matters discussed in clause (i) above) deprive the Buyer of any material right in respect of the Interests and Property (except for rights customarily granted with respect to such contracts and arrangements); (iii) statutory liens for taxes or other assessments that are not yet delinquent (or that, if delinquent, are being contested in good faith by appropriate proceedings, levy and execution thereon having been stayed and continue to be stayed; (iv) easements, rights of way, servitudes, permits, surface leases and other rights in respect to surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the like, conditions, covenants and other restrictions, and easements of streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements and rights of way on, over or in respect of the Interests and Property and that do not individually or in the aggregate, cause a material adverse effect upon the operations or value of Interests and Property; and (v) rights reserved to or vested in any municipality, governmental, statutory or other public authority to control or regulate the Interests and Property in any manner, and all applicable laws, rules and orders from any governmental authority.

Property or Properties. The real property in which and on which the respective Interests exist or are located, whether in whole or in part.

Related Agreements. Defined in Section 6.02.

Strict Liability. Includes strict statutory liability and strict products liability.

Well or Xxxxx. All wellbores, both abandoned and unabandoned, including oil xxxxx, gas xxxxx, injection xxxxx, disposal xxxxx, and water xxxxx.

ARTICLE 2. PURCHASE AND SALE

Sale of the Interests. Pursuant to Seller’s offer, Seller agrees to sell the Interests to Buyer, and Buyer agrees to purchase them from Seller, for the consideration recited in and subject to the terms of this Agreement, as follows:

All of Seller’s right, title and interest in and to the Chandeleur Interests and the High Island Interests;

An undivided 30% of 8/8ths working interest out of Seller’s right, title and interest in and to the Brazos Interests identified on Exhibit A-1 as (i) Brazos 440L/441L/406L/407L, limited, however, to the wellbore of the Brazos 440I-L Well, (ii) Brazos 478L/479L, limited, however, to the wellbore of the Brazos 478 L-2 Well, and (iii) Brazos 440L, limited, however, to the wellbore of the Brazos 4012 Well; and, in each case of a wellbore limitation, Buyer’s interest shall be limited to the oil, gas and mineral leases described in Exhibit A-1 with respect to each Well as to all lands and depths described in such Leases to the extent and only to the extent such Leases are necessary to produce oil and/or gas from the wellbore of the Xxxxx described hereinabove (or the applicable part or portion thereof if specifically limited in depth and/or areal extent on Exhibit A-1);

An undivided 30% of 8/8ths interest out of Seller’s right, title and interest in and to the Galveston Interests identified on Exhibit A-3 as Xxxxxxxxx Xxxxx 000, limited, however, to the wellbore of the GA 297 Well before Payout, which interest shall be reduced to an undivided 25.5% after Payout; for purposes of this paragraph only, the term “Payout” shall have the same meaning as in that certain Offshore Participation Agreement dated December 30, 2004, between Seller and Fidelity Exploration and Production Company, Inc.; and, Buyer’s interest shall be limited to the oil, gas and mineral leases described in Exhibit A-3 with respect to each Well as to all lands and depths described in such Leases to the extent and only to the extent such Leases are necessary to produce oil and/or gas from the wellbore of the GA 297 Well (or the applicable part or portion thereof if specifically limited in depth and/or areal extent on Exhibit A-3). Buyer’s obligation to pay the costs of the GA 297 Well shall not arise until after Seller has provided to Buyer the logs of the GA 297 Well and indicated that it elects to complete the Well for the production of Oil and gas. Thereafter, Buyer shall pay its proportional share of the costs to complete the Well; however, in no event shall Buyer be obligated to pay the costs of drilling the Well or, if not completed, to pay any costs of plugging and abandonment.

Option Well. Seller hereby grants to Buyer the right and option to acquire an undivided 30% of 8/8ths working interest out of Seller’s right, title and interest in and to the Brazos Interests identified on Exhibit A-1 as Brazos 440L/441L/406L/407L, limited, however, to the wellbore of the Brazos 440 A-1 Well (“Option Well”) upon payment of $200,000.00 to Seller. In each case of a wellbore limitation, Buyer’s interest shall be limited to the oil, gas and mineral leases described in Exhibit A-1 with respect to each Well as to all lands and depths described in such Leases to the extent and only to the extent such Leases are necessary to produce oil and/or gas from the wellbore of the Xxxxx described hereinabove (or the applicable part or portion thereof if specifically limited in depth and/or areal extent on Exhibit A-1). Seller shall provide written notice to Buyer not less than 30 days prior to the date operations are to commence upon the Option Well of its right to exercise the Option Well option. Buyer shall provide written notice of its election to exercise said option not more than 10 days after delivery of Buyer’s notice, after which time said option shall expire. If Buyer elects to exercise said option, the parties shall effect conveyance, management, operation, and reacquisition of the interest acquired by Buyer in the Option Well in the same manner as the remaining Interests are treated in this Agreement, the Management Agreement, and the Operating Agreements.

Subsequent Interests. The parties agree that, should Seller on one or more occasions in the future identify additional interests, whether owned by Seller or potentially to be acquired by Seller (“Subsequent Interests”), which it desires to offer for sale to Buyer, and should Buyer desire to acquire said Subsequent Interests, the parties shall enter into an addendum to this Agreement (an “Addendum Agreement”) by which such Subsequent Interests shall become subject to the terms and provisions of this Agreement, the Management Agreement, and an Operating Agreement (to extent the particular Subsequent Interest is or would be operated by Seller) as if said Subsequent Interest were identified herein upon execution hereof. Said Addendum Agreement shall identify the Subsequent Interest(s) subject thereto, and shall amend any such terms of this Agreement to adapt same to the specific Subsequent Interest(s) subject thereto, including but not limited to the related closing date.

ARTICLE 3. PURCHASE PRICE

Base Purchase Prices. The Base Purchase Price for the Interests is as follows:

Brazos Interests and Galveston Interests: $1,500,000.00;

Chandeleur Interests: $12,000,000.00; and

High Island Interests: $4,000,000.

Each of the Brazos Interests, the Chandeleur Interests, the Galveston Interests, and the High Island Interests is subject to adjustment only as provided in this Agreement.

Allocation of Base Purchase Price. As to the Chandeleur Interests, Seller has delivered to Buyer or will, not less than three (3) days before Closing, deliver to Buyer the Allocation provided for by Section 2.02 of the Manti Agreement. As to the Brazos Interests, the Galveston Interests, and the High Island Interests, Buyer has delivered or will deliver prior to the Closing to Seller an Allocation of the Base Purchase Price to each individual part of such Interests, respectively (including an Allocation for non-investment account balances such as gas-production-imbalance accounts, as required for compliance with applicable law, for equipment or other items, and including an Allocation for the option on the Option Well). Buyer will make reasonable allocations, in good faith, and Seller may rely on the Allocations for all purposes. The Allocations will be used (a) to notify holders of preferential rights of this transaction; (b) to collect taxes, to the extent required by law and as provided in Article 10; (c) as a basis for adjustments to the Base Purchase Price for the Interests; and (d) as otherwise provided in this Agreement

Adjustments to Base Purchase Price.. The Base Purchase Price for the Interests shall be adjusted in the following manner:

As to the Chandeleur Interests, in the same manner and in the same amounts, dollar for dollar, as the purchase price adjustments provided for by the closing settlement statement provided for by Section 2.05 of the Manti Agreement; and

As to the Brazos Interests, the Galveston Interests, and the High Island Interests, respectively, the Base Purchase Price shall be, without duplication:

Increased by the following amounts:

The aggregate amount of all non-reimbursed amounts attributable to the operation and ownership of the Interests incurred and paid in the ordinary course of business during the period from the respective Effective Time to the Closing Date;

An amount equal to the agreed value of all Oil and gas in storage above the pipeline connection or delivery point, as the case may be;

The amount of any upward adjustment pursuant to Article 6; and

Any other upward adjustment mutually agreed upon by the parties;

Decreased by the following amounts:

The aggregate amount of proceeds received by Seller from the sale of Oil and gas produced from and attributable to the Interests between the Effective Time and the Closing Date;

The amount of any downward adjustment relating to Title Defects pursuant to Article 6;

Seller’s share of estimated ad valorem taxes through the Effective Time; and

The amount of any downward adjustment mutually agreed upon by the parties.

Closing Settlement Statement - Chandeleur Interests. As to the Chandeleur Interests, Seller shall, promptly upon receipt of Manti’s closing settlement statement, deliver a copy of same to Buyer (the “Chandeleur Closing Settlement Statement”). Buyer shall promptly thereafter notify Seller of its comments on, and any desired adjustments to, the Chandeleur Closing Settlement Statement.

Closing Settlement Statement - Brazos, Galveston and High Island Interests. As to the Brazos Interests, the Galveston Interests, and the High Island Interests respectively, Seller shall provide to Buyer a closing settlement statement (the “Brazos, et al Closing Settlement Statement”) prior to Closing presenting adjustments to the Base Purchase Price for the respective Interests that are subject to this Section 3.05, which Brazos, et al Closing Settlement Statement shall set out separately the adjustments applicable to the respective Interests. Prior to Closing, Buyer and Seller shall agree upon the Brazos, et al Closing Settlement Statement which shall include adjustments, known as of the Closing Date, pursuant to Section 3.03 hereof. Seller shall exclude from the Brazos, et al Closing Settlement Statement and the Final Settlement Statement the final adjustments that occurred pursuant to the ExxonMobil Agreement.

Final Settlement. As to the Chandeleur Interests, final settlement under this Agreement shall occur in accordance with the provisions of Section 2.05(c) of the Manti Agreement for the account of Buyer. Final settlement with respect to the Brazos Interests, the Galveston Interests, and the High Island Interests shall occur as provided by Article 20 of this Agreement.

ARTICLE 4. SELLER’S REPRESENTATIONS AND WARRANTIES

Representations and Warranties Not Exclusive. Seller’s representations under this article are in addition to its other representations and warranties under this Agreement and the Additional Instruments.

Organization; Name; Organizational Identification Number. Seller represents and warrants that it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Seller is qualified or licensed to conduct its business and is in good standing in each jurisdiction where the nature of its activities or the character of the properties utilized in its business make such qualification or licensing necessary. Seller’s correct legal name is set forth above Seller’s signature hereto. The location of Seller’s chief executive office is the address listed in the introductory paragraph of this Agreement .

Power and Authority; Authorizations; Enforceability; No Conflicts. Seller represents and warrants that:

(a)

Seller has full corporate power and authority to own its assets and to carry on its business as it is now being conducted and to execute and deliver this Agreement and each of the Additional Instruments and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.

(b)

The execution, delivery and performance by Seller of this Agreement and the Additional Instruments to which Seller is a party and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite action of Seller.

(c)

This Agreement and the Additional Instruments to which Seller is a party have been duly and validly executed and delivered by Seller and constitute the legal, valid and binding obligations of Seller, enforceable against it in accordance with their respective terms.

(d)

The execution and delivery by Seller of this Agreement and each of the Additional Instruments to which it is a party, the performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby do not:

(i) violate any provision of the certificate of incorporation or bylaws (or comparable organizational documents) of Seller;

(ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under any of the terms, conditions or provisions of any oral or written agreement, instrument, contract, undertaking, mortgage, indenture, lease, license or other understanding to which Seller is a party or by which any of the properties or assets of Seller may be bound or otherwise subject; or

(iii) contravene or violate any law, rule, regulation, or order applicable to Seller, Seller’s Associated Parties, or any of their respective properties or assets.

(e)

Except as provided by Sections 9.01 and 18.04, no consent of any governmental body or other person is required to be made or obtained by Seller in connection with the execution, delivery and performance by Seller of this Agreement or any other Additional Instruments to which Seller is a party or the consummation by Seller of the transactions contemplated hereby and thereby.

Seller’s Review - Chandeleur Interests. With respect to the Chandeleur Interests, Seller represents and warrants that:

(a)

It has performed, as a prudent operator of offshore oil and gas properties, the buyer’s review of the Chandeleur Interests and Property provided for by Article 11 of the Manti Agreement, including availing itself of the opportunity to inspect and inventory the Chandeleur Interests and Property and making all appropriate inquiry to satisfy itself of the condition of the Chandeleur Interests and Property; and

(b)

Data and data files related to the Chandeleur Interests are materially complete and are maintained in accordance with generally accepted standards in the industry;

(c)

Seller has identified no instance of material non-compliance by Manti and/or its Associated Parties with rules, regulations, statutes, and laws, including Environmental Laws, applicable to Manti’s ownership or operation of the Chandeleur Interests or Property and with all Related Agreements;

(d)

Seller has identified (i) no environmental Condition, nor (ii) nor any violation of environmental laws pursuant to Section 11.05 of the Manti Agreement which would reasonably be expected to materially adversely affect the ownership, operation, and maintenance of the Chandeleur Interests or the Property;

(e)

No Title Defect exists with respect to the Chandeleur Interests and the Property.

(f)

No suit, action, claim, or other proceeding is now pending or, to Seller’s knowledge, threatened before any court or governmental agency against the Chandeleur Interests, and Seller shall promptly notify Buyer in writing of any such proceeding which arises or is threatened prior to the Closing.

(g)

To Seller’s knowledge, the Chandeleur Interests and Related Agreements are in full force and effect and are valid and subsisting documents covering the entire estates which they purport to cover; and all royalties, rentals and other payments due under the Chandeleur Interests and Related Agreements have been fully, properly and timely paid. Seller will use its commercially reasonable efforts to take all actions to keep, the Chandeleur Interests and Related Agreements in force and effect until the Closing.

(h)

All due and payable ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property of the production of Oil and gas or the receipt of proceeds therefrom on the Chandeleur Interests, which become due prior to the Closing Date for any periods prior to the Effective Date, have been properly paid.

(i)

Seller is not obligated, by virtue of a production payment, prepayment arrangement under any contract for the sale of Oil and gas and containing a “take or pay,” advanced payment or similar provision, gas balancing agreement or any other arrangement to deliver Oil and/or gas produced from the Chandeleur Interests at any time after the Effective Date without then or thereafter receiving full payment therefor.

(j)

No existing agreements, options, or commitments with, of or to any person to acquire the Chandeleur Interests are in effect.

Seller’s Representations and Warranties - Brazos, Galveston and High Island Interests. With respect to the Brazos Interests, the Galveston Interests, and the High Island Interests, Seller represents and warrants that:

(a)

Agreements. To Seller's knowledge, Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Related Agreements associated therewith, are in full force and effect and are valid and subsisting documents covering the entire estates which they purport to cover; and all royalties, rentals and other payments due under the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Related Agreements associated therewith have been fully, properly and timely paid. Seller will use its commercially reasonable efforts to take all action necessary to keep the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Related Agreements associated therewith, in force and effect until the Closing.

(b)

Prepayments and Wellhead Imbalances. Seller is not obligated, by virtue of a production payment, prepayment arrangement under any contract for the sale of hydrocarbons and containing a "take or pay", advance payment or similar provision, gas balancing agreement or any other arrangement to deliver hydrocarbons produced from the Brazos Interests, the Galveston Interests, and the High Island Interests at any time after the Effective Time without then or thereafter receiving full payment therefor.

(c)

Taxes. All due and payable ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom on the Brazos Interests, the Galveston Interests, and the High Island Interests which become due prior to the Closing Date for any periods prior to the Effective Time, have been properly paid.

(d)

Maintenance of Interests. Seller has maintained and will continue from date of this Agreement until the Closing, to maintain and operate the Brazos Interests, the Galveston Interests, and the High Island Interests in a reasonable and prudent manner, in full compliance with applicable law and orders of any governmental authority, to maintain insurance and bonds now in force with respect to the Brazos Interests, the Galveston Interests, and the High Island Interests to pay when due all costs and expenses coming due and payable in connection with the Brazos Interests, the Galveston Interests, and the High Island Interests, and to perform all of the covenants and conditions contained in the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Related Agreements associated therewith.

(e)

Suits and Claims. No suit, action, claim, or other proceeding is now pending or, to Seller's best knowledge, threatened before any court or governmental agency against the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Property associated therewith, and Seller shall promptly notify Buyer in writing of any such proceeding which arises or is threatened prior to the Closing.

(f)

Access. To the same extent Seller has such right, at all times prior to the Closing, Buyer and the employees and agents of Buyer shall have access to the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Property associated therewith at Buyer's sole risk, cost and expense at all reasonable times, and shall have the right to conduct equipment inspections, environmental audits, and any other investigation of the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Property associated therewith on one day’s prior notice to Seller and upon agreement with Seller as to time and place of such actions.

(g)

Environmental Matters. To Seller’s knowledge, Seller is not in material violation of any Environmental Laws applicable to the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Property associated therewith, or any material limitations, restrictions, conditions, standards, obligations or timetables contained in any Environmental Laws. No notice or action alleging such violation is pending or, to Seller’s best knowledge, threatened against the Brazos Interests, the Galveston Interests, and the High Island Interests, and the respective Property associated therewith.

(h)

No Third Party Options. No existing agreements, options, or commitments with, of or to any person to acquire the Interests are in effect.

(i) Existing Condition. Except with respect to the Chandeleur Interests, Seller has and will continue to operate the Interests and the respective Property associated therewith in the ordinary course of business and in substantially the same manner as it was operated prior to the Effective Date. No material adverse changes in the condition of the Interests and respective Property associated therewith, from the Effective Time to the Closing Date, have occurred.

Title to the Interests. Seller will convey to Buyer Defensible title to the Interests on the Closing Date.

ARTICLE 5. COVENANTS OF SELLER

Designation of Manager. Buyer hereby designates Seller as manager of the Interests (“Manager”) pursuant to the terms and provisions of the Management Agreement attached hereto as Exhibit C. Should Buyer elect to exercise the option as to the Option Well, the Option Well shall become subject to the Management Agreement.

Management of the Interests; Payment of Costs.

(a)

So long as Seller shall remain Manager of the Interests, Seller shall:

(i) Cause the Interests to be maintained and operated for the production of Oil and gas in a good and workmanlike manner, as would a prudent operator (and without regard to the existence of the covenant to reacquire the Interests), all in accordance with generally accepted standards, the Management Agreement, and all applicable federal, state and local laws, rules and regulations.

(ii) Cause the Interests to be operated and maintained in compliance with all applicable laws, rules and regulations (including Environmental Laws) and in compliance with the Related Agreements governing the same.

(b)

At all times prior to the Termination Date (as such term is defined in the Management Agreement), Seller shall:

(i) Pay or cause to be paid on behalf of Buyer, promptly as and when due and payable, all rentals and royalties payable with respect to the production of Oil and gas from the Interests and all costs incurred in or arising from the operation of the Interests or the production, treating, gathering, marketing or transporting of Oil and gas from the Interests.

(ii) Pay or cause to be paid all capital costs which the parties agree upon pursuant to the Management Agreement and all other costs that are required for the prudent and reasonable maintenance and operation of the Interests in accordance with the Operating Agreement.

(iii) Maintain true and correct books and records sufficient to determine the amounts payable under the Management Agreement. Such books and records shall be open for inspection by Buyer upon reasonable notice at Seller's office during normal business hours. Within thirty (30) days following March 31, June 30, September 30 and December 31 of each year during the term of the Management Agreement, Seller shall deliver to Buyer a statement showing in reasonable detail for the immediately preceding three (3) month time period (a) the computation of Net Operating Cash Flow; and (b) the volumes of Oil and gas produced and sold from the Interests. Additionally, Seller agrees to furnish Buyer with copies of any reserve reports prepared or obtained by Seller with respect to the Interests during the term of the Management Agreement; provided, that Seller shall not be required to furnish Buyer with more than one reserve report for the Interests in any one calendar year and Seller shall have no obligation to engage a third party engineer to prepare reserve reports for the Interests.

(iv) Maintain at all times financial security required by governmental bodies with jurisdiction over Seller or the Interests.

(v) Maintain at all times financial security for plugging and abandonment of Xxxxx and remediation of the Interests and Property pursuant to the provisions of Section 9.08 of the ExxonMobil Agreement.

(vi) Maintain at all times at its sole cost and expense insurance policies sufficient to maintain general liability coverage of at least $5,000,000 in form and substance satisfactory to Buyer in which Buyer and its permitted assigns are named as additional insured parties and such policies are designated as primary and non-contributory. At the time of Closing and thereafter as may be requested from time to time, Seller shall furnish Buyer a certificate or certificates of insurance in form reasonably satisfactory to Buyer evidencing Seller’s compliance with the provisions of this subparagraph and which contain the unequivocal agreement on the part of the insurer to notify Buyer of the cancellation or any material changes of such coverage at least thirty (30) days before the effective date of such cancellation of change.

Remedies Upon Default. If, prior to the Termination Date, Seller shall fail to perform or observe any of the covenants, agreements or obligations herein provided to be performed or observed by Seller, Buyer, in addition to Buyer’s right to recover damages and all other remedies available to Buyer hereunder or at law or in equity, may, if such failure shall continue unremedied after ten (10) days from delivery to Seller of written notice thereof (unless within such ten (10) days, Seller has begun to cure such noncompliance in a manner satisfactory to Buyer and Seller continues to diligently pursue such curative actions until such failure is remedied to the satisfaction of Buyer), perform or cause to be performed such act at Seller's expense, in which event Buyer may expend funds for such purpose, and Buyer, upon written notice to Seller, shall be entitled to receive all proceeds payable to Seller pursuant to the Management Agreement to reimburse Buyer for any amounts so expended plus interest on any such amounts at the rate of twelve percent (12%) per annum from the dates such amounts were advanced by Buyer until the dates on which Buyer recovers said amounts from Seller. Additionally, Buyer shall be entitled to offset and reduce (i) any payments otherwise due and owing Seller under the Management Agreement, (ii) any amounts otherwise due and owing to Seller under the Bridge Note, and (iii) any amounts otherwise due and owing to Seller, under the provisions of this Agreement or the Management Agreement, to recover any amounts so advanced by Buyer plus interest thereon at the rate herein above stated. To secure all of the obligations owed by Seller to Buyer under the terms of this Agreement and the Management Agreement, Seller hereby grants, bargains, sells and assigns to Buyer a first and prior lien and security interest (a) upon Seller's option to reacquire the Interests pursuant to the Management Agreement, and (b) upon the Management Agreement (including, without limitation, oil and gas production attributable to the Interests pursuant to the Management Agreement, the proceeds from the sale of oil or gas at the wellhead, and all accounts relating thereto). To perfect the lien and security interest provided herein, Seller agrees to execute and acknowledge a recording supplement and/or financing statement prepared and submitted by Buyer in connection herewith or at any time following execution hereof. Further, Seller hereby authorizes Buyer to file this Agreement or any recording supplement executed in connection herewith as a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform Commercial Code in the state in which the Interests are located in order to perfect the security interests granted herein. Upon default by Seller with respect to any of its obligations hereunder and Seller's failure to remedy such default within ten (10) days of receipt of notice thereof as hereinabove provided, Buyer shall have the right, without prejudice to other rights or remedies, to suspend the Management Agreement, take possession and control of the Interests (to the exclusion of Seller) and to collect from the purchaser(s) of production from the Interests proceeds otherwise payable to Seller until the amount owed by Seller to Buyer plus interest at the rate hereinabove stated shall have been paid in full. Each purchaser shall be entitled to rely upon Buyer's written statement concerning the amount of any default.

Seller Reacquisition of the Interests. Seller shall reacquire the Interests pursuant to the provisions of the Management Agreement.

Seller Operation of the Interests. Upon Closing, Seller shall operate the Interests which are not operated by a third party as of the Effective Time pursuant to the Operating Agreement attached as Exhibit A to the Management Agreement.

Preservation of Existence. Seller will preserve and maintain its existence in its jurisdiction of organization and will also preserve and maintain its existence and good standing in each other state where it conducts business. Seller will not change its name or do business under any other name without, in each case, giving Buyer at least 30 days prior written notice thereof.

ARTICLE 6. TITLE AND TITLE DEFECTS

Title. Seller shall transfer title of the Interests to Buyer at Closing pursuant to an assignment substantially in the form of the Assignment attached hereto as Exhibit B, and said Assignment shall be adapted to the particular interest to be assigned and to conform to the provisions of Article 2 hereof. Seller will convey to Buyer Defensible title to the Interests on the Closing Date. Seller shall execute as many Assignments as are necessary to file for record Assignments in each jurisdiction and with each governmental authority where necessary to effect conveyance of the Interests and/or notice of such conveyance. Buyer shall be entitled to satisfy itself prior to Closing that it will be receiving conveyance of Defensible title to the Interests. Seller shall provide to Buyer full and complete access to its records and documents relating to the Interests. As used herein, the term " Defensible Title" shall mean, as to each of the Interests to be conveyed to Buyer, a net revenue interest which is not less, and a working interest which is not greater, than those set out in Exhibits A-1 and A-2 hereto with respect to such Interests, and a title which is free and clear of liens, encumbrances, defects or environmental Conditions, other than Permitted Encumbrances, which materially and adversely affect the value of such Interests. Any matter which causes an Interest not to have Defensible Title, and any environmental Condition, shall be considered to be a “Title Defect”. If Buyer determines that any Interest is subject to any Title Defects prior to Closing, Buyer shall notify Seller in writing describing the Title Defects, after which time the parties shall meet and exercise their best efforts to determine the validity of the claimed Title Defect. Seller shall have until the Closing to cure the Title Defects to the satisfaction of the Buyer. If Seller is not able to cure the Title Defects to Buyer’s reasonable satisfaction prior to Closing, then Buyer in its sole discretion may either (a) reduce the Purchase Price by the Allocation for the Interest with a Title Defect, (b) allow Seller 90 days after Closing to cure the Title Defects, (c) waive the Title Defects, or (d) terminate this Agreement. Should a Title Defect be discovered after the Closing Date, Seller shall undertake to cure such Title Defect to Buyer’s reasonable satisfaction; failing cure thereof, Buyer shall have the right, but not the obligation, to re-assign the affected Interest to Seller following the provisions of Section 9.03 hereof as to the Interest so affected.

Related Agreements. Except as otherwise provided in this Agreement, the sale of the Interests will be subject to all oil, gas, and mineral leases, assignments, subleases, farmout agreements, unit agreements, joint operating agreements, pooling agreements, letter agreements, easements, rights-of-way, gathering and transportation agreements, sales agreements, and other agreements concerning or pertaining to the Interests ("Related Agreements"), to the extent that they are binding on Seller or its successors or assigns. Buyer will assume all of Seller's obligations and liabilities under the Related Agreements as of the respective Effective Times, insofar as the obligations or liabilities concern or pertain to the respective Interests, and the parties will execute all documents necessary for Buyer to assume the Related Agreements. Buyer's obligation applies to all Related Agreements, whether recorded or not.

ARTICLE 7. PRE-CLOSING OBLIGATIONS

Preferential Rights.

(a)

Notice. Seller will notify the owners, if any, of preferential rights to purchase the Interests.

(b)

Adjustment to Base Purchase Price. If a third party gives notice of its intent to exercise a preferential right to purchase any of the Interests, Seller shall give immediate notice thereof to Buyer; in such event, Buyer may, at its option, elect to either (a) delay Closing as to all of the Interests pending closing of the preferential purchase, with no charge to either party for the delay, (b) terminate this Agreement, or (c) exclude the affected Interest and close as to all other Interests as scheduled..

(c)

Third-Party Failure to Purchase. If a third party gives notice of its intent to exercise a preferential right to purchase a preferential right property, but does not close the purchase for any reason either before or within a reasonable time after the scheduled Closing of this Agreement, Buyer may elect, in its sole discretion, to acquire the preferential right property under the terms of this Agreement. In such event, Closing as to such property will be scheduled to occur within forty-five days after Buyer receives Seller's notice that the third party has not closed. The effective time for the preferential right property will be the applicable Effective Time under this Agreement for the Interest of which the preferential right property is a part.

Third-Party Notifications and Approvals. The sale of the Interests may require the approval or consent of lessors, joint interest owners, farmors, sublessors, Sellers, grantors, parties to agreements, governmental bodies having jurisdiction, or other third parties. Seller is responsible for obtaining approvals from all applicable third parties and will furnish Buyer with proof of each consent, approval, or waiver before the Closing Date. Seller will make reasonable efforts to obtain waivers of maintenance-of-uniform interest provisions, if any, from joint-interest owners. If Seller does not furnish Buyer with all third-party approvals applicable to any Interest, then Seller may, at its option, elect to (a) delay Closing as to any or all of the Interests, with no charge to either party for the delay, or (b) terminate this Agreement. To the extent any consent or approval is typically obtained after transfer of a given Interest, Seller agrees that it will exercise its best efforts to obtain such consent(s) or approval(s) within 30 days following the Closing, and in any event will obtain such consent(s) or approval(s) within the shortest practicable time after Closing. Buyer shall provide assistance to Seller’s efforts to obtain such consent(s) or approval(s).

ARTICLE 8. CLOSING

Closing Date. The Closing Date will be on or before May 4, 2005. Closing under this Agreement shall occur at the offices of Xxxxxx, Xxxxxxx & Xxxx, LLP, Xxx Xxxxxxx Xxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000. If the parties agree, Closing may be handled by exchange of documents (by mail or by courier). No price adjustment will be made if Closing is delayed.

Buyer’s Right to Delay Closing. Buyer may, at its sole option and for any reason, delay Closing for up to thirty days after the originally-scheduled Closing Date, upon written notice to Seller.

Closing Obligations.

Certificates of Authority. Seller shall deliver to Buyer, at least five days before the Closing Date, certificates in form and substance satisfactory to Buyer, effective as of the Closing Date and executed by Seller’s duly authorized officer, partner, or owner, as appropriate, to the effect that (1) Seller has all requisite corporate, partnership, or other power and authority to purchase the Interests on the terms of this Agreement and to perform its other obligations under this Agreement and the Additional Instruments and has fulfilled all corporate, partnership, or other prerequisites to closing this transaction, and (2) each individual executing the closing documents has the authority to act on behalf of Seller.

Certificates of Insurance. Seller shall deliver certificates of insurance as provided by Section 5.02(b)(vi).

Change of Operatorship. For Interests that will be operated by Seller in its capacity as Manager under the Management Agreement and Operator under the Operating Agreements, and except to the extent waived by Buyer, Seller will deliver to Buyer on or before the Closing Date evidence of the following: (1) that Seller has complied with the requirements of all laws and regulations relating to the transfer of operatorship, including those regarding the assumption of responsibility for the plugging and abandoning of each Well that is included in the applicable Interests or located on the Property; (2) that the appropriate bond, surety letter, letter of credit, or other financial security has been accepted by the relevant regulatory agency; and (3) that Seller has, to the extent possible under applicable regulations, obtained all necessary permits or transfers of permits to operate the applicable Interests and Property.

Closing Settlement Statements. Seller will provide to Buyer (i) the Chandeleur Closing Settlement Statement, as same may have been revised pursuant to Section 3.04, and the Brazos, et al Closing Settlement Statement, each including items such as Base Purchase Price and adjustments to the Base Purchase Price (if any), to the extent this information is available at Closing. Seller will use estimates in the respective closing settlement statements, to the extent that estimates are necessary, and may correct the estimates in the final settlement statement.

Closing Documents. The parties, as indicated, will execute the following instruments to close this transaction:

(i) An instrument substantially in the form of the Assignment and Xxxx of Sale attached as Exhibit B, modified to the extent necessary to conform to the terms of this Agreement. The Assignment and Xxxx of Sale will be effective as of the Effective Time, be with special warranty of title, and restate the indemnities, releases, and waivers contained in this Agreement. Buyer may require the parties to execute separate instruments for each state, county, or other jurisdiction in which the Interests are located, or with respect to state or federal governmental jurisdiction to which the Interests are subject, to facilitate timely recording.

(ii) The Management Agreement;

(iii) The Operating Agreements;

(iv) Warrant Certificates, pursuant to the terms of the Management Agreement (the “Warrants”) and each such warrant certificate shall be in full force and effect;

(v) Other documents reasonably required to close this transaction and implement the terms of this Agreement, including deeds, bills of sale, and the like and instruments necessary under operating agreements, plans of unitization, laws, and regulations affecting the Interests to transfer the Interests and related obligations from Seller to Buyer;

(vi) Designation-of-Operator forms, or such other form as is required by governmental agencies with jurisdiction over the Interests or the Seller in its capacity as Operator for each Interest that Seller will operate after Closing pursuant to the Management Agreement, or in its capacity as Manager under the Management Agreement as to Interests operated by third parties; and

(vii) The closing settlement statements.

Third-Party Consents. Buyer will deliver proof of required third-party consents and approvals, except to the extent waived by Buyer in writing.

Payment to Seller. At Closing, (i) Buyer will pay to Manti and the other parties selling the Chandeleur Interests, for the account of Seller in its capacity as Buyer under the Manti Agreement, the net amount shown on the closing settlement statement related to the Chandeleur Interests, and (ii) as to the net amount shown on the Brazos, et al Closing Settlement Statement, in Buyer’s sole and unfettered discretion Buyer will either (A) offset amounts due under the Bridge Note, (B) pay Seller, or (C) any combination of the above. Cash payments hereunder shall be made by certified check, cashier's check, or funds transfer as that term is defined in Chapter 4 of the Texas Business and Commerce Code. The respective closing settlement statement amounts are subject to further adjustment after Closing as provided in this Agreement.

Delivery of Possession. Subject to the terms of applicable joint operating agreements, if any, the Related Agreements, and this Agreement, Seller will deliver possession of the Interests to Buyer as soon as practicable after the Effective Time or the Closing Date, whichever is later, whereupon Buyer shall deliver possession of the Interests to Seller in Seller’s capacity as Manager under the Management Agreement.

Condition Precedent. Seller’s performance of its obligations under this article is a condition precedent to Buyer’s obligation to close this transaction.

Seller’s Representation by Closing. By closing this transaction, Seller will be deemed to represent to Buyer that all Seller’s representations and warranties under this Agreement, the Additional Instruments, and the Manti Agreement are true as of the Closing Date.

ARTICLE 9. POST-CLOSING OBLIGATIONS

Filing and Recording. Buyer will file or record the conveyancing documents by which the Interests will be conveyed from Seller to Buyer in the appropriate governmental records and will provide either the original or photocopies of the filed or recorded document, including the recording data, to Seller. As to the Chandeleur Interests, Seller shall deliver to Buyer possession of the conveyancing documents related to the Manti Agreement, and Buyer shall promptly record same.

Further Assurances. Seller and Buyer each will, from time to time after Closing and upon reasonable request, execute, acknowledge, and deliver in proper form any conveyance, assignment, transfer, or other instrument reasonably necessary to accomplish the purposes of this Agreement.

Reassignment. If an event occurs pursuant to which ExxonMobil exercises its right under the ExxonMobil Agreement to have Seller reassign all or a portion of the High Island Interests to ExxonMobil, then the parties shall cooperate in good faith to unwind this transaction, as to the High Island Interests, within a reasonable time following ExxonMobil’s request for reassignment. Such unwinding shall return the parties as nearly as possible to the respective positions they held prior to execution of this Agreement. For reassignment of any High Island Interest under this Agreement, Buyer will execute and deliver to Seller a reassignment, without warranty of any kind (title, fitness, condition). Seller shall release and discharge Buyer and its Associated Parties, covenant not to xxx Buyer or its Associated Parties, and indemnify, defend, and hold Buyer and its Associated Parties harmless as to any High Island Interests that are reassigned, and the reassignment instrument will restate Seller’s obligations.

Compliance. Buyer will comply with all rules, regulations, statutes, and laws applicable to Buyer's ownership of the Interests or Property and with all Related Agreements, insofar as they concern or pertain to the Interests. Seller will comply with all rules, regulations, statutes, and laws applicable to Seller’s management and operation of the Interests or Property and with all Related Agreements, insofar as they concern or pertain to the Interests.

Plugging and Abandoning Xxxxx; Remediation. Seller recognizes, and will either perform or assure that performance is accomplished properly and in accordance with applicable law, the ExxonMobil Agreement, the Manti Agreement, and the respective Related Agreements, any and all of Buyer’s obligations to abandon, restore, and remediate the Interests and Property, whether arising before or after the Effective Time, including obligations, as applicable, to:

(a)

obtain plugging exceptions in Operator's name for each Well with a current plugging exception, or permanently plug and abandon the Well;

(b) plug, abandon, and if necessary, reabandon each Well;

(d) close all pits; and

(e) restore the surface, subsurface, and offshore sites associated with the Interests or Property.

Seller will pay all costs and expenses associated with the obligations assumed under Section 9.08 of the ExxonMobil Agreement.

Surrender or Abandonment of Interests. If Buyer decides to surrender or abandon any of the Interests after Closing, Buyer must give Seller written notice of its intent at least forty-five days before surrender or abandonment.

ARTICLE 10. TAXES

Taxes - Chandeleur Interests. All ad valorem taxes, production taxes, and other taxes, as such terms apply under the Manti Agreement, shall be apportioned as provided for by said agreement for the account of Buyer. Seller shall pay any such taxes due and payable thereunder on behalf of Buyer in its capacity as Manager under the Management Agreement.

Taxes - Brazos, Galveston and High Island Interests. With respect to the Brazos Interests, the Galveston Interests, and the High Island Interests, any ad valorem, property, production, severance and similar taxes and assessments on said Interests shall be borne by Seller for all times prior to the Effective Time and by Buyer for all times after the Effective Time.

ARTICLE 11. OIL IN STORAGE, PROCEEDS, COSTS, EXPENSES,

CLAIMS, AND DISBURSEMENTS

Oil in Storage. All Oil in storage at the Effective Time, including working inventory, belongs to Seller. Title to Oil in storage both for Interests previously operated by Manti and Interests operated by others will transfer to Buyer as of the Effective Time. The term “Oil in storage” shall carry the definition set forth in Section 11.01 of the ExxonMobil Agreement, and Oil in storage shall be measured and valued in the same manner as it is measured and valued in Section 11.01 of the ExxonMobil Agreement.

Proceeds, Costs, and Expenses. All proceeds, receipts, credits, income, and charges attributable to the Interests and accruing after the Effective Time will be Buyer's property and responsibility. Seller shall fulfill, in its capacity as Manager under the Management Agreement, Buyer’s responsibilities for payments and disbursements after the Closing, including (a) any payments or disbursements made by ExxonMobil pursuant to Section 11.02 of the ExxonMobil Agreement, (b) any payments or disbursements made by Manti pursuant to Section 5.02 of the Manti Agreement, and (c) any charges allocated to Seller pursuant to Section 13.01 of the ExxonMobil Agreement.

Notice to Remitters of Proceeds. Seller will make reasonable efforts (a) to cause Manti to notify all remitters of proceeds from the sale of production from the Chandeleur Interests to advise them of this transaction and of the transaction contemplated by the Manti Agreement, and (b) to notify all remitters of proceeds from the sale of production from the Brazos Interests, the Galveston Interests, and the High Island Interests of this transaction, in each case to cause those remitters to remit proceeds to Seller as Buyer’s nominee pursuant to the Management Agreement. Notice to the remitters that this transaction has closed shall occur by letter-in-lieu-of-transfer order or other documents required by each remitter.

ARTICLE 12. OPERATION OF THE INTERESTS

Operation by Seller. Upon closing, operation of the Chandeleur Interests previously operated by Manti will be turned over to, and become the responsibility of, Seller on behalf of Buyer in its capacity as Manager under the Management Agreement. Seller shall continue as Operator of the Brazos Interests, the Galveston Interests, and the High Island Interests and shall operate those Interests on behalf of Buyer in its capacity as Manager under the Management Agreement.

Risk of Loss. Unless this Agreement is terminated as to an Interest, the risk of loss for damage to or destruction of the Interests and Property associated with the Interests will pass from Seller to Buyer as of the earlier of Closing or the Effective Time, INCLUDING DAMAGE OR DESTRUCTION RESULTING IN WHOLE OR IN PART FROM THE NEGLIGENCE OR STRICT LIABILITY OF SELLER OR ITS ASSOCIATED PARTIES. Damage or destruction will not be cause for Buyer to delay Closing or terminate this Agreement.

ARTICLE 13. BOND IN FAVOR OF EXXONMOBIL

Bond in Favor of ExxonMobil. Buyer has previously paid $2,000,000.00 the (“Bond Security”), to the indemnitor indemnifying the bond in favor of ExxonMobil that is provided for by the terms of Section 9.08 of the ExxonMobil Agreement, which bond is intended to secure obligations related to the High Island Interests to plug and abandon Xxxxx, remove equipment and facilities, and restore the Property. Seller hereby assigns and pledges to Buyer for its benefit a security interest in and to all of such Debtor’s right, title and interest in and to the Bond Security (the “Collateral”).

Financing Statement. Seller hereby irrevocably authorizes Buyer at any time and from time to time to file in any filing office in any appropriate jurisdiction any initial financing statements, and amendments thereto, that: (a) indicate the Collateral, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code, or other authority, of the State, or such other jurisdiction, for the sufficiency or filing office acceptance of any financing statement, or amendment, including whether Buyer is an organization, the type of organization and any organizational identification number issued to Buyer.

ARTICLE 14. PREFERENTIAL RIGHT TO PURCHASE OIL

Seller will not reserve any preferential right to purchase oil produced from the Interests. Buyer acknowledges the first right of refusal to purchase production from the Chandeleur Interests which is retained by Manti pursuant to Section 6.03 of the Manti Agreement.

ARTICLE 15. PREFERENTIAL RIGHT TO PURCHASE GAS

Seller will not reserve any preferential right to purchase gas produced from the Interests. Buyer acknowledges the first right of refusal to purchase production from the Chandeleur Interests which is retained by Manti pursuant to Section 6.03 of the Manti Agreement.

ARTICLE 16. SELLER'S RELEASE, DISCHARGE, AND COVENANT NOT TO XXX; SELLER'S OBLIGATIONS TO INDEMNIFY, DEFEND, AND HOLD HARMLESS; DISPUTE RESOLUTION

Seller's Release and Discharge of Buyer and its Associated Parties. Seller releases and discharges Buyer and its Associated Parties from each Claim and Liability relating to the Interests, Property, or this transaction, regardless of when or how the Claim or Liability arose or arises or whether the Claim or Liability is foreseeable or unforeseeable. SELLER'S RELEASE AND DISCHARGE OF BUYER AND ITS ASSOCIATED PARTIES INCLUDE CLAIMS AND LIABILITIES RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT, OR SOLE. The only exception to Seller's release and discharge of Buyer and its Associated Parties is stated in 16.04(e), and the release and discharge are binding on Seller and its successors and assigns other than Buyer.

Seller’s Covenant Not to Xxx Buyer or its Associated Parties. Seller covenants not to xxx Buyer or its Associated Parties with regard to any Claim or Liability relating to the Interests, Property, or this transaction, regardless of when or how the Claim or Liability arose or arises or whether the Claim or Liability is foreseeable or unforeseeable. SELLER'S COVENANT NOT TO XXX BUYER OR ITS ASSOCIATED PARTIES INCLUDES CLAIMS AND LIABILITIES RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE. The only exception to Seller's covenant not to xxx Buyer or its Associated Parties is stated in Section 16.04 (e), and the covenant is binding on Seller and its successors and assigns other than Buyer.

Seller's Obligations to Indemnify, Defend, and Hold Buyer and its Associated Parties Harmless. Seller will indemnify, defend, and hold Buyer and its Associated Parties harmless from each Claim and Liability relating to the Interests, Property, or this transaction, regardless of when or how the Claim or Liability arose or arises or whether the Claim or Liability is foreseeable or unforeseeable. SELLER'S OBLIGATIONS TO INDEMNIFY, DEFEND, AND HOLD BUYER AND ITS ASSOCIATED PARTIES HARMLESS INCLUDE CLAIMS AND LIABILITIES RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE. The only exception to Seller’s obligations to indemnify, defend, and hold Buyer and its Associated Parties harmless is stated in Section 16.04(c), and the obligations are binding on Seller and its successors and assigns other than Buyer.

Seller's Obligations.

(a)

In each instance of Seller’s obligations to release, discharge, indemnify, defend, and hold Buyer and its Associated Parties harmless and its covenant not to xxx Buyer or its Associated Parties, the Claims and Liabilities subject to the obligations include the following:

(i) the ownership of the Interests by Buyer, their operation by Buyer or its Associated Parties, and the acts or omissions of Buyer or its Associated Parties in connection with the Interests or the Related Agreements.

(ii) the ownership of the Interests by Buyer, their operation by Buyer or its Associated Parties, and the acts or omissions of Buyer or its Associated Parties in connection with the Interests or under this Agreement or the Related Agreements.

(iii) the acts or omissions of third parties relating to the Interests.

(b)

Seller’s obligations under this Agreement to release, discharge, indemnify, defend, and hold Buyer and its Associated Parties harmless and its covenant not to xxx Seller or its Associated Parties include Claims and Liabilities arising in any manner from the following:

(i) preferential and similar rights held by third parties to purchase any portion of the Interests.

(ii) the review, inspection, and assessment of the Interests and Property by Seller and its Associated Parties.

(iii) an error in describing the Interests or an error in the conveyancing instruments.

(iv) rights and obligations of the parties or third parties under the Related Agreements.

(v) closing without a third-party consent or approval.

(vi) failure by third parties to approve or consent to any aspect of this transaction after Closing.

(vii) obligations to plug and abandon Xxxxx and remediate the Interests and Property.

(viii) payment of Real Property Taxes or other taxes applicable to the Interests and Property.

(ix) payments or disbursements paid or payable by Buyer or Seller to third parties.

(x) a physical or environmental condition relating to the Interests and Property, including Claims and Liabilities under the Environmental Laws, or failure to comply with the Environmental Laws.

(xi) remediation activities, including damages incurred by Buyer or its Associated Parties during or arising from remediation activities.

(xii) lawsuits filed before the Effective Time, but amended after the Effective Time to include the Interests or Property or Seller's ownership of or activities regarding the Interests or Property.

(c)

Seller’s obligations to indemnify, defend, and hold Buyer and its Associated Parties harmless do not apply, however, to Claims or Liabilities that result from a judgment rendered or settlement reached in a lawsuit filed before the Effective Time, but only to the extent that acts or omissions that gave rise to the cause of action are attributable to the conduct or operation or ownership of Seller or its Associated Parties before the Effective Time.

(d)

The parties recognize that certain lawsuits may have been filed before the Effective Time, but concern activities continuing after the Effective Time, so that after Closing Buyer may be a proper party to the lawsuit. For these lawsuits, Seller’s obligations to indemnify, defend, and hold Buyer and its Associated Parties harmless will apply to activities occurring before the Effective Time.

(e)

Seller’s release and discharge of Buyer and its Associated Parties and its obligation to indemnify, defend and hold Buyer harmless under this Agreement does not include Claims that Buyer breached this Agreement. Any such Claims will be resolved in accordance with Article 16.06.

Seller’s Duty to Defend. Seller acknowledges that its obligations to indemnify, defend, and hold Buyer and its Associated Parties harmless under this Agreement include obligations to pay the attorneys' fees and court and other costs incurred by Buyer and its Associated parties in defending all Claims. As to each Claim and Liability, Buyer, at its sole option, may elect to (a) manage its own defense, in which event Seller will reimburse Buyer and its Associated Parties for all reasonable attorneys' fees and court and other costs reasonably incurred in defending a claim, upon delivery to Seller of invoices for these fees and costs, provided that Buyer’s selection of counsel is acceptable to Seller; or (b) tender its defense as to any Claim to Seller, in which event Seller will be responsible for all aspects of defending the Claim at issue and resulting Liabilities.

Alternate Dispute Resolution and Arbitration. This section applies to any dispute between the parties, arising at any time, that is not subject to Seller’s release and discharge of Buyer and its Associated Parties or Seller’s covenant not to xxx Seller or its Associated Parties or is not specifically excluded under this section. Whether a dispute is subject to Seller’s release, discharge, or covenant not to xxx or to this section (or is excluded from this section by its terms), and whether there is a contract between the parties, are issues that will be resolved under the alternate dispute resolution and arbitration provisions of this section.

As to the disputes subject to this section, any Claim or controversy of whatever nature, including an action in tort or contract or a statutory action ("Disputed Claim"), or the arbitrability of a Disputed Claim, will be resolved in arbitration under the rules of the American Arbitration Association and will be binding on both parties and their respective successors and assigns. Neither party may prosecute or commence any suit or action against the other party relating to any matters that are subject to this section.

Buyer will determine, at its sole option, whether a Claim filed by a third party against Buyer or Seller will be subject to this section. If Seller has notified Buyer before Closing of a Disputed Claim by Seller before Closing and the Disputed Claim is not resolved before Closing, the Disputed Claim will not be subject to this section unless agreed by the parties.

Retroactive Effect. Seller acknowledges that its obligations to release, discharge, defend, and hold Buyer and its Associated Parties harmless and its covenant not to xxx Buyer or its Associated Parties apply to matters occurring or arising before the Execution Date to the extent provided in this Agreement.

INDUCEMENT TO BUYER.SELLER ACKNOWLEDGES THAT IT EVALUATED ITS OBLIGATIONS UNDER THIS ARTICLE BEFORE IT OFFERED TO SELL THE INTERESTS AND THAT ITS ASSUMPTION OF THESE OBLIGATIONS, ALONG WITH SELLER’S REPRESENTATIONS AND WARRANTIES IN ARTICLE 4, ARE A MATERIAL INDUCEMENT TO BUYER TO ENTER INTO THIS AGREEMENT WITH, AND CLOSE THE PURCHASE FROM, SELLER.

ARTICLE 17. ENVIRONMENTAL MATTERS

Acknowledgment Concerning Possible Contamination of the Interests and Property. Buyer and Seller are aware that the Interests and Property have been used for exploration, development, and production of oil and gas and that there may be petroleum, produced water, wastes, or other materials located on or under the Property or associated with the Interests. Equipment and sites included in the Interests or Property may contain asbestos, hazardous substances, or NORM. NORM may affix or attach itself to the inside of Xxxxx, materials, and equipment as scale, or in other forms; the Xxxxx, materials, and equipment located on the Property or included in the Interests may contain NORM and other wastes or hazardous substances; and NORM-containing material and other wastes or hazardous substances may have been buried, come in contact with the soil, or otherwise been disposed of on the Property. Special procedures may be required for the remediation, removal, transportation, or disposal of wastes, asbestos, hazardous substances, and NORM from the Interests and the Property.

Seller Assumption of Environmental Liabilities. SELLER WILL ASSUME ALL LIABILITY FOR THE ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION, AND DISPOSAL OF WASTES, ASBESTOS, HAZARDOUS SUBSTANCES, AND NORM FROM THE INTERESTS AND PROPERTY AND ASSOCIATED ACTIVITIES AND WILL CONDUCT THESE ACTIVITIES IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS, INCLUDING THE ENVIRONMENTAL LAWS.

ARTICLE 18. BUYER'S REPRESENTATIONS AND COVENANTS

Buyer represents and warrants to Seller that as the date hereof:

Organization. Buyer is duly organized, validly existing and in good standing under the laws of its own jurisdiction of organization.

Power and Authority; Authorization; Enforceability; No Conflicts; Etc.

(a)

Buyer has all requisite power and authority to execute and deliver this Agreement and the Additional Instruments to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.

(b)

The execution, delivery and performance by Buyer of this Agreement and the Additional Instruments to which it is a party and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite action of Buyer.

(c)

The Agreement has been, and the other Additional Instruments to which Buyer is a party have been duly and validly executed and delivered by Buyer and constitutes the legal, valid and binding obligations of Buyer, enforceable against it in accordance with their respective terms.

(d)

The execution and delivery by Buyer of this Agreement and of each of the Additional Instruments to which it is a party, the performance by it of its obligations hereunder and thereunder and the consummation by it of the transactions contemplated hereby and thereby do not:

(i) violate any provisions of the limited partnership agreement of Buyer;

(ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement to which Buyer is a party or by which the properties or assets of Buyer may be bound or otherwise subject; or

(iii) contravene or violate any laws applicable to Buyer.

(e)

No prior or subsequent filing or registration with, notification to, or authorization, consent or approval of, any governmental or regulatory agency is required to be made or obtained by Buyer in connection with the execution, delivery and performance of this Agreement by Buyer or any of the other Additional Instruments to which Buyer is a party or the consummation by Buyer of the transactions contemplated hereby and thereby.

Securities Laws.

(a)

Buyer acknowledges that the solicitation of an offer for and the sale of Interests by Seller has not been registered under any securities laws.

(b)

Buyer intends to acquire the Interests for its own benefit and account and is not acquiring the Interests with the intent of distributing fractional undivided interests in them or otherwise selling them in a manner that would be subject to regulation by federal or state securities laws. If Buyer sells, transfers, or otherwise disposes of the Interests or fractional undivided interests in them in the future, it will do so in compliance with applicable federal and state laws.

(c)

Buyer represents that at no time has it been presented with or solicited by or through any public promotion or other form of advertising in connection with this transaction.

Seller Qualification. Seller shall, prior to Closing, obtain such governmental qualifications as are necessary to own and receive an assignment of the Interests.

ARTICLE 19. GAS IMBALANCES

Seller's and Buyer's Respective Obligations. For those Interests with cumulative gas-production-imbalance accounts among working interest owners, Buyer acknowledges that the amounts are derived from either Seller’s or Operator's statements based upon current production, prior sales history, and contract information; were provided to Buyer before the Execution Date; and were taken into consideration in Buyer's calculation of the Base Purchase Price and the Allocations. After the Effective Time, all benefits, obligations, and liabilities associated with these gas-production-imbalance accounts and related agreements will accrue to and become Buyer's responsibility. Buyer will assume Seller's overproduced or underproduced position as of the Effective Time and subject to the other provisions of this Agreement, unless the operating agreement, plan of unitization, or gas balancing agreement for an Interest provides for the cash settlement of gas-production-imbalance accounts when the Interest is assigned, in which event Seller reserves the gas-production-imbalance account and the right to the cash settlement.

Settlement of gas imbalances shall be treated in the same manner as in Article 19 of the ExxonMobil Agreement, and Seller shall act in that regard on behalf of Buyer in its capacity as Manager under the Management Agreement.

ARTICLE 20. FINAL SETTLEMENT STATEMENT

Preparation. Seller will prepare a final settlement statement relating to the Interests and submit it to Buyer within 150 days after the Closing Date. The final settlement statement will deduct royalties, operating expenses, taxes, overhead, and other amounts due to Seller from amounts due to Buyer as provided in this Agreement, with adjustments as necessary for items identified after Closing.

Final Settlement. Buyer must respond in writing with objections and proposed corrections within thirty days of receiving the final settlement statement relating to the Interests. If the parties cannot resolve their differences within ninety days of Seller's receipt of Buyer's objections, then the alternate-dispute-resolution and arbitration procedures of this Agreement will be triggered. If Buyer does not respond to the final settlement statement by signing or objecting in writing within the thirty-day period, the statement will be deemed approved by Buyer. After approval of said final settlement statement, Seller will send a check or invoice to Buyer for the net amount.

ARTICLE 21. BROKER'S AND FINDER'S FEES

Seller and Buyer each represents and warrants to the other that it has incurred no liability, contingent or otherwise, for broker's or finder's fees in connection with this Agreement or the transaction contemplated by it for which the other party will have any responsibility.

ARTICLE 22. COMMUNICATIONS

Unless otherwise provided in this Agreement, communications (including notices) under this Agreement that must be in writing and delivered by a specified date will be deemed to have been made when received at the following addresses by registered or certified mail, postage prepaid, or by messenger:

Seller:	Buyer:

Capco Offshore, Inc. 0000 Xxx Xxxxxx, Xxxxx 000 Xxxxxxx, Xxxxx 00000 Attention: Xxxx Xxxxx	Hoactzin Partners, L.P. 00 Xxxxx Xxxxx Xxxxxx Xxx Xxxxx, Xxx Xxxx 00000 Attention: Xxxxx Xxxxx

ARTICLE 23. SELLER’S DEFAULT

If Seller defaults under this Agreement in a material way, including Seller's failure to perform its obligations to close this transaction, Buyer may, at its sole option, terminate this Agreement in addition to all of its other rights at law or in equity.

ARTICLE 24. XXXX-XXXXX-XXXXXX ANTITRUST IMPROVEMENTS

ACT OF 1976

The parties have determined that the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 does not apply to this transaction.

ARTICLE 25. MISCELLANEOUS

Entire Agreement. This Agreement and the Additional Instruments constitute the entire agreement between the parties as to the transaction described in this Agreement. All previous negotiations and communications between the parties as to these matters are merged into this Agreement and the Additional Instruments.

Successors and Assigns; Amendment; Survival. This Agreement is binding on and inures to the benefit of the parties and their respective successors, heirs, representatives, and assigns and may be supplemented, altered, amended, modified, or revoked only in writing signed by both parties. Neither the assignment of this Agreement nor of the Interests or any part of them will relieve Seller of its obligations under this Agreement unless and to the extent Buyer consents in writing to release Seller, which consent may be withheld for any reason.

All provisions of this Agreement and the Additional Instruments that cannot be performed before Closing or the earlier termination of this Agreement and all representations, promises, releases, and indemnities under this Agreement and the Additional Instruments will survive Closing or the earlier termination of this Agreement.

Choice of Law. This Agreement and its performance will be construed in accordance with, and enforced under, the internal laws of the State of Texas, without regard to choice of law rules of any jurisdiction, including Texas.

Assignment. Neither this Agreement nor the rights and obligations under it may be assigned or delegated by either party without the other party’s prior written consent, which consent may be withheld for any reason, and an attempted assignment or delegation in the absence of such consent is void.

No Admissions. Neither this Agreement, nor any part of it, nor any performance under this Agreement, nor any payment of any amount under this Agreement will constitute or may be construed as a finding, evidence of, or an admission or acknowledgment of any liability, fault, past or present wrongdoing, or violation of law, rule, regulation, or policy, by either Seller or Buyer or their respective Associated Parties.

No Third-Party Beneficiaries. There are no third-party beneficiaries of this Agreement.

Public Communications. Unless provided otherwise in this Agreement, neither party will make any press release or public communication concerning this transaction without the other party’s prior written consent, which consent may be withheld for any reason.

Headings and Titles. The headings and titles in this Agreement are for guidance and convenience of reference only and do not limit or otherwise affect or interpret the terms or provisions of this Agreement.

Exhibits. All exhibits referenced in and attached to this Agreement are incorporated into it.

Includes. The word "includes" and its syntactical variants mean "includes, but is not limited to" and corresponding syntactical variants. The rule ejusdem generis may not be invoked to restrict or limit the scope of the general term or phrase followed or preceded by an enumeration of particular examples.

Severability. If any provision of this Agreement is found to be illegal or unenforceable, the other terms of this Agreement shall remain in effect, and this Agreement shall be construed as if the illegal or unenforceable provision had not been included.

Counterparts. This Agreement may be executed in multiple counterparts, all of which together will be considered one instrument.

Conflicts. If the text of this Agreement conflicts with the terms of any exhibit to this Agreement, then the text of this Agreement will control. Further, in the event of a conflict between the terms of the Management Agreement and the terms of the Operating Agreement, the terms of the Management Agreement shall control.

Not to Be Construed against the Drafter. Seller acknowledges that it has read this Agreement, has had opportunity to review it with an attorney of its choice, and has agreed to all of its terms. Under these circumstances, the parties agree that the rule of construction that a contract be construed against the drafter may not be applied in interpreting this Agreement.

No Waiver. No waiver by either party of any part of this Agreement will be deemed to be a waiver of any other part of this Agreement or a waiver of strict performance of the waived part in the future.

CONSPICUOUSNESS. THE PARTIES ACKNOWLEDGE THAT THE PROVISIONS OF THIS AGREEMENT THAT ARE PRINTED IN THE SAME MANNER AS THIS SECTION ARE CONSPICUOUS.

Execution by the Parties. Neither the submission of this instrument for Seller’s examination, nor discussions or negotiations between the parties, constitutes an offer to purchase the Interests or Property, and this instrument and the underlying transaction will become enforceable and binding between the parties only upon execution and delivery of this instrument by both Seller and Buyer.

The parties have executed this Agreement on the date below their signatures, to be enforceable and binding as of the Execution Date.


CAPCO OFFSHORE, INC.	HOACTZIN PARTNERS, L.P.

By:	By:	Dolphin Advisors, LLC
Xxxx Xxxxx, President		Its General Partner
	By:	Dolphin Management, Inc.
Date:		Its Managing Member

	By:
		Xxxxx Xxxxx, President

	Date:

EXHIBIT A-1

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO ENERGY, INC. AND --CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

DESCRIPTION OF THE BRAZOS INTERESTS

30% OF 8/8THS WORKING INTEREST, AND A PROPORTIONATE NET REVENUE INTEREST, AS OF THE EFFECTIVE TIME, IN AND TO THE FOLLOWING LEASES, INSOFAR ONLY AS SAID LEASES COVER AND INCLUDE THE WELLBORES OF THE XXXXX LISTED BELOW AND ONLY TO THE EXTENT THAT SUCH LEASS ARE NECESSARY TO PRODUCE OIL AND/OR GAS FROM THE WELLBORES OF SAID XXXXX, TOGETHER WITH A LIKE INTEREST IN THE EASEMENTS DESCRIBED BELOW:

BRAZOS 440L/441L/406L/407L

State Lease 57646, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering SE/4 of State Tract 441L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 581.

State Lease 57645, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering NE/4 of State Tract 441L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 577.

State Lease 57644, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering SW/4 of State Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 573.

State Lease 57642, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering NW/4 of State Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 569.

State Lease 57641, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering NE/4 of State Tract 440L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 565.

State Lease 60732, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective April 4, 1967, and covering SE/4 of State Tract 406L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 453 at Page 245.

State Lease 57633, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering SE/4 of State Tract 407L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 544.

State Lease 57634, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and Shell Oil Company, as Lessee, effective February 2, 1965, and covering SW/4 of State Tract 407L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 430 at Page 565.

INSOFAR AND ONLY INSOFAR as the above leases are included within the 440L Unit more fully described as the following:

5,850.00 acres of land out of Tracts 407L, 406L, 441L, and 440L as shown on the Texas Gulf Coast Map, Sheet 3, from the Sabine River to the Rio Grande River as subdivided for Mineral Development by the General Land Office, dated January 1967, and the 5,850.00 acres of land being more particularly described as follows:

1350 acres out of State Tract 407L, being all of the south half (S 1/2) of the southeast quarter (SE 1/4) of Tract 407L, all of the southeast one-quarter (SE 1/4) of the southwest one-quarter (SW 1/4) of Tract 407L, all of the south one-half (S 1/2) of the southwest one-quarter (SW 1/4) of the southwest one-quarter (SW 1/4) of State Tract 407L, and all of the northeast one-quarter (NE 1/4) of the southwest one-quarter (SW 1/4) of the southwest one-quarter (SW 1/4) of State Tract 407L.

90 acres out of State Tract 406L, and being all of the southeast one-quarter (SE/4) of the southeast one-quarter (SE/4) of the southeast one-quarter (SE/4) of State Tract 406L.

1620 acres out of State Tract 441L, and being all of the north one-half (N 1/2) of the southeast one-quarter (SE 1/4) of State Tract 441L, all of the south one-quarter (S 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L, all the northeast one-quarter (NE1/4) of southwest one-quarter (SW 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L, all of the north one-half (N 1/2) of the southeast one-quarter (SE 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L, all of the south one-half (S 1/2) of the northeast one-quarter (NE 1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L, and all of the northeast one-quarter (NE 1/4) of the northeast one-quarter (NE1/4) of the northeast one-quarter (NE 1/4) of State Tract 441L.

2790.00 acres out of State Tract 440L, and being all of the north one-quarter (N 1/4) of State Tract 440L, all of the south one-half (S 1/2) of the northwest one-quarter (NW 1/4) of State Tract 440L, all the north one-half (N 1/2) of the southwest one-quarter (SW 1/4) of the northeast one-quarter (NE 1/4) of State Tract 440L, all of the northwest one-quarter (NW 1/4) of the southeast one-quarter (SE 1/4) of the northeast one-quarter (NE 1/4) of State Tract 440L, all of the southwest one-quarter (SW 1/4) of the southwest one-quarter (SW 1/4) of the northeast one-quarter (NE 1/4) of State Tract 440L, all of the north one-half (N 1/2) of the northwest one-quarter (NW 1/4) of the southwest one-quarter (SW 1/4) of State Tract 440L, and all of the southwest one-quarter (SW 1/4) of the northwest one-quarter (NW 1/4) of the southwest one-quarter (SW 1/4) of State Tract 440L.

The above described unit is limited to all gas sands encountered in the interval between 6,580 feet and 7,860 feet, as shown on the induction-electrical log run in the Shell Oil Company’s well No. 2 located in the northwest one-quarter (NW 1/4) of State Tract 440L.

XXXXX

Well Name		CAPCO Working Interest	CAPCO Net Revenue Interest
Brazos 440L	I-1	65.00%	53.51666%
Brazos 440L	4012	65.00%	53.51666%

OPTION WELL
Brazos 440L	A-1	65.00%	53.51666%

State Easement ME 85-234, granted by the State of Texas, General Land Office, unto Conquest Exploration Company to construct a 3 ½ inch pipeline.

State Easement ME 85-233, granted by the State of Texas, General Land Office, unto Conquest Exploration Company to construct a 4 ½ inch pipeline.

State Easement ME 85-169, granted by the State of Texas, General Land Office, unto Conquest Exploration Company to construct a 12.75” pipeline.

BRAZOS 478L/479L

State Lease 96177, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and American Exploration Company, as Lessee, effective October 4, 1994, and covering north of the three marine league line within State Tract 478L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 950452 at Page 400941.

State Lease 97270, Oil and Gas Lease between the State of Texas, General Land Office, as Lessor, and American Exploration Company, as Lessee, effective April 2, 1996, and covering S/2 of NE/4 of State Tract 479L, Gulf of Mexico, Matagorda County, Texas recorded in Volume 963560 at Page 442494.

XXXXX

Name		CAPCO Working Interest		CAPCO\ Net Revenue Interest
Brazos 478L #2		65.00%		49.725%

State Easement ME 970029, granted by the State of Texas, General Land Office, unto American Exploration Company for a 30’ wide easement.

State Easement ME 970031, granted by the State of Texas, General Land Office, for the 478L #2 well.

EXHIBIT A-2

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

DESCRIPTION OF THE CHANDELEUR INTERESTS

Schedule of Xxxxx

Well Name	API	Operator	Working Interest	Net Revenue Interest
CA Blk. 30 #1 (Hustler)	0000000000	Capco	1.000	0.79833333
CA Blk. 30 #3 (Seamaster)	1772840060	Capco	1.000	0.79833333
CA Blk. 27 #2 (Fireball)	1772840062	Capco	1.000	0.77892924
Biloxi Xxxxx XX #1-2	1708720315	MERIDIAN	0.145357	0.106111
PXP SL 17656 #2 (Fiesta)	1708720327	PXP	0.4375	0.328125
PXP CA 30 #2 (Hustler West)	1772840059	PXP	0.4375	0.3764583
PXP SL 17812 #1 (Avenger)	1773020034	PXP	0.4375	0.328125
PXP SL 17389 #1 (Prowler)	1773020036	PXP	0.4375	0.338125
PXP SL 17388#1 (Catalina)	1773020035	PXP	0.4375	0.338125
PXP SL 17387#1 (Skyraider Dp.)	1773020038	PXP	0.4375	0.338125
PXP SL 17390#1 (Twin Otter)	0000000000	PXP	0.4375	0.338125

Schedule of Leases

LEASES

LESSOR	LESSEE	DATE	RECORDING INFO.
USA-Mineral Management Service- OCS-G 24002***	Manti Resources, Inc.	0/0/0000	X/X
Xxxxx xx Xxxxxxxxx - Xx. 00000	Xxxxx Corporation	3/18/2002	COB 717, Folio 339/MLB 116,Folio 6, Entry 397916, St. Xxxxxxx Xxxxxx, LA
USA-Mineral Management Service- OCS-G 24001***	Manti Resources, Inc.	5/1/2002	N/A
Xxxxx Xxxxxx Xxxxxx Quatroy, et al *	Manti Resources, Inc.	5/9/2001	COB 696, Folio 731/MLB 113, Entry #384834, St. Xxxxxxx Xxxxxx, LA
LAC Real Estate Holdings, L.L.C.*	Louisiana Oil and Gas, Inc.	5/3/2001	COB 696, Folio 724/MLB 113, Entry #384833, St. Xxxxxxx Xxxxxx, LA
Biloxi Xxxxx Lands Corporation*	White Mountain Royalty Corporation	10/26/2000	Memo-COB 694,MLB 112,Entry 383297, St. Xxxxxxx Xxxxxx, LA
State of Louisiana - No. 17656	WLB Investments, Inc.	11/18/2002	COB 730, Folio 182/MLB 118, Folio 98, Entry #406251, St. Xxxxxxx Xxxxxx, LA, NA # 03-03420, Instrument # 000000, Xxxxxxx Xxxxxx, XX.
State of Louisiana - No. 17812	Manti Jamba,Ltd.,et al	5/19/2003	COB 738, Folio 793/MLB 000, Xxxxx 00, Xxxxx #000000, Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17389	Xxxxx Corporation	3/18/2002	COB 717, Folio 387/MLB 000, Xxxxx 00, Xxxxx #000000, Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17388	Xxxxx Corporation	3/18/2002	COB 717, Folio 375/MLB 000, Xxxxx 0, Xxxxx #000000, Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17387**	Xxxxx Corporation	3/18/2002	COB 717, Folio 363/MLB 000, Xxxxx 0, Xxxxx #000000, Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17390	Xxxxx Corporation	3/18/2002	COB 717, Folio, 399,/MLB 000, Xxxxx 00, Xxxxx #000000, Xx. Xxxxxxx Xxxxxx, XX

* = INSOFAR AND ONLY INSOFAR as said leases fall within the confines of unit tract numbers 1A and 1B within the XXXX 1 RA SUC, established by Office of Conservation Order No. 960-A-2, effective April 9, 2002, and approved by the Office of Conservation on November 4, 2003.

** = LESS AND EXCEPT measured depths from the surface of the earth down to the stratigraphic equivalent of the bottom of the producing sand found between the depths of 4,926' and 5,018' in the Manti Operating Company State Lease No. 17387 No. 1 Well situated thereon.

***Subject to a 3.5% overriding royalty interest, in favor of J. Xxxxxxx Xxxxx, Sr., pursuant to Article 4.01 in that certain Exploration Joint Venture Agreement between Manti Resources, Inc., and Sunbelt Energy, Ltd., et al, dated May 1, 2001.

[*] SAVE AND EXCEPT that certain royalty interest purchased from Biloxi Xxxxx Lands Corporation in favor of Manti Operating Company, effective May 24, 2001, recorded in COB 696, MLB 113, Entry No. 384864, in the official records of St. Xxxxxxx Xxxxxx, Louisiana.

Rights of Ways/Easements

PIPELINE SEGMENT NO.	SIZE (IN.)	LENGTH (FT.)	FROM	TO

14390	4	000	Xxxx #0, Xxxxxxxxxx Xxxx, Xxx. 30 -OCS-G 00000	0-xxxx XXXX, Xxxxxxxxxx Xxxx, Xxx. 30 - OCS-G 24002
14391	4	000	Xxxx #0, Xxxxxxxxxx Xxxx, Xxx. 30 -OCS-G 00000	0-xxxx XXXX, Xxxxxxxxxx Xxxx, Xxx. 30 - OCS-G 24002
14519	4	8,501	Xxxxxxx Xx. 0, Xxxxxxxxxx Xxxx, Xxx.00 - XXX-X 00000	Xxxxxxx Xx. 0, Xxxxxxxxxx Xxxx, Xxx. 27 - OCS-G 24001
00000 - XXX Xx. X00000	6	18,225	Caisson #1, Chandeleur Area, Blk. 30 - OCS-G 00000	Xxxxxxxx X, Xxxxxxxxxx Xxxx, Xxx. 29 - OCS-G 05740
14529 - ROW No. G25347	6.6	10,748	Chandeleur Blk. 27 Caisson No. 2 - OCS-G 00000	Xxxxxxxxxx Xxx. 29 Platform "B" - OCS-G 05740
00000 - XXX Xx. X00000	4	10,788	Caisson #2, Chandeleur Area, Blk. 27 - OCS-G 00000	Xxxxxxxx X, Xxxxxxxxxx Xxxx, Xxx. 29 - OCS-G 05740

ALL OF THE ABOVE PIPELINE SEGMENTS AND RIGHT-OF-WAYS ARE TAKEN FROM THE UNITED STATES OF AMERICA MINERAL MANAGEMENT SERVICE.

LEASE DATE

LESSOR

LESSEE

PARISH

ENTRY

BOOK

PAGE

12/19/03

State of Louisiana ROW 4428

PXP Gulf Coast Inc

St. Xxxxxxx

422745

751

404

01/09/04

State of Louisiana ROW 4444

PXP Gulf Coast Inc

St. Xxxxxxx

424062

753

04/27/04

State of Louisiana ROW 4469

PXP Gulf Coast Inc

St. Xxxxxxx

427803

758

6/22/2004

State of Louisiana ROW 4509

PXP Gulf Coast Inc

St. Xxxxxxx

429903

760

519

EXHIBIT A-3

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

DESCRIPTION OF THE GALVESTON INTERESTS

LEASES
A.	Serial No.:	OCS-G 21324
	Date:	December 1, 1999
	Lessee:	Union Oil of California
	Land Covered:	Galveston Area Block 297, OCS Leasing Map, Texas Map No. 6, containing approximately 5760 acres.

B.	Serial No.:	OGS-G 25534
	Date:	November 1, 2003
	Lessee:	Fidelity Exploration & Production Company, et al.
	Land Covered:	Galveston Area Block 287, OCS Leasing Map, Texas Map No. 6, containing approximately 5760 acres.

C.	Serial No.:	OCS-G 25536
	Date:	October 1, 2003
	Lessee:	Gryphon Exploration Company
	Land Covered:	Insofar only as to the E/2 NE/4 Galveston Area Block 298, OCS Leasing Map, Texas Map No. 6,
		containing approximately 720 acres.

*Prospect Payout is defined in that certain Offshore Prospect Participation Agreement dated August 18, 1999, as amended December 30, 2004, between Capco Offshore, Inc., and Fidelity Exploration, et al.

Xxxxx

	Buyer’s	Buyer’s
Name	Working Interest	Net Revenue Interest
GA 297 #1	30.00% WI - BPO	30% x 5/6 NRI - BPO*
	25.50% WI - APO	25.5% x 5/6 NRI - APO*

*Subject to and bearing its proportionate part of all existing overriding royalties, carried interests, and other burdens on production reflected of record or disclosed in that certain Offshore Prospect Participation Agreement dated December 30, 2004, Between Capco Offshore, Inc. and Fidelity Exploration Company, Inc., et al.

SUBJECT TO THE FOLLOWING PRIOR AGREEMENT

That certain Offshore Prospect Participation Agreement dated August 18, 1999, by and between Capco Offshore, Inc., Fidelity Exploration & Production Company, Reef Partners, L.L.C., and Blue Dolphin Exploration Company, as amended Dec. 30, 2004, covering all of Xxxxxxxxx Xxxx Xxxxxx 000, 000, and the E/2NE of Xxxxxxxxx Xxxx Xxxxx 000.

SUBJECT TO THE FOLLOWING BURDENS

Overriding Royalty Interest in favor of Gryphon Exploration Company as set forth in that certain Letter Agreement dated October 1, 2004, by and between Fidelity Exploration & Production Company and Gryphon Exploration Company equal to 3.0% of 6/6^th covering the NW/4 of Xxxxxxxxx Xxxx Xxxxx 000 and the E/2NE of Xxxxxxxxx Xxxx Xxxxx 000.

After Prospect Payout Overriding Royalty Interest in favor of Blue Dolphin Petroleum Company as set forth in that certain Offshore Prospect Participation Agreement dated December 30, 2004, by and between Capco Offshore, Inc., Fidelity Exploration & Production Company, Reef Partners, L.L.C., and Blue Dolphin Exploration Company equal to 2.0% of 6/6^th covering all of Xxxxxxxxx Xxxx Xxxxx 000, and 2.5% of 6/6ths covering all of Xxxxxxxxx Xxxx Xxxxx 000.

After Prospect Payout Reversionary Interest in favor of Fidelity Exploration & Production Company and Blue Dolphin Petroleum Company as set forth in that certain Offshore Prospect Participation Agreement dated December 30, 2004, by and between Capco Offshore, Inc., Fidelity Exploration & Production Company, Reef Partners, L.L.C., and Blue Dolphin Exploration Company equal to 7.50% of 6/6^th each, covering all of Xxxxxxxxx Xxxx Xxxxxx 000, 000 and E/2NE of Xxxxxxxxx Xxxx Xxxxx 000.

EXHIBIT A-4

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

DESCRIPTION OF THE HIGH ISLAND INTERESTS

B. HIGH ISLAND INTERESTS

Lease No.:		OCS-G 06168
Lessor:		The United States of America
Lessee:		Exxon Corporation
Effective Date:		October 1, 1983
Lands Covered:		All of Block 196, High Island Area, OCS Leasing Map, Texas Map No. 7, LESS AND EXCEPT in the N/2, SW/4, and W/2SE/4 the Operating Rights in all depths below the base of the stratigraphic equivalent of the MM5 sand found at 12,430' MD and 9,484 TVD in the OCS-G 06168, No. B-2 Well, (API 427084034900), and LESS AND EXCEPT in the E/2SE/4 the Operating Rights as to all depths.
Interest:		Record Title Interest 100.00%,
		Net Revenue Interest BPO 78.33333%; APO 83.33333%
		The Before Payout (“BPO”) net revenue interest shown above reflects a 5.0% of 8/8ths overriding royalty retained by ExxonMobil as to which payout occurs once an aggregate $1,500,000 has been paid; thus, the After Payout (“APO”) net revenue interest is stated. This Interest also is subject to the Retained Revenue Interest, in favor of ExxonMobil, provided for by Section 3.04(b) of the ExxonMobil Agreement.

PIPELINE RIGHT-OF-WAY

	Right-of-way No.:	1027360 - OCS-G 21466
	Grantor:	The United States of America
	Grantee:	Exxon Mobil Corporation

		Effective Date:		February 22, 2001
		Right-of-way Description:		OCS-G 21466, Segment No. 12379 Pipeline Right-of-way for 10-3/4 inch pipeline from HI 176 "B" Platform to a side tap SSTI on Xxxxxxxx Field Services - Offshore Gathering Company's Existing 12 inch Pipeline (OCS-G 12370 - Segment 13143, formerly 9208) in Block 177.

		Interest:		100.00%

RIGHT-OF-USE AND EASEMENT PLATFORM "B" HIGH ISLAND BLOCK 176

	Right-of-use and easement No.:	Formerly 1029764 - OCS-G 23586 - to be determined after Closing
	Grantor:	The United States of America
	Grantee:	Formerly Exxon Mobil Corporation - to be Capco Offshore after Closing
	Effective Date:	Formerly March 10, 2003 - to be determined after Closing
	Right-of-use and easement description:	OCS-G 23586 - Right-of-use and easement to maintain Platform B in High Island, Block 176, expired lease, for the purposes of producing Xxxxx X-0, X-0, X-0, and B-2d (sidetrack), Xxxx Xxxxxx, Xxxxx 000, XXX-X 06168.

2.	Interest:	100%

SUBJECT TO THE FOLLOWING CONTRACTS

1.	Contract No.:	1001917 - Operating Agreement
	Parties:	Xxxx-Xxxxxxx Oil Company and Exxon Corporation
	Effective Date:	September 1, 1988
	Lands Covered:	Covering Xxxx Xxxxxx Xxxxx 000, Xxxxxxxx Xxxxx.

2.	Contract No.:	1001939 - Farmout Agreement
	Parties:	Xxxx-Xxxxxxx Oil Company and Exxon Corporation
	Effective Date:	September 1, 1988
	Lands Covered:	Covering Xxxx Xxxxxx Xxxxx 000, Xxxxxxxx Xxxxx.

3.	Contract No.:	0408358-001 - Platform and Facilities Agreement

	Parties:	Xxxx-Xxxxxxx, Exxon Corporation et al
	Effective Date:	September 1, 1988
	Lands Covered:	Platform "A" (Platform ID No. 10468-1) located on High Island Block 176, including but not limited to the compressors, the facilities and the 10" sales line from Platform "A", High Island Block 176 to the subsea tap valve located in High Island Block 140 on Transco's 24" pipeline.

4.	Contract No.:	1029891 - Farmout Agreement
	Parties:	Exxon Mobil Corporation and Spinnaker Exploration Oil Company
	Effective Date:	May 30, 2003
	Lands Covered:	XX/0XX/0 Xxxx Xxxxxx Xxxxx 000, XXX-X 06168

5.	Contract No.:	210466000 - Lateral Line Interconnect, Platform Use and Operation Agreement
	Parties:	WFS - Offshore Gathering Company, Seller Production Company and Apache Corporation
	Effective Date:	Xxxxx 0, 0000
	Xxxxx Covered:	The HI 176 B & C Gas Gathering System, being the pipeline from the base of the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly located in HI 177.

6.	Contract No.:	210466000-1 - Letter Agreement - Construction and Operation of Gathering Pipeline, High Island Block 176 and 177
	Parties:	Seller Production Company, Apache Corporation, Forcenergy Inc. and Ridgewood Energy Corporation
	Effective Date:	October 10, 2000
	Lands Covered:	The HI 176 B & C Gas Gathering System, being the pipeline from the base of the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly located in HI 177.

SUBJECT TO THE FOLLOWING PIPELINE RIGHTS-OF-WAY

1.	Pipelines:	0404358-002
		Pipeline Right-of-Way OCS-G 10515, Segment No. 8569

		0408360-002
		Pipeline Right-of-Way XXX-X 00000, Segment No. 8943

		0408360-003
		Pipeline Right-of-Way XXX-X 00000, Segment No. 8705

		0408360-004
		Pipeline Segment No. 11303

EXHIBIT B

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO ENERGY, INC. AND CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

FORM OF

ASSIGNMENT AND XXXX OF SALE

STATE OF TEXAS		§
COUNTIES OF MATAGORDA,		§
BRAZOS, GALVESTON,		§
BRAZORIA, XXXXXXXX &		§
JEFFERSON		§

STATE OF LOUISIANA		§
PARISHES OF ST. XXXXXXX &		§
ORLEANS		§

This Assignment and Xxxx of Sale ("Assignment") is effective as to each Property as of the Effective Time stated below ("Effective Time"), and is from CAPCO OFFSHORE, INC., a Texas Corporation with an address of 0000 Xxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (“Seller”) to HOACTZIN PARTNERS, L.P., a Delaware limited partnership with an address of 00 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxx, Xxx Xxxx 00000 (“Buyer”).

For ten dollars and other good and valuable consideration, the receipt and sufficiency of which Seller acknowledges, Seller bargains, sells, assigns, and conveys to Buyer and its successors and assigns, all of Seller's right, title, and interest in and to the following real and personal properties (collectively, "Properties"), subject to the terms of this Assignment, including its exhibits, and all applicable instruments of record in the county or parish where the Properties are located:

The oil and gas leasehold estates and other interests, insofar but only insofar as set out on Exhibit A (collectively, "Interests").

All contracts affecting the Interests, to the extent each is assignable, including agreements for the sale or purchase of oil, gas, and other hydrocarbons; processing agreements; division orders; unit agreements; operating agreements; and other contracts and agreements arising out of, connected with, or attributable to production from the Interests, including the items listed on Exhibit A.

All personal property, including material, equipment, and facilities situated in and on the Properties and used solely in connection with the use or operation of the Interests for the production, treating, storing, transporting, and marketing of oil, gas, and other hydrocarbons from the Interests.

All easements, permits, licenses, surface and subsurface leases, rights-of-way, servitudes, and other surface and subsurface rights affecting the Interests, to the extent each is assignable, including the items listed on Exhibit A.

Copies of the data and records relating to the Properties and Interests that have been or will be delivered by Seller to Buyer ("Documents").

Exclusions. The following are excluded from this Assignment:

Pipelines, fixtures, equipment, and interests in land owned by third parties.

Personal property, fixtures, equipment, pipelines, facilities and buildings located on the land associated with the Interests, but either currently in use in connection with the ownership or operation of other property owned by third parties and not included in the Interests or excluded on Exhibit A.

Claims, rights, and causes of action of any kind concerning the Properties against royalty owners, overriding-royalty owners, working-interest owners, gas purchasers, gas transporters, and other third parties that accrued before the Effective Time, whether discovered before or after the Effective Time.

Documents. If originals or the last-remaining copies of the Documents have been provided to Buyer, Seller may have access to them at reasonable times and upon reasonable notice during regular business hours for as long as any Interest is in effect after the Effective Time (or for twenty-one years in the case of a mineral fee or other non-leasehold interest or a longer period if required by law or governmental regulation). Seller may, during this period and at its expense, make copies of the Documents pursuant to a reasonable request. Without limiting the generality of the two preceding sentences, for a period as long as any Interest is in effect after the Effective Time (or for twenty-one years in the case of a mineral fee or other non-leasehold interest or for a longer period if required by law or governmental regulation), Buyer may not destroy or give up possession of any original or last-remaining copy of the Documents without first offering Seller the opportunity, at Seller's expense, to obtain the original or a copy. After this period expires, Buyer must offer to deliver the Documents (or copies) to Seller, at Seller's expense, before giving up possession or destroying them.

II.

Ad valorem taxes assessed against the Properties for the year of the Effective Time are apportioned between Seller and Buyer as of the Effective Time.

Buyer will comply with all rules, regulations, statutes, and laws applicable to Buyer's ownership or operation of the Properties.

III.

Except to the extent specifically excepted or reserved by Seller, Buyer accepts this Assignment and assumes all Seller's obligations and liabilities under all oil, gas, and mineral leases, assignments, subleases, farmout agreements, unit agreements, joint operating agreements, pooling agreements, letter agreements, easements, rights-of-way, gathering and transportation agreements, sales agreements, and other agreements (including compliance with express and implied covenants and payment of costs, rentals, shut-in-payments, minimum royalties, and production royalties), to the extent that these obligations and liabilities concern or pertain to the Properties and are binding on Seller or its successors or assigns. Buyer's obligations under this article apply to all applicable instruments, whether recorded or not.

IV.

Buyer and Seller acknowledge that the Interests and Properties have been used for exploration, development, and production of oil and gas and that there may be petroleum, produced water, wastes, or other materials located on or under the Properties or associated with the Interests. Equipment and sites included in the Interests or Properties may contain asbestos, hazardous substances, or naturally occurring radioactive material ("NORM"). NORM may affix or attach itself to the inside of xxxxx, materials, and equipment as scale, or in other forms; the xxxxx, materials, and equipment located on the Properties or included in the Interests may contain NORM and other wastes or hazardous substances; and NORM-containing material and other wastes or hazardous substances may have been buried, come in contact with the soil, or otherwise been disposed of on the Properties. Special procedures may be required for the remediation, removal, transportation, or disposal of wastes, asbestos, hazardous substances, and NORM from the Interests and Properties.

Seller recognizes, and will either perform or assure that performance is accomplished properly and in accordance with applicable law and the obligations and liabilities described in Article III, all obligations to abandon, restore, and remediate the Properties and the Interests, whether arising before or after the Effective Time, including obligations, as applicable, to:

(a)

obtain plugging exceptions in the operator's name for each well located on the Properties (abandoned and unabandoned) with a current plugging exception or permanently plug and abandon each well.

(b)

plug, abandon, and if necessary, reabandon each well located on the Properties (abandoned and unabandoned).

(c)

remove all equipment and facilities, including flowlines, pipelines and platforms.

(d)

close all pits.

(e)

restore the surface, subsurface, and offshore sites associated with the Interests and Properties.

Buyer and Seller will take all necessary steps to ensure that Buyer is recognized as the owner and, if applicable, that Seller is the operator of the Properties by all appropriate parties, including any regulatory commission, body or board with jurisdiction. If Seller is the principal on any financial assurance (including a bond) relating to the Properties, which financial assurance is required by any law, rule, or regulation, then Seller will maintain financial assurance in the required amount and supply it to the regulatory body requiring the financial assurance, to the end that Buyer’s financial assurance obligations are fulfilled.

Seller will pay all costs and expenses associated with the obligations assumed under this article.

VI.

The terms Claim or Claims mean, collectively, claims, demands, causes of action, and lawsuits asserted or filed by any person, including an artificial or natural person, a local, state, or federal governmental entity; a person holding rights under any instrument described in Article III; an Associated Party of Seller or Buyer; or a third party. The term Liability or Liabilities means, collectively, all damages (including consequential and punitive damages), including those for personal injury, death, or damage to personal or real property (both surface and subsurface) and costs for remediation, restoration, or clean up of contamination, whether the injury, death, or damage occurred or occurs on or off the Properties by migration, disposal, or otherwise; losses; fines; penalties; expenses; costs to remove or modify facilities on or under the Properties; plugging liabilities for all xxxxx; attorneys' fees; court and other costs incurred in defending a Claim; liens; and judgments; in each instance, whether these damages and other costs are known or unknown, foreseeable or unforeseeable on the Effective Time. The term Associated Parties means successors, assigns, directors, officers, employees, agents, contractors, subcontractors, and affiliates.

Seller releases and discharges Buyer and its Associated Parties from each Claim and Liability relating to the Properties, or this transaction, regardless of when or how the Claim or Liability arose or arises or whether the Claim or Liability is foreseeable or unforeseeable. SELLER'S RELEASE AND DISCHARGE OF BUYER AND ITS ASSOCIATED PARTIES INCLUDE CLAIMS AND LIABILITIES RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYERORITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT, OR SOLE. The only exception to Seller's release and discharge of Buyer and its Associated Parties is stated in 16.04(e) of the Purchase and Sale Agreement (as hereinafter defined), and the release and discharge are binding on Seller and its successors and assigns other than Buyer.

Seller covenants not to xxx Buyer or its Associated Parties with regard to any Claim or Liability relating to the Properties, or this transaction, regardless of when or how the Claim or Liability arose or arises or whether the Claim or Liability is foreseeable or unforeseeable. SELLER'S COVENANT NOT TO XXX BUYER OR ITS ASSOCIATED PARTIES INCLUDES CLAIMS AND LIABILITIES RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE. The only exception to Seller's covenant not to xxx Buyer or its Associated Parties is stated in Section 16.04(e) of the Purchase and Sale Agreement, and the covenant is binding on Seller and its successors and assigns other than Buyer.

Seller will indemnify, defend, and hold Buyer and its Associated Parties harmless from each Claim and Liability relating to the Interests, Property, or this transaction, regardless of when or how the Claim or Liability arose or arises or whether the Claim or Liability is foreseeable or unforeseeable. SELLER'S OBLIGATIONS TO INDEMNIFY, DEFEND, AND HOLD BUYER AND ITS ASSOCIATED PARTIES HARMLESS INCLUDE CLAIMS AND LIABILITIES RESULTING IN ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS ASSOCIATED PARTIES, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE. The only exception to Seller’s obligations to indemnify, defend, and hold Buyer and its Associated Parties harmless is stated in Section 16.04(e) of the Purchase and Sale Agreement, and the obligations are binding on Seller and its successors and assigns other than Buyer.

Seller’s duty to release, discharge, not to xxx, indemnify, defend, and hold Buyer and its Associated Parties harmless includes Claims or Liabilities arising in any manner from the physical or environmental condition of the Interests and Properties, including Claims or Liabilities under applicable laws and regulations now enacted or that may be enacted in the future, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time.

VII.

Buyer represents that it has acquired the Properties for its own benefit and account and has not acquired the Properties with the intent of distributing fractional undivided interests in them or otherwise selling them in a manner that would be subject to regulation by federal or state securities laws. If Buyer sells, transfers, or otherwise disposes of the Properties or fractional undivided interests in them in the future, it will do so in compliance with applicable federal and state laws.

VIII.

This Assignment is subject to the terms of that certain Purchase and Sale Agreement dated May 4, 2005 (the “Purchase and Sale Agreement”). The Purchase and Sale Agreement provides, in part, that the parties will correct errors that may have been made in the conveyancing instruments; that Seller may require that all or a part of the Properties be reassigned under certain circumstances; and that disputes concerning the Properties or the transaction will be resolved by alternate dispute resolution, to the extent, if any, that Seller has not released, discharged, or covenanted not to xxx Buyer or its Associated Parties. The Management Agreement provides that Seller will manage the Interests in the place and stead of Buyer and for reacquisition of the Properties by Seller, among other things.

The provisions of this Assignment are severable. If a court of competent jurisdiction finds any part of this Assignment to be void, invalid, or otherwise unenforceable (except for the release, waiver, defense, and indemnity provisions), this holding will not affect other portions that can be given effect without the invalid or void portion.

All covenants and agreements in this Assignment (except Article VIII) bind and inure to the benefit of the heirs, successors, and assigns of Seller and Buyer; are covenants running with the land; and are effective as stated, whether or not the covenants and agreements are memorialized in assignments and other conveyances executed and delivered by the parties and their respective heirs, successors, and assigns from time to time.

Recitation of or reference to any agreement or other instrument in this Assignment, including its exhibits, does not operate to ratify, confirm, revise, or reinstate the agreement or instrument if it has previously lapsed or expired.

This Assignment and its performance will be construed in accordance with, and governed by, the internal laws of the State of Texas, without regard to the choice of law rules of any jurisdiction, including Texas.

The word includes and its syntactical variants mean "includes, but not limited to" and its corresponding syntactical variants. The rule of ejusdem generis may not be invoked to restrict or limit the scope of the general term or phrase followed or preceded by an enumeration of particular examples.

All exhibits referenced in and attached to this Assignment are incorporated into it.

This instrument may be executed in counterparts, all of which together will be considered one instrument.

As to each Property, the Effective Time shall be as follows:

High Island Interests:		November 1, 2004
Brazos Interests:		January 1, 2005
Galveston Interests:		January 1, 2005
Chandeleuer Interests:		January 1, 2005

All as of 7:00 a.m. local time on the respective dates.

Executed on the dates indicated below, but effective as of the Effective Time.


CAPCO OFFSHORE, INC.	HOACTZIN PARTNERS, L.P.

By:	By:	Dolphin Advisors, LLC
Xxxx Xxxxx, President		Its General Partner
	By:	Dolphin Management, Inc.
Date:		Its Managing Member

	By:
		Xxxxx Xxxxx, President

	Date:

WITNESSES:		WITNESSES:

______________________________		______________________________

______________________________		______________________________

[Acknowledgments]

STATE OF TEXAS		§
COUNTY OF ___________		§

This instrument was acknowledged before me on this day of May, 2005, by Xxxx Xxxxx, President of Capco Offshore, Inc., a Texas corporation, on behalf of said corporation.


	Xxxxxx Xxxxxx, Xxxxx xx Xxxxx

XXXXX XX XXXXX		§
XXXXXX OF _____________		§

This instrument was acknowledged before me on this day of May, 2005, by Xxxxx Xxxxx, President of Dolphin Management, Inc. a _______________________ corporation and managing member of Dolphin Advisors, LLC, a _________________ limited liability company and general partner of Hoactzin Partners, L.P., a Delaware limited partnership, on behalf of said limited partnership.


	Notary Public, State of Texas

EXHIBIT C

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO ENERGY, INC. AND CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

FORM OF

MANAGEMENT AGREEMENT

EXHIBIT D

Attached to and made a part of the

PURCHASE AND SALE AGREEMENT

Between

CAPCO ENERGY, INC. AND CAPCO OFFSHORE, INC.

As Seller

And

HOACTZIN PARTNERS, LP

As Buyer

GAS-PRODUCTION-IMBALANCE ACCOUNTS

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (“Agreement”) is made and entered into as of May 4, 2005, by and between Hoactzin Partners, LP and/or Assigns (“Owner”) Capco Energy, Inc. and Capco Offshore, Inc. (together, “Manager”).

WITNESSETH:

WHEREAS, Owner holds certain oil and gas interests pursuant to the terms of that certain Purchase and Sale Agreement between Owner and Manager (the “Purchase and Sale Agreement”), of even date herewith, and pursuant to assignments made thereunder;

WHEREAS, Owner desires to engage Manager to manage the oil and gas interests owned by it;

WHEREAS, Manager desires to manage such oil and gas interests of Owner; and

WHEREAS, terms not otherwise defined herein shall have the meanings assigned to those terms in the Purchase and Sale Agreement.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Manager Representations and Warranties. Manager represents and warrants to Owner that:

(a) Manager has full corporate power and authority to own its assets and to carry on its business as it is now being conducted and to execute and deliver this Agreement and each of the Additional Instruments and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.

(b) The execution, delivery and performance by Manager of this Agreement and the Additional Instruments to which Manager is a party and the consummation by Manager of the transactions contemplated hereby and thereby have been duly authorized by all requisite action of Manager.

(c) This Agreement and the Additional Instruments to which Manager is a party have been duly and validly executed and delivered by Seller and constitute the legal, valid and binding obligations of Manager, enforceable against it in accordance with their respective terms.

(d) The execution and delivery by Manager of this Agreement and each of the Additional Instruments to which it is a party, the performance by Manager of its obligations hereunder and thereunder and the consummation by Manager of the transactions contemplated hereby and thereby do not:

(i) violate any provision of the certificate of incorporation or bylaws (or comparable organizational documents) of Manager;

(ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under any of the terms, conditions or provisions of any oral or written agreement, instrument, contract, undertaking, mortgage, indenture, lease, license or other understanding to which Manager is a party or by which any of the properties or assets of Manager may be bound or otherwise subject; or

(iii) contravene or violate any law, rule, regulation, or order applicable to Manager, Manager’s Associated Parties, or any of their respective properties or assets.

(e) Manager is experienced in the operation of offshore oil and gas properties and has the requisite personnel resources, training and experience to manage and operate the Interests (as such term is hereinafter defined).

2. The Interests. Owner represents and acknowledges that it holds certain oil and gas leasehold interests, appurtenant rights, and other economic interests in the oil and gas leases and xxxxx (the “Interests”) set forth in Exhibit A hereto.

3. Appointment of Manager. Manager is hereby designated as the manager of the Interests, and, in such capacity, shall be the general manager of and shall conduct, direct and have full control of all matters pertaining to the Interests as permitted and required by this Agreement, subject to the rights of Owner as owner. Manager shall be the sole manager of the Interests, and the enumeration of the particular or specific powers in this Agreement shall not be considered as in any way limiting or abridging the general power or discretion intended to be conferred on or reserved to the Manager to authorize it to do any and all things proper, necessary or expedient, in its discretion, to carry out the purposes of this Agreement.

4. Operating Agreement. The parties agree to enter into one (1) operating agreement for the operation of the Interests which shall be substantially in the form of the operating agreement attached hereto as Exhibit B (the “Operating Agreement”). All Interests shall be operated under one Operating Agreement. Manager will cause the Interests to be managed pursuant to the terms of the Operating Agreement. In the event of any conflict between the terms of the Operating Agreement and this Agreement, the terms of this Agreement will control.

5. Duties of Manager. Manager shall devote sufficient time to the duties and responsibilities required for the prudent management of the Interests; and will at all times, faithfully, industriously, and to the best of its ability, experience and talents, perform all such duties and responsibilities in a good and workmanlike manner. Management duties shall include, without limitation, the following services:

(a) Performing accounting and billing functions; receiving, distributing and reporting income on at least a quarterly basis.

(b) Performing the duties and obligations of Owner under the Operating Agreement.

(c) Preparing and/or responding to authorizations for expenditure (“AFEs”) relating to the Interests, and preparing, reviewing and responding to correspondence relating to the Interests; provided, however, that Manager shall not approve AFEs on behalf of Owner in amounts greater than $50,000 to the interest of Owner.

(d) Approving expenditures relating to the Interests, for the interest of Owner, up to the gross amount of $50,000 for any one-month period. Manager agrees that it will not approve or incur expenditures in amounts in excess of the aforesaid amount without the prior written approval of Owner; provided, in case of explosion, fire, flood, blowout or other sudden emergency, Manager may take such reasonable steps and incur such reasonable expenses as in its opinion are required to deal with the emergency to safeguard life and property and to comply with law and regulation, and shall report the emergency to Owner as promptly as possible. Owner agrees to respond to Manager’s proposal for expenditures in accordance with the time requirements of the Operating Agreement and any operating agreement under which Manager is not operator and that Manager shall have no liability for damages or losses resulting from Owner’s failure to respond timely so long as Manager has timely provided such proposal to Owner.

(e) Overseeing and supervising on behalf of Owner the overall operation of the Interests.

(f)

Submitting to Owner as promptly as is practicable, but not more than thirty (30) days after the end of each calendar quarter, a statement setting out the revenues, costs and expenses incurred during such month for the Interests, along with payment of Net Operating Cash Flow (as such term is hereinafter defined) attributable to the Interests.

(g) Marketing production from the Interests upon terms no less attractive than Manager obtains for any of its owned production from the Interests; provided that, at no time shall production from the Interests be sold to an affiliate of Manager or Owner, and Manager shall not be permitted to enter into any advance payment contracts or contracts providing directly or indirectly for the pre-sale of production from the Interests (collectively, “Advance Payment Contracts”) other than in the nomination and sale of natural gas for the month next following, without the prior written consent of Owner, which consent shall not be unreasonably withheld if such Advance Payment Contract will not have an adverse tax or economic impact upon Owner.

(h) Manager shall complete and submit on behalf of Owner such incidental/and periodic reports and/or submissions as may be required by law, by regulation, or by order of local, state, and federal regulatory agencies or bodies with jurisdiction (a) over the Interests, (b) the use, ownership, operation or maintenance of the Interests, (c) Owner as owner of and Manager as manager of the Interests, or (d) production from the Interests.

(i) In the case of Interests operated by third parties as of the Effective Time, Manager shall represent the interests of Owner pursuant to the terms of the operating agreement in effect as to said Interests and in conformance with the covenants hereof.

6. Management of the Interests; Payment of Costs.

(a) At all times prior to the Termination Date (as such term is hereinafter defined), Manager shall:

(i) Cause the Interests to be maintained and operated for the production of hydrocarbons in a good and workmanlike manner, as would a prudent operator (and without regard to the existence of the Purchase Option, as such term is hereinafter defined), all in accordance with generally accepted standards and all applicable federal, state and local laws, rules and regulations.

(ii) Cause the Interests to be developed, operated and maintained in compliance with all applicable laws, rules and regulations and in compliance with the Related Agreements governing the same.

(iii) Pay or cause to be paid on behalf of Owner, promptly as and when due and payable, all rentals and royalties payable with respect to the production of hydrocarbons from the Interests (“Lease Burdens”) and all Costs (as such term is hereinafter defined) incurred in or arising from the operation or development of the Interests or the production, treating, gathering, marketing or transporting of hydrocarbons from the Interests.

(iv) Pay or cause to be paid all capital costs which are agreed to in writing by Owner and Manager and are actually expended in the development and operation of the Interests and all other Costs required for the prudent and reasonable maintenance and operation of the Interests in accordance with generally accepted oil and gas industry standards.

(b) The term “Costs” shall mean, on a cash accounting basis, the sum of :

(i) The following costs actually paid by or on behalf of Owner during any calendar month insofar as they are attributable to the Interests, and whether capital or non-capital in nature:

(A) All costs, expenses and liabilities, including capital and non-capital costs, paid by or on behalf of Owner pursuant to applicable Operating Agreement covering the Interests or otherwise for and in connection with the ownership, operation or maintenance of the Interests (excluding any overhead of Manager) and the lifting, handling, gathering, producing, treating, storing, marketing, and transporting of production from the Interests and the disposal of produced water therefrom; and

(B) All federal, state and local taxes (except mortgage and income taxes) paid by or for the account of the Interests, including without limitation production, occupation, excise, severance, ad valorem or other production related taxes, and any other taxes (except taxes on income) imposed on oil or natural gas, attributable to the Interests or the ownership or sale of production therefrom;

(ii) Excess Costs for the preceding month (including the Excess Costs carried forward from any preceding month subsequent to the Effective Time).

(d) The term “Excess Costs” shall mean, for each calendar month, the excess, if any, of Costs (exclusive of capital costs) over revenue attributable to the sale of production from the Interests and actually received during any calendar month by or on behalf of Owner net of any Lease Burdens on production which are borne by the Interests and were created prior to the Effective Time for the respective Interests.

7. Compensation. Compensation to Manager under the Operating Agreement and under this Agreement shall be as follows:

(a) As sole consideration for the services to be rendered by Manager under the Operating Agreement, Owner shall pay Manager $2,500.00 per calendar month plus $500.00 per month for each well over six (6) xxxxx with respect to which Manager serves as the operator under the Operating Agreement, which sum shall cover all non-third party costs of operations.

(b) As sole consideration for the services to be rendered by the Manager under this Agreement, and commencing with the first (if any) full fiscal quarter of Owner at the beginning of which (i) the Aggregate Investment Amount (as defined below) equals zero ($0.00) and (ii) Owner does not reasonably believe that it will require additional funding in order to meet its obligations under Section 8 of this Agreement or any other legal obligations relating to the Interests, the Manager shall accrue a quarterly fee (the “Management Fee”) equal to the excess of (X) 66.7% of the Net Operating Cash Flow attributable to Owner from the Interests, computed without taking into consideration the fees payable under this Section 7, with respect to each full fiscal quarter of Owner over (Y) all amounts owing to Owner under the Purchase and Sale Agreement and all operating and administrative expenses of Owner relating directly to the Interests (in each case to the extent not already deducted from a prior payment of the Management Fee or otherwise reimbursed or paid by the Manager). The Management Fee shall be payable with respect to each quarter within 45 days after the end thereof. The term “Net Operating Cash Flow” shall mean, for any period, the positive difference remaining after deduction of all (i) Costs attributable to production from the Subject Interests from (ii) revenues attributable to the Interests, all for such period.

“Aggregate Investment Amount” means, at any time of calculation, the sum of (i) $18,457,175.88, plus (ii) Manager’s and Owner’s legal and other expenses related to closing the Purchase and Sale Agreement and which are funded by Owner, plus (iii) the aggregate amount contributed through such time in accordance with Section 9 of this Agreement, together with interest on such amounts accruing on a daily basis (in the case of (i) and (ii), from the date such amounts were initially made available to Manager or to third parties through lending arrangements or otherwise, and in the case of (iii), from the date of each contribution as applicable) at an annualized rate of 8%, less all Net Operating Cash Flow received by Owner through such time.

8. Purchase and Sale Options. Manager shall have the right and option to acquire all, but not less than all, the Interests from Owner (the "Purchase Option"), and Owner shall have the right and option to sell all, but not less than all, the Interests to Manager (the “Sale Option”), according to the following terms and conditions:

(a) The term “Repayment Date” shall mean that date upon which the Aggregate Investment Amount equals zero ($0.00). Owner shall provide to Manager written notice of the achievement of the Repayment Date not less than 30 days after the Repayment Date occurs.

(b) Manager shall be entitled to exercise the Purchase Option at any time after the one-year anniversary of the Repayment Date.

(c) Owner shall be entitled to exercise the Sale Option at any time after the two-year anniversary of the Repayment Date.

(d) To be entitled to exercise its respective option, the party wishing to exercise its option shall give written notice to the other party of its intent to exercise its option (the “Option Notice”), said Option Notice to be delivered not less than sixty days prior to the desired date of transfer of the Interests to Manager (the “Option Closing Date”). The Option Notice shall (i) set forth the estimated Option Closing Date; (ii) state the exercising party’s valuation of the price at which the Interests shall be acquired by Manager (the “Option Price”); (iii) set forth the exercising party’s calculation of the Option Price; and (iv) provide reasonable data in support of that calculation.

(e) The Option Price shall be calculated as follows:

(i) If the Purchase Option is exercised prior to the two-year anniversary of the Repayment Date, the Option Price shall be two times sum of (A) the Net Operating Cash Flow accruing to Owner during the twelve-calendar-month period immediately preceding the month in which the Option Notice is delivered, computed without taking into consideration the fees payable under Section 7(a) hereof, and (B) the amount of any Costs during such period that are capital costs.

(ii) If the Purchase Option is exercised at or after the two-year anniversary date of the Repayment Date, the Option Price shall be equal to the sum of (A) the Net Operating Cash Flow accruing to Owner during the twenty-four-calendar-month period immediately preceding the month in which the Option Notice is delivered, computed without taking into consideration the fees payable under Section 7(a) hereof, and (B) the amount of any Costs during such period that are capital costs.

(iii) If the Sale Option is exercised, the Option Price shall be equal to the sum of (A) the Net Operating Cash Flow accruing to Owner during the thirty-calendar-month period immediately preceding the month in which the Option Notice is delivered, computed without taking into consideration the fees payable under Section 7(a) hereof, and (B) the amount of any Costs during such period that are capital costs.

(f) Not less than 15 days following delivery of an Option Notice, the party receiving the Option Notice shall provide written acceptance of, or objection to, the Option Price set forth therein, and in the case of objection the writing shall (i) state the bases for objection, and (ii) provide the objector’s calculation of the Option Price which it believes should apply.

(g) If the non-exercising party disagrees with the exercising party’s Option Price, the parties shall negotiate in a good faith attempt to agree upon the Option Price. If no agreement is reached within 45 days after delivery of the Option Notice, the Option Price using the applicable valuation formula shall be determined in accordance with the terms of this Section 8 by an independent Certified Public Accountant with not less than ten years of oil and gas revenue accounting experience (the “Valuation Party”).

(h) The term “Valuation Date” shall mean the earlier to occur of (i) the non-exercising party’s acceptance of the exercising party’s Option Price in the Option Notice; (ii) the parties’ subsequent agreement upon the Option Price in the case of an objection, or (iii) determination of the Option Price by the Valuation Party.

(i) If the Sale Option is exercised, Manager shall have the option to make payment, in lieu of cash consideration, by issuing or causing to be issued to Owner registered shares of Capco Energy, Inc. common stock at an initial value of $0.20 per share. Such value shall be adjusted to reflect stock splits, stock dividends, recapitalizations, and the like, and shall be adjusted down to the lowest price per share at which Capco Energy, Inc. sells any shares of its common stock after the date hereof, including any securities convertible into common stock or conferring the right to purchase common stock.

(j) Upon a party’s exercise of its Option, the closing pursuant to the Option (the “Option Closing”) shall occur within 60 days of the Valuation Date. Each party agrees to execute and deliver any and all documents reasonably requested to effectuate the transfer of the Interests to Manager. Without limiting the generality of the foregoing, such transfer shall be effectuated on an “as-is, where-is” basis and without any post-transfer obligations of any kind on the part of Owner. Failure by a party to execute and deliver the required documentation will be deemed a breach, and the party not in breach will be authorized to seek injunctive relief and to pursue any and all legal remedies available to it.

(k) Insolvency. The Purchase Option shall terminate upon any insolvency of, or commencement of bankruptcy proceedings by or against, Manager.

(l) Tax Reporting. Each of the parties agrees, upon reasonable notice and during normal business hours, to provide the other party with access to the records in such party's possession or control as may be required to be examined or copied in connection with the accounting or reporting of this transaction to taxing authorities and in connection with responding to audits or inquiries by taxing authorities.

9. Additional Funding; Issuance of Warrants.

(a)

If (i) the Manager and Owner mutually agree that Owner will fund additional working capital requirements of the Interests or (ii) Owner receives any claim, invoice or other notice from a third party alleging or otherwise indicating that Owner is required to make any payment or take any action in connection with the Interests, and Owner reasonably believes that it requires additional funding in order to make such payment, take such action or defend itself in connection with such claim, invoice or notice, Owner (A) in the case of clause (i) above, shall and (B) in the case of clause (ii) above, may contribute such funds (in debt, equity or any combination thereof at its sole discretion), to such extent, from time to time. As conditions precedent to Owner’s obligation to make any such contribution contemplated by clause (i) above, the Manager shall (X) issue or cause to be issued to Owner a warrant pursuant to Section 9(b) and (Y) have fully performed all obligations to be performed by it under the Purchase and Sale Agreement, the Operating Agreement, and any operating agreement in effect as to properties operated by third parties, except those obligations for which the time for performance has not then expired.

(b) In the event of any additional funding of Owner pursuant to Section 9(a), Manager shall issue or cause to be issued to Owner a warrant (in form and substance as set forth on Exhibit C hereto, “Warrant”) simultaneously with Owner’s funding of each such contribution, to purchase a number of shares of common stock of the Manager, par value $0.001 per share, equal to the Market Price (as defined in the Warrant) times 33.34% of the equity or principal amount of debt of such contribution, at an exercise price per share of $0.1952. Any contribution made by Owner prior to the issuance by Manager of such Warrant shall not be deemed a waiver of Manager’s obligation to issue such Warrant.

10. Exculpation. Neither Manager nor any parent, subsidiary, affiliate, officer or employee or any of them shall be liable to Owner for any losses sustained or liabilities incurred as a result of any act or omission of Manager or any agent or employee of it except as may result from bad faith, negligence, willful misconduct or breach of this Agreement by such an agent or employee. Manager shall never be liable to Owner as a fiduciary and in all its dealings shall perform its obligation hereunder as a reasonable prudent manager.

11. Accounting and Disbursements. Manager will maintain general accounting records relating the operation of the Interests in accordance with generally accepted accounting principles. Manager shall collect funds generated by the Interests; shall promptly pay and discharge all costs and expenses incurred in the operation of the Interests pursuant to this Agreement; and shall provide quarterly reports to owner relating to the Interests. All records maintained by Manager pursuant to the provisions of this Section 11 shall be made available for inspection and copying by Owner, upon request by Owner, at Manager’s offices during normal business hours.

12. Term. The term of this Agreement shall commence on May 4, 2005 and shall terminate on the Termination Date. The “Termination Date” shall be the earlier of (a) that date on which is effective reassignment of the Interests to Manager pursuant to either the Purchase Option or the Sale Option, and (b) any insolvency of, or commencement of bankruptcy proceedings by or against, Manager. In any event this Agreement shall automatically terminate upon the Termination Date. The termination of this Agreement shall not affect the rights or liabilities of either Manager or Owner under the Operating Agreement.

13. Remedies Upon Default. If, prior to the Termination Date, Manager shall fail to perform or observe any of the covenants, agreements or obligations herein provided to be performed or observed by Manager, Owner, in addition to Owner’s right to recover damages and all other remedies available to Owner hereunder or at law or in equity, may, if such failure shall continue unremedied after ten (10) days from delivery to Manager of written notice thereof (unless within such ten (10) days, Manager has begun to cure such noncompliance in a manner satisfactory to Owner and Manager continues to diligently pursue such curative actions until such failure is remedied to the satisfaction of Owner), perform or cause to be performed such act at Manager's expense, in which event Owner may expend funds for such purpose, and Owner, upon written notice to Manager, shall be entitled to receive all proceeds payable to Manager pursuant to this Agreement to reimburse Owner for any amounts so expended plus interest on any such amounts at the rate of eight percent (8%) per annum from the dates such amounts were advanced by Owner until the dates on which Owner recovers said amounts from Manager. Additionally, Owner shall be entitled to offset and reduce (i) any payments otherwise due and owing Manager under this Agreement, (ii) any amounts otherwise due and owing to Manager under the Bridge Note, and (iii) any amounts otherwise due and owing to Manager, under the provisions of this Agreement or the Purchase and Sale Agreement, to recover any amounts so advanced by Owner plus interest thereon at the rate herein above stated. To secure all of the obligations owed by Manager to Owner under the terms of this Agreement and the Purchase and Sale Agreement, Manager hereby grants, bargains, sells and assigns to Owner a first and prior lien and security interest (a) upon Manager's Purchase Option, and (b) upon the oil and gas production attributable to the Interests pursuant to this Agreement, the proceeds from the sale of oil or gas at the wellhead, and all accounts relating thereto. To perfect the lien and security interest provided herein, Manager agrees to execute and acknowledge a recording supplement and/or financing statement prepared and submitted by Owner in connection herewith or at any time following execution hereof. Further, Manager hereby authorizes Owner to file this Agreement or any recording supplement executed in connection herewith as Manager's agent and attorney in fact as a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform Commercial Code in the state in which the Interests are located in order to perfect the security interests granted herein. Upon material default by Manager with respect to any of its obligations hereunder and Manager's failure to remedy such default within sixty (60) days of receipt of notice thereof as hereinabove provided, or Manager’s failure to commence diligent efforts to cure such default within said sixty-day period and thereafter to proceed with diligence to cure, Owner shall have the right, without prejudice to other rights or remedies, to terminate this Agreement, take possession and control of the Interests (to the exclusion of Manager) and to collect from the purchaser(s) of production from the Interests proceeds otherwise payable to Manager until the amount owed by Manager to Owner plus interest at the rate hereinabove stated shall have been paid in full. Each purchaser shall be entitled to rely upon Manager's written statement concerning the amount of any default.

14. No Partnership. This Agreement is not intended to create, and shall not be construed to create, a relationship of partnership, mining partnership, joint venture or an association for profit between the parties hereto.

15. Force Majeure. If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this Agreement, other than the obligation to make money payments, that party shall give to the other party prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far as they are affected by the force majeure, shall be suspended during the continuance of the force majeure. The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The term “force majeure” shall mean act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other cause, whether of the kinds specifically enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension. Nothing herein shall require the settlement of labor difficulties by any party contrary to its wishes.

16. Independent Contractor. In all things hereunder, Manager shall be an independent contractor not subject to the control or direction of Owner except as to the type of operations to be undertaken in accordance with the terms of this Agreement. Manager shall not be deemed, or hold itself out as, the agent of Owner with authority to bind it to any obligation or liability assumed or incurred by Manager as to any third party.

17. Assignment and Binding Effect. This Agreement shall be binding upon the parties hereto, their successors and assigns, except that this Agreement shall not be assigned by Manager, without the express written consent of Owner, but this Agreement may be assigned in whole or in part by Owner.

18. Notices. Notices authorized or required hereunder shall be given by governmental mail, telegram or other telegraphic means, postage or charges prepaid, or confirmed telecopy, addressed to the party to whom the notice is given at its address set out in the Purchase and Sale Agreement. All notices are deemed given when received. Each party may change its address by giving written notice to the other.

19. Applicable Law. This Agreement shall be construed under and governed by the laws of the State of Texas, without regard, however, to the conflicts of laws provisions thereof.

20. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall be in force when one or more counterparts have been signed by each of the parties.

21. Rule Against Perpetuities Savings. This Agreement shall be construed so as not to violate the Rule Against Perpetuities (“RAP”). If Sections 8(b) or 8(c) hereof should be determined to violate the RAP, the time for exercising the Option shall be deemed to be twenty-one (21) years, less one day, from the date hereof.

22. Additional Properties. From time to time Manager and Owner may by mutual consent agree to add properties to this Management Agreement. The addition of such properties to this Management Agreement shall be evidenced in writing executed by all the parties hereto.

IN WITNESS WHEREOF, the parties have executed this Management Agreement as of the date first above written.


	CAPCO OFFSHORE, INC.

	By:
		Name:
		Title:


	CAPCO ENERGY, INC.

	By:
		Name: Xxxxx Xxxxxxxxx
		Title: Chief Executive Officer


	HOACTZIN PARTNERS, L.P.

	By:	DOLPHIN ADVISORS, LLC
		Its General Partner

	By:	DOLPHIN MANAGEMENT INC.
		Its Managing Member

	By:

	Name:	Xxxxx Xxxxx
	Title	President
	Date:

EXHIBIT “A”

To Management Agreement between

CAPCO OFFSHORE, INC. and HOACTZIN PARTNERS, L.P.

DESCRIPTION OF PROPERTIES

A. BRAZOS INTERESTS

BRAZOS 440L/441L/406L/407L

INSOFAR AND ONLY INSOFAR as the above leases are included within the 440L Unit more fully described as the following:

90 acres out of State Tract 406L, and being all of the southeast one-quarter (SE/4) of the southeast one-quarter (SE/4) of the southeast one-quarter (SE/4) of State Tract 406L.

XXXXX

Well Name		Working Interest			Net Revenue Interest
Brazos 440L	I-1		30.00	%		24.69999	%
Brazos 440L	4012		30.00	%		24.69999	%

OPTION WELL

Brazos 440L

A-1

30.00

24.69999

State Easement ME 85-234, granted by the State of Texas, General Land Office, unto Conquest Exploration Company to construct a 3 ½ inch pipeline.

State Easement ME 85-233, granted by the State of Texas, General Land Office, unto Conquest Exploration Company to construct a 4 ½ inch pipeline.

State Easement ME 85-169, granted by the State of Texas, General Land Office, unto Conquest Exploration Company to construct a 12.75” pipeline.

BRAZOS 478L/479L

XXXXX

Name		Working Interest			Net Revenue Interest
Brazos 478L #2			30.00	%		22.950	%

State Easement ME 970029, granted by the State of Texas, General Land Office, unto American Exploration Company for a 30’ wide easement.

State Easement ME 970031, granted by the State of Texas, General Land Office, for the 478L #2 well.

B. HIGH ISLAND INTERESTS

Seller Lease No.:		0408360-001 - OCS-G 00000
Xxxxxx:		The United States of America
Lessee:		Exxon Corporation
Effective Date:		October 1, 1983
Lands Covered:		All of Block 196, High Island Area, OCS Leasing Map, Texas Map No. 7, LESS AND EXCEPT in the N/2, SW/4, and W/2SE/4 the Operating Rights in all depths below the base of the stratigraphic equivalent of the MM5 sand found at 12,430' MD and 9,484 TVD in the OCS-G 06168, No. B-2 Well, (API 427084034900), and LESS AND EXCEPT in the E/2SE/4 the Operating Rights as to all depths.

Interest:		Record Title Interest 100.00%,
		Net Revenue Interest BPO 78.33333%; APO 83.33333%
		The Before Payout (“BPO”) net revenue interest shown above reflects a 5.0% of 8/8ths overriding royalty retained by ExxonMobil as to which payout occurs once an aggregate $1,500,000 has been paid; thus, the After Payout (“APO”) net revenue interest is stated. This Interest also is subject to the Retained Revenue Interest, in favor of ExxonMobil, provided for by Section 3.04(b) of the ExxonMobil Agreement.

PIPELINE RIGHT-OF-WAY

	Right-of-way No.:	1027360 - OCS-G 21466
	Grantor:	The United States of America
	Grantee:	Exxon Mobil Corporation
	Effective Date:	February 22, 2001
	Right-of-way Description:	OCS-G 21466, Segment No. 12379 Pipeline Right-of-way for 10-3/4 inch pipeline from HI 176 "B" Platform to a side tap SSTI on Xxxxxxxx Field Services - Offshore Gathering Company's Existing 12 inch Pipeline (OCS-G 12370 - Segment 13143, formerly 9208) in Block 177.

	Interest:	100.00%

RIGHT-OF-USE AND EASEMENT PLATFORM "B" HIGH ISLAND BLOCK 176

	Right-of-use and easement No.:	Formerly 1029764 - OCS-G 23586 - to be determined after Closing
	Grantor:	The United States of America
	Grantee:	Formerly Exxon Mobil Corporation - to be Capco Offshore after Closing
	Effective Date:	Formerly March 10, 2003 - to be determined after Closing
	Right-of-use and easement description:	OCS-G 23586 - Right-of-use and easement to maintain Platform B in High Island, Block 176, expired lease, for the purposes of producing Xxxxx X-0, X-0, X-0, and B-2d (sidetrack), Xxxx Xxxxxx, Xxxxx 000, XXX-X 06168.

2.	Interest:	100%

SUBJECT TO THE FOLLOWING CONTRACTS

1.	Contract No.:	1001917 - Operating Agreement
	Parties:	Xxxx-Xxxxxxx Oil Company and Exxon Corporation
	Effective Date:	September 1, 1988
	Lands Covered:	Covering Xxxx Xxxxxx Xxxxx 000, Xxxxxxxx Xxxxx.

2.	Contract No.:	1001939 - Farmout Agreement
	Parties:	Xxxx-Xxxxxxx Oil Company and Exxon Corporation
	Effective Date:	September 1, 1988
	Lands Covered:	Covering Xxxx Xxxxxx Xxxxx 000, Xxxxxxxx Xxxxx.

3.	Contract No.:	0408358-001 - Platform and Facilities Agreement
	Parties:	Xxxx-Xxxxxxx, Exxon Corporation et al
	Effective Date:	September 1, 1988
	Lands Covered:	Platform "A" (Platform ID No. 10468-1) located on High Island Block 176, including but not limited to the compressors, the facilities and the 10" sales line from Platform "A", High Island Block 176 to the subsea tap valve located in High Island Block 140 on Transco's 24" pipeline.

4.	Contract No.:	1029891 - Farmout Agreement
	Parties:	Exxon Mobil Corporation and Spinnaker Exploration Oil Company
	Effective Date:	May 30, 2003
	Lands Covered:	XX/0XX/0 Xxxx Xxxxxx Xxxxx 000, XXX-X 06168

5.	Contract No.:	210466000 - Lateral Line Interconnect, Platform Use and Operation Agreement
	Parties:	WFS - Offshore Gathering Company, Seller Production Company and Apache Corporation
	Effective Date:	Xxxxx 0, 0000
	Xxxxx Covered:	The HI 176 B & C Gas Gathering System, being the pipeline from the base of the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly located in HI 177.

6.	Contract No.:	210466000-1 - Letter Agreement - Construction and Operation of Gathering Pipeline, High Island Block 176 and 177
	Parties:	Seller Production Company, Apache Corporation, Forcenergy Inc. and Ridgewood Energy Corporation
	Effective Date:	October 10, 2000
	Lands Covered:	The HI 176 B & C Gas Gathering System, being the pipeline from the base of the HI 176 B and HI 176 C risers to the WFS underwater tie-in assembly located in HI 177.

SUBJECT TO THE FOLLOWING PIPELINE RIGHTS-OF-WAY

1.	Pipelines:	0404358-002
		Pipeline Right-of-Way OCS-G 10515, Segment No. 8569

		0408360-002
		Pipeline Right-of-Way XXX-X 00000, Segment No. 8943

		0408360-003
		Pipeline Right-of-Way XXX-X 00000, Segment No. 8705

		0408360-004
		Pipeline Segment No. 11303

C. GALVESTON INTERESTS

LEASES

A.	Serial No.:	OCS-G 21324
	Date:	December 1, 1999
	Lessee:	Union Oil of California
	Land Covered:	Galveston Area Block 297, OCS Leasing Map, Texas Map No. 6, containing approximately 5760 acres.

D.	Serial No.:	OGS-G 25534
	Date:	November 1, 2003
	Lessee:	Fidelity Exploration & Production Company, et al.
	Land Covered:	Galveston Area Block 287, OCS Leasing Map, Texas Map No. 6, containing approximately 5760 acres.

E.	Serial No.:	OCS-G 25536
	Date:	October 1, 2003
	Lessee:	Gryphon Exploration Company
	Land Covered:	Insofar only as to the E/2 NE/4 Galveston Area Block 298, OCS Leasing Map, Texas Map No. 6,
		containing approximately 720 acres.

XXXXX

Name	Working Interest	Net Revenue Interest
GA 297 #1	30.00% WI - BPO	30% x 5/6 NRI - BPO*
	25.50% WI - APO	25.5% x 5/6 NRI - APO*

SUBJECT TO THE FOLLOWING PRIOR AGREEMENT

SUBJECT TO THE FOLLOWING BURDENS

D. CHANDELEUR INTERESTS

Schedule of Xxxxx

Well Name	API	Operator	Working Interest	Net Revenue Interest
CA Blk. 30 #1 (Hustler)	0000000000	Capco	1.000	0.79833333
CA Blk. 30 #3 (Seamaster)	1772840060	Capco	1.000	0.79833333
CA Blk. 27 #2 (Fireball)	1772840062	Capco	1.000	0.77892924
Biloxi Xxxxx XX #1-2	1708720315	MERIDIAN	0.145357	0.106111
PXP SL 17656 #2 (Fiesta)	1708720327	PXP	0.4375	0.328125
PXP CA 30 #2 (Hustler West)	1772840059	PXP	0.4375	0.3764583
PXP SL 17812 #1 (Avenger)	1773020034	PXP	0.4375	0.328125
PXP SL 17389 #1 (Prowler)	1773020036	PXP	0.4375	0.338125
PXP SL 17388#1(Catalina)	1773020035	PXP	0.4375	0.338125
PXP SL 17387#1 (Skyraider Dp.)	1773020038	PXP	0.4375	0.338125
PXP XX 00000#0(Xxxx Xxxxx)	0000000000	PXP	0.4375	0.338125

Schedule of Leases

LEASES

LESSOR	LESSEE	DATE	RECORDING INFO.
USA-Mineral Management Service- OCS-G 24002***	Manti Resources, Inc.	0/0/0000	X/X
Xxxxx xx Xxxxxxxxx - Xx. 00000	Xxxxx Corporation	3/18/2002	COB 717, Folio 339/MLB 116,Folio 6, Entry 397916, St. Xxxxxxx Xxxxxx, LA
USA-Mineral Management Service- OCS-G 24001***	Manti Resources, Inc.	5/1/2002	N/A
Xxxxx Xxxxxx Xxxxxx Quatroy, et al *	Manti Resources, Inc.	5/9/2001	COB 696, Folio 731/MLB 113, Entry #384834, St. Xxxxxxx Xxxxxx, LA
LAC Real Estate Holdings, L.L.C.*	Louisiana Oil and Gas, Inc.	5/3/2001	COB 696, Folio 724/MLB 113, Entry #384833, St. Xxxxxxx Xxxxxx, LA
Biloxi Xxxxx Lands Corporation*	White Mountain Royalty Corporation	10/26/2000	Memo-COB 694,MLB 112,Entry 383297,St. Xxxxxxx Xxxxxx, LA
State of Louisiana - No. 17656	WLB Investments, Inc.	11/18/2002	COB 730, Folio 182/MLB 118, Folio 98, Entry #406251, St. Xxxxxxx Xxxxxx, LA, NA # 03-03420, Instrument # 000000, Xxxxxxx Xxxxxx, XX.
State of Louisiana - No. 17812	Manti Jamba,Ltd.,et al	5/19/2003	COB 738, Folio 793/MLB 000, Xxxxx 00, Xxxxx #000000,Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17389	Xxxxx Corporation	3/18/2002	COB 717, Folio 387/MLB 000, Xxxxx 00, Xxxxx #000000,Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17388	Xxxxx Corporation	3/18/2002	COB 717, Folio 375/MLB 000, Xxxxx 0, Xxxxx #000000,Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17387**	Xxxxx Corporation	3/18/2002	COB 717, Folio 363/MLB 000, Xxxxx 0, Xxxxx #000000,Xx. Xxxxxxx Xxxxxx, XX
Xxxxx of Louisiana - No. 17390	Xxxxx Corporation	3/18/2002	COB 717, Folio, 399,/MLB 000, Xxxxx 00, Xxxxx #000000,Xx. Xxxxxxx Xxxxxx, XX

EXHIBIT “B”

To Management Agreement between

CAPCO OFFSHORE, INC. and HOACTZIN PARTNERS, L.P.

OPERATING AGREEMENT

EXHIBIT “C”

To Management Agreement between

CAPCO OFFSHORE, INC. and HOACTZIN PARTNERS, L.P.

WARRANT FOR ISSUANCE OF STOCK

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PURCHASE AND SALE AGREEMENT BETWEEN CAPCO OFFSHORE, INC. As Seller AND HOACTZIN PARTNERS, L.P. As Buyer May 4, 2005

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