Public Offering Registration - ATP OIL & GAS CORP - 9-18-2000 by ATPG-Agreements

VIEWS: 5 PAGES: 359

									As filed with the Securities and Exchange Commission on September 18, 2000 Registration No. 333-

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

ATP Oil & Gas Corporation
(Exact name of registrant as specified in its charter)
Texas (State or other jurisdiction of incorporation or organization) ---------------1330 (Primary Standard Industrial Classification Code Number) 76-0362774 (I.R.S. Employer Identification No.)

4600 Post Oak Place, Suite 200 Houston, Texas 77027 (713) 622-3311 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Albert L. Reese, Jr. Senior Vice President and Chief Financial Officer ATP Oil & Gas Corporation 4600 Post Oak Place, Suite 200 Houston, Texas 77027 (713) 622-3311 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Keith R. Fullenweider Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Houston, Texas 77002-6760 (713) 758-2222

Copies to:

Darrell W. Taylor Baker Botts L.L.P. 3000 One Shell Plaza 910 Louisiana Houston, Texas 77002 (713) 229-1234

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]

CALCULATION OF REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Title of each class of Proposed Maximum Amount of securities to be registered Aggregate Offering Price (1) Registration Fee (2) ------------------------------------------------------------------------------------------------------Common Stock, par value $.001 per share............. $172,500,000 $45,540 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. (2) Calculated pursuant to Rule 457(a) under the Securities Act of 1933 based on an estimate of the proposed maximum offering price. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++ +The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +Securities and Exchange Commission is effective. This prospectus is not an +offer to sell these securities and is not soliciting an offer to buy these +securities in any state where the offer or sale is not permitted. + + + +

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, dated September 18, 2000 PROSPECTUS Shares ATP OIL & GAS CORPORATION Common Stock

This is our initial public offering of common stock. We are offering up to shares of common stock. No public market currently exists for our shares. We propose to list our common stock on the Nasdaq National Market under the symbol "ATPG." The anticipated price range is $ to $ per share. Investing in the shares involves risks. "Risk Factors" begin on page 9.
Per Share -----Public Offering Price....................................... $ Underwriting Discount....................................... $ Proceeds to ATP Oil & Gas Corporation....................... $ Total ----------$ $ $

We have granted the underwriters a 30-day option to purchase up to additional shares of common stock on the same terms and conditions as set forth above to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about , 2000.

Lehman Brothers CIBC World Markets Dain Rauscher Wessels Raymond James & Associates, Inc. Fidelity Capital Markets a division of National Financial Services LLC , 2000

TABLE OF CONTENTS
Page ---1 9 16 17 17 18 19 20 22 Page ---31 47 53 54 55 58 60 62 62 63 F-1

Prospectus Summary....................................................... Risk Factors ............................................................ Cautionary Statement About Forward-Looking Information................... Use Of Proceeds.......................................................... Dividend Policy.......................................................... Dilution................................................................. Capitalization........................................................... Selected Historical and Pro Forma Financial Data......................... Management's Discussion And Analysis Of Financial Condition And Results Of Operations...........................................................

Business And Properties.................................................... Management ................................................................ Related Party Transactions ................................................ Principal Shareholders .................................................... Description Of Capital Stock .............................................. Shares Eligible For Future Sale ........................................... Underwriting .............................................................. Legal Matters ............................................................. Experts ................................................................... Where You Can Find More Information ....................................... Index to Consolidated Financial Statements.................................

ABOUT THIS PROSPECTUS You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus. Until , 2000, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. We use some standard industry terms in this prospectus to describe our operations: Bbls. Barrels of crude oil or other liquid hydrocarbons. Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one bbl of crude oil, condensate or natural gas liquids. MBbls. Thousand barrels of crude oil or other liquid hydrocarbons. Mcf. Thousand cubic feet of natural gas. Mcfe. Thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one bbl of crude oil, condensate or other liquid hydrocarbons. MMBls. Million barrels of crude oil or other liquid hydrocarbons. MMBtu. Million British Thermal Units. MMcf. Million cubic feet of natural gas. MMcfe. Million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one bbl of crude oil, condensate or other liquid hydrocarbons. Proved developed reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves. Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for completion or recompletion. i

PROSPECTUS SUMMARY This summary highlights selected information from this prospectus, but does not contain all information that may be important to you. This prospectus includes specific terms of this offering, information about our business and financial data. We encourage you to read this prospectus in its entirety before making an investment decision. Also, unless otherwise indicated, this prospectus assumes no exercise of the underwriters' over-allotment option. About ATP Oil & Gas Corporation ATP is engaged in the acquisition, development and production of natural gas and oil properties primarily in the outer continental shelf of the Gulf of Mexico. We recently have entered into agreements to expand our business to include the acquisition and development of properties in the shallow-deep waters of the Gulf of Mexico and in the Southern Gas Basin of the U.K. North Sea. We focus our efforts on natural gas and oil properties with proved undeveloped reserves that are economically attractive to us but are not strategic to major or exploration-oriented independent oil and gas companies. We attempt to achieve a high return on our investment in these properties by limiting our up-front acquisition costs and by developing our acquisitions quickly. Our management team has extensive engineering, geological, geophysical, technical and operational expertise in successfully developing and operating properties in both our current and planned areas of operation. We have increased our reserves and production exclusively through the acquisition and development of proved natural gas and oil properties. During 1999, we replaced 413% of 1999 production through these activities and we have achieved an average reserve replacement ratio of 318% for the past three years. We have leasehold and other interests in 40 offshore blocks, 20 platforms and 50 wells, including five subsea wells, in the federal waters of the Gulf of Mexico. We operate 45 of these 50 wells, including all of the subsea wells, and 90% of our offshore platforms. Based on our proved reserves at December 31, 1999, our average working interest in our properties is approximately 90%. As of December 31, 1999, our estimated net proved reserves were 104.1 Bcfe, 90% of which was natural gas. At December 31, 1999, our net proved reserves had an estimated pre-tax PV-10 of $156.3 million based on prices of $2.28 per MMbtu of natural gas and $25.59 per barrel of oil. We produced approximately 17.3 Bcfe in 1999, an increase of 74% over the previous year. At December 31, 1999, proved developed reserves comprised 69% of our total reserves and our reserve life index for total proved reserves was six years. As a result of our acquisition and development strategy, from 1995 to 1999, we increased our net proved reserves at a compound annual growth rate of 262%, production at a compound annual growth rate of 206%, oil and gas revenues at a compound annual growth rate of 182% and EBITDA at a compound annual growth rate of 371%. Since 1996, our EBITDA has consistently averaged 60% to 70% of total revenues. We believe substantial additional acquisition opportunities still exist in the outer continental shelf of the Gulf of Mexico. We also believe that our business model is well suited for our expansion into the shallow-deep waters of the Gulf of Mexico, generally water depths of 600 to 3,000 feet, and into the Southern Gas Basin of the U.K. North Sea. We were listed on the 1999 Inc. 500 as the 21st fastest growing U.S. privately held company and the fastest growing energy company. During 2000, we received a Growing with Technology Award from Inc./Cisco for innovative utilization of technology in offshore oil and gas development. In 1999, we received the Best Field Improvement Award by Hart's Oil and Gas World for utilizing a horizontal subsea wellhead with an 11 mile direct hydraulic umbilical to develop a project in 520 feet of water. Also in 2000, we received Blue Chip Enterprise recognition from MassMutual, and our company president and founder, T. Paul Bulmahn, was selected Entrepreneur Of The Year in Energy & Energy Services by Ernst & Young. 1

Our Business Strategy Our business strategy is to enhance shareholder value primarily through the acquisition, development and production of proved undeveloped natural gas and oil reserves in areas that have: . substantial existing infrastructure and geographic proximity to well- developed markets for natural gas and oil; . a large number of properties that major oil companies, exploration- oriented independents and others consider non-strategic; and . a history of government stability with consistently applied regulations for offshore natural gas and oil development and production. To date, our area of concentration has been on the outer continental shelf of the Gulf of Mexico, which exhibits each of the above characteristics. We believe these characteristics are also present in the shallow-deep waters of the Gulf of Mexico and in the Southern Gas Basin of the U.K. North Sea, where we are actively pursuing the acquisition and development of properties with proved undeveloped reserves. We implement our business strategy through the following two steps: . Acquisition. We continually review opportunities to acquire proved natural gas and oil reserves that are not strategic to the companies from which we acquire them. Because we focus on undeveloped properties, we are typically able to acquire our properties by granting overriding royalty interests and for a minimal cash outlay. . Development and Production. We focus on developing projects in the shortest time possible between initial investment and first revenue generated in order to maximize our rate of return. Since we usually operate the properties in which we acquire a working interest and begin a development program with proved reserves, we are able to expeditiously commence a project's development. We typically initiate new development projects by simultaneously obtaining the various required components such as the pipeline and the production platform or subsea well completion equipment. This strategy, combined with our ability to rapidly evaluate and implement a project's requirements, allows us to complete the development project and commence production as quickly and efficiently as possible. Our Strengths . Operating Efficiency. We emphasize a low overhead and operating expense structure. For the six months ended June 30, 2000, our lease operating expense was $0.50 per Mcfe of production and our general and administrative expense was $0.21 per Mcfe of production. We believe that our focus on a low cost structure allows us to pursue the acquisition, development and production of properties that may not be economically attractive to others. For the three year period ended December 31, 1999, our total average cost incurred for finding and developing our net proved reserves was $1.28 per Mcfe. . Operating Control. We currently operate 90% of our offshore platforms and 100% of our subsea wells. Being an operator allows us greater control of costs, the timing and amount of capital expenditures, and the selection of completion and production technology. . Technical Expertise and Significant Experience. We have assembled an experienced management team and technical staff with specific expertise in offshore property development, including the implementation of subsea completion technology. Our staff has the following characteristics: . 61% of our employees have over 20 years of industry experience, 2

. 84% hold a bachelor's degree with 62% holding an advanced degree and/or professional certification, . 67% of those who hold masters degrees hold an MBA or MS in Finance. . Employee Ownership. Through employee ownership, we have built a staff whose business decisions are aligned with our shareholders. Prior to the offering, our employees own 100% of ATP. Following this offering, our employees will own % of ATP on a fully diluted basis. Significant Properties We have summarized our most significant properties in the tables below.
ATP ATP Net Revenue Working Interest Interest ---------------- ----------100% 100% 100% 100% 100% 100% 76% 80% 77% 82% 62% 82% As of 6/30/00 July 2000 Net Proved Reserves (1)Average Daily ---------------------- Production Bcfe % Gas % Developed (MMcfe) (2) ---- ----- ----------- ------------16.8 16.1 15.2 6.4 4.6 3.5 100 68 100 92 98 92 71 36 93 100 100 100 8.7 8.7 11.8 3.7 6.5 9.6 16.9 ---65.9 ====

Significant Producing Properties -------------------Gulf of Mexico-Shelf High Island A-354....... Eugene Island 30........ Vermilion 410 Field..... East Cameron 240........ Brazos 544.............. High Island A-253....... Other properties........ Total.................

ATP Significant ATP Net Revenue Projected Development Properties Working Interest Interest Bcfe % Gas Production Date ---------------------- ---------------- ----------- ----------- ----------- ------------------Gulf of Mexico-Shelf West Cameron 635........ 100% 80% 7.7 94 First quarter 2001 Vermilion 63............ 100% 76% 4.4 94 Fourth quarter 2000 Main Pass 282........... 100% 79% 3.9 92 First quarter 2001 Vermilion 260........... 100% 79% 3.8 97 Fourth quarter 2000 West Cameron 492........ 50% 36% 3.4 100 Fourth quarter 2000 Gulf of Mexico-ShallowDeep Waters Garden Banks 409 (Ladybug).............. 50% 39% 19.4 35 Second quarter 2001 Southern Gas Basin-U.K. North Sea Block 49/12a (Venture) (4).................... 50% 50% 18.1 99 First quarter 2002

As of 6/30/00 Net Proved Undeveloped Reserves (3) -----------------------

(1) Estimates of net proved reserves are based on our third party independent reserve reports as of December 31, 1999, mechanically adjusted to June 30, 2000 to account for projected production. (2) Reflects our net revenue interest in each property. (3) Estimates of net proved undeveloped reserves for our properties under development are derived from our internal reserve reports. (4) We have an executed letter of intent to acquire 50% of this property and expect to close the acquisition in the fourth quarter of 2000. 3

Risks Related to Our Strategy Prospective investors should carefully consider the matters set forth under the caption "Risk Factors," as well as the other information set forth in this prospectus, including that the market for attractive opportunities to replace our reserves may not be available, our reserve estimates are inherently uncertain, our results will be affected by the volatile nature of oil and gas prices and we have incurred operating losses in recent years. One or more of these matters could negatively affect our ability to successfully implement our business strategy. Our Executive Offices Our principal executive offices are located at 4600 Post Oak Place, Suite 200, Houston, Texas 77027, and our telephone number is (713) 622-3311. Our website is located at www.atpog.com. Information contained in our website is not part of this prospectus. 4

The Offering
Common stock offered by ATP........................ shares Common stock to be outstanding after the offering.. shares Use of proceeds.................................... We intend to use the net proceeds of this offering to repay all outstanding indebtedness under our credit agreements, to fund our acquisition and development program for the remainder of 2000 and a portion of 2001, and for general corporate purposes. Proposed Nasdaq National Market symbol............. ATPG

The number of shares of common stock outstanding after the offering does not include outstanding options to purchase a total of 827,000 shares of common stock as of August 31, 2000, at prices of either $1.00 or $2.75 per share. This number also does not include options to purchase shares at the initial public offering price that are expected to be granted concurrently with the closing of this offering. 5

Summary Consolidated Financial Data The following table presents a summary of our historical and pro forma consolidated financial data. You should read the following data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.
Years Ended December 31, -------------------------------------------------Pro Forma 1997 1998 1999 1999 ----------- ----------- ----------- ----------(unaudited) Six Months Ended June 30, -----------------------1999 2000 ----------- ----------(unaudited)

Statement of Operations Data: Revenues: Oil and gas production............ Gas sold--marketing.... Total revenues........ Costs and operating expenses: Lease operating........ Gas purchased-marketing............. General and administrative........ Depreciation, depletion and amortization...... Impairment of oil and gas properties........ Other.................. Total operating expenses............. Net income (loss) from operations............. Other income (expense): Gain on sale of oil and gas properties........ Interest income........ Interest expense....... Income (loss) before income taxes and extraordinary item..... Income tax benefit...... Income (loss) before extraordinary item..... Gain on extinguishment of debt, net of tax.... Net income (loss)....... Weighted average number of common shares outstanding: Basic.................. Diluted................ Income (loss) per common share before extraordinary item: Basic.................. Diluted................ Net income (loss) per common share: Basic.................. Diluted................ Other Financial Data: EBITDA (1).............. EBITDA margin (2).......

(in thousands, except share and per share data) $ 7,359 -----------7,359 1,513 -1,170 4,206 5,787 -----------12,676 ----------(5,317) $ 20,410 -----------20,410 3,193 -2,591 17,442 5,072 -----------28,298 ----------(7,888) $ 34,981 7,703 ----------42,684 5,587 7,402 3,541 22,521 7,509 -----------46,560 ----------(3,876) $ 37,252 7,703 ---------44,955 6,289 7,402 3,541 22,744 7,509 ----------47,485 ---------(2,530) $ 18,323 3,423 ----------21,746 2,484 3,361 1,550 12,667 2,442 -----------22,504 ----------(758) $ 36,252 2,919 ----------39,171 6,422 2,802 2,738 16,695 6,255 749 ----------35,661 ----------3,510

304 -287 287 207 141 202 202 (1,212) (7,963) (9,399) (10,487) ----------- ----------- ----------- ---------(6,018) (15,710) (12,786) (12,528) --1,829 1,739 ----------- ----------- ----------- ---------(6,018) (15,710) (10,957) $ (10,789) ==========

-33 48 255 (6,078) (5,146) ----------- ----------(6,788) (1,348) (281) 474 ----------- ----------(7,069) 29,185 ----------$ 22,116 =========== (874) -----------$ (874) ===========

--29,185 ----------- ----------- ----------$ (6,018) $ (15,710) $ 18,228 =========== =========== ===========

14,794,867 14,794,867

16,696,099 16,696,099

20,000,000 20,000,000

20,000,000 20,000,000

20,000,000 20,000,000

20,000,000 20,000,000

$ $ $ $ $ (0.41) $ (0.41) $ 5,187 $ 70% (0.94) $ (0.94) $ 14,767 $ 72% 0.91 0.91 26,643 $ 62%

(0.54) (0.54) $ $ 28,212 63% $ 1.11 1.11 $ $ (0.04) (0.04) 26,748 68%

14,399 $ 66%

6

Balance Sheet Data: Cash and cash equivalents........................................ Working capital.................................................. Net oil and gas properties....................................... Total assets..................................................... Total liabilities................................................ Shareholders' deficit............................................

As of June 30, 2000 -------------(in thousands) $ 8,195 5,309 90,029 128,844 132,499 (3,655)

(1) EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation, depletion and amortization, and impairment of oil and gas properties. EBITDA is not a calculation based on generally accepted accounting principles and should not be considered as an alternative to net income (loss) or operating income (loss) as an indicator of a company's financial performance or to cash flow as a measure of liquidity. In addition, our EBITDA calculation may not be comparable to other similarly titled measures of other companies. We have presented EBITDA because of its wide acceptance as a financial indicator. (2) Represents EBITDA divided by total revenues. 7

Summary Reserve and Operating Information The table below presents our summary reserve information and our summary operating data for our natural gas and oil properties. Estimates of net proved natural gas and oil reserves are based on the reserve reports prepared by our independent petroleum engineering consultants, Ryder Scott Company, L.P. for the years 1997, 1998 and 1999 and Schlumberger Holditch-Reservoir Technologies Consulting Services for the years 1998 and 1999. For additional information, please read "Business and Properties--Natural Gas and Oil Reserves," "-- Volumes, Prices and Operating Expenses" and note 10 of the notes to our consolidated financial statements. Our PV-10 at December 31, 1999, which is the present value of future net cash flows attributable to our proved reserves on a pre-tax basis using prices and costs in effect at December 31, 1999, discounted at 10% per annum, was determined by using prices of $2.28 per MMBtu of natural gas and $25.59 per barrel of oil. The standardized measure of discounted future net cash flows represents the present value of estimated future net revenues after income taxes discounted at 10%. Please read note 10 of the notes to our consolidated financial statements.
As of December 31, -------------------------1997 1998 1999 ------- ------- -------40,526 942 46,181 76.1% $91,893 $78,406 $64,698 46,424 586 49,940 86.5% $69,610 $61,308 $61,308 93,997 1,689 104,128 68.7% $183,047 $156,315 $128,706

Reserve Data: Estimated proved reserves: Natural gas (MMcf).............................. Oil and condensate (MBbls)...................... Total (MMcfe).................................. Proved developed reserves as a percentage of proved reserves.................................. Estimated future net revenues before income taxes (in thousands)................................... PV-10 (in thousands).............................. Standardized measure of discounted future net cash flows (in thousands).............................

Operating Data: Production: Natural gas (MMcf).................. Oil and condensate (MBbls)..........

Years Ended December 31, --------------------1997 1998 1999 ------ ------ -----9,026 16,533 151 128 ------ -----9,933 17,301

Six Months Ended June 30, ---------------1999 2000 ------- ------8,848 89 ------9,385 11,804 178 ------12,874

2,713 16 -----Total (MMcfe)...................... 2,807

Average sales price per unit: Natural gas revenues from production (per Mcf).......................... Effects of hedging activities (per Mcf)...............................

$2.60

$ 2.07 $ 2.23

$

1.99

$

3.18

------Average gas price.................. $ 2.60

-- (0.23) (0.05) (0.47) ------ ------ ------- ------$ 2.07 $ 2.00 $ 1.94 $ 2.71 $11.50 $15.37 -------- -----$11.50 $15.37 $ 2.05 $ 2.24 $ 12.93 -------$ 12.93 $ 2.00 $ 27.97 (4.10) ------$ 23.87 $ 3.30

Oil and condensate revenues from production (per Bbl)............... $18.75 Effects of hedging activities (per Bbl)............................... ------Average oil price.................. $18.75 Total revenues from production (per Mcfe).............................. $ 2.62 Effects of hedging activities (per Mcfe).............................. ------Total average price (per Mcfe)..... $ 2.62 Expenses (per Mcfe): Lease operating..................... $ 0.54 General and administrative.......... 0.42 Depreciation, depletion and amortization-natural gas and oil properties..... 1.50

-- (0.22) (0.05) (0.48) ------ ------ ------- ------$ 2.05 $ 2.02 $ 1.95 $ 2.82 $ 0.32 $ 0.32 0.26 0.20 1.76 1.30 $ 0.26 0.17 1.35 $ 0.50 0.21 1.30

8

RISK FACTORS Investing in our common stock will provide you with an equity ownership in ATP. As one of our shareholders, you will be subject to risks inherent in our business. The trading price of your shares will be affected by the performance of our business relative to, among other things, competition, market conditions and general economic and industry conditions. The value of your investment may decrease, resulting in a loss. You should carefully consider the following factors as well as other information contained in this prospectus before deciding to invest in shares of our common stock. Attractive opportunities to replace our reserves may not be available, which would prevent us from continuing our business strategy and reduce our cash flow and revenues. Our natural gas and oil reserves decline as reserves are produced. Our business strategy requires us to replace our reserves through acquisitions of proved natural gas and oil properties and through further development of our existing properties. However, properties may not be available for acquisition in the future on terms we find attractive. A substantial decrease in the availability of proved oil and gas properties in our areas of operation, or a substantial increase in their cost to acquire, would adversely affect our ability to replace our reserves as they are depleted. In addition, our development activities may not be successful. If we fail to replace reserves, our level of production and cash flows will be adversely impacted. Estimating reserves and future net cash flow is difficult to do with any certainty. Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and net present value of our reserves. This prospectus contains estimates of our proved natural gas and oil reserves and the estimated future net revenues from such reserves. Our estimates are based upon various assumptions, including assumptions required by the Securities and Exchange Commission relating to natural gas and oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process of estimating our natural gas and oil reserves is complex. This process requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Therefore, these estimates are inherently imprecise and the quality and reliability of this data can vary. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will most likely vary from our estimates. Any significant variance could materially affect the estimated quantities and PV-10 of reserves set forth in this prospectus. Our properties may also be susceptible to hydrocarbon drainage from production by other operators on adjacent properties. In addition, we may adjust estimates of proved reserves to reflect production history, results of development, prevailing oil and natural gas prices and other factors, many of which are beyond our control. Actual production, revenues, taxes, development expenditures and operating expenses with respect to our reserves will likely vary from the estimates used. These variances may be material. At December 31, 1999, approximately 31% of our estimated proved reserves were undeveloped. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. The reserve data assumes that we will make significant capital expenditures to develop our reserves. Although we have prepared estimates of our oil and natural gas reserves and the costs associated with these reserves in accordance with industry standards, the estimated costs may not be accurate, development may not occur as scheduled and the actual results may not be as estimated. In addition, you should not construe PV-10 as the current market value of the estimated oil and natural gas reserves attributable to our properties. We have based the estimated discounted future net cash flows from 9

proved reserves on prices and costs as of the date of the estimate, in accordance with SEC regulations, whereas actual future prices and costs may be materially higher or lower. Many factors will affect actual future net cash flow, including: . prices for oil and natural gas; . the amount and timing of actual production; . curtailments or increases in consumption by oil and natural gas purchasers; and . changes in governmental regulations or taxation. The timing of the production of oil and natural gas properties and of the related expenses affect the timing of actual future net cash flow from proved reserves and, thus, their actual PV-10. In addition, the 10% discount factor, which we are required to calculate PV-10 for reporting purposes, is not necessarily the most appropriate discount factor given actual interest rates and risks to which our business or the oil and natural gas industry in general are subject. Natural gas and oil prices are volatile, and low prices have had in the past and could have in the future a material adverse impact on our business. Our revenues, profitability and future growth and the carrying value of our properties depend substantially on the prices we realize for our natural gas and oil production. Our realized prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital. Natural gas and oil are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for natural gas and oil have been volatile, and they are likely to continue to be volatile in the future. For example, natural gas and oil prices declined significantly in late 1997 and 1998 and, for an extended period of time, remained substantially below prices obtained in previous years. Among the factors that can cause this volatility are: . worldwide or regional demand for energy, which is affected by economic conditions; . the domestic and foreign supply of natural gas and oil; . weather conditions; . domestic and foreign governmental regulations; . political conditions in natural gas or oil producing regions; . the ability of members of the Organization of Petroleum Exporting Countries to agree upon and maintain oil prices and production levels; and . the price and availability of alternative fuels. It is impossible to predict natural gas and oil price movements with certainty. Lower natural gas and oil prices may not only decrease our revenues on a per unit basis but also may reduce the amount of natural gas and oil that we can produce economically. A substantial or extended decline in natural gas and oil prices may materially and adversely affect our future business, financial condition, results of operations, liquidity and ability to finance planned capital expenditures. Further, oil prices and natural gas prices do not necessarily move together. Because approximately 90% of our estimated proved reserves as of December 31, 1999 were natural gas reserves, our financial results are more sensitive to movements in natural gas prices. 10

Because we have incurred losses from operations in recent years, our future operating results are difficult to forecast. Our failure to achieve or sustain profitability in the future could adversely affect the market price of our common stock. We have incurred operating losses in recent years. Our failure to achieve or sustain profitability in the future could adversely affect the market price of our common stock. In considering whether to invest in our common stock, you should consider the historical financial and operating information available on which to base your evaluation of our performance. We incurred operating losses of $5.3 million in 1997, $7.9 million in 1998 and $3.9 million in 1999. We may not be able to achieve or sustain profitability or positive cash flows from operating activities in the future. Relatively short production periods for Gulf of Mexico properties subject us to high reserve replacement needs and require significant capital expenditures to replace our reserves at a faster rate than companies whose reserves have longer production periods. Production of reserves from reservoirs in the Gulf of Mexico generally declines more rapidly than from reservoirs in many other producing regions of the world. This results in recovery of a relatively higher percentage of reserves from properties in the Gulf of Mexico during the initial years of production, and as a result, our reserve replacement needs from newly acquired properties are greater. As our reserves decline from production, we are required to incur significant capital expenditures to replace declining production. Also, our revenues and return on capital will depend significantly on prices prevailing during these relatively short production periods. The natural gas and oil business involves many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses. Our development activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas or oil well does not ensure a profit on investment. A variety of factors, both geological and market- related, can cause a well to become uneconomical or only marginally economic. In addition to their cost, unsuccessful wells can hurt our efforts to replace reserves. The natural gas and oil business involves a variety of operating risks, including: . fires; . explosions; . blow-outs and surface cratering; . uncontrollable flows of natural gas, oil and formation water; . natural disasters, such as hurricanes and other adverse weather conditions; . pipe, cement, subsea well or pipeline failures; . casing collapses; . embedded oil field drilling and service tools; . abnormally pressured formations; and . environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases. 11

If we experience any of these problems, it could affect well bores, platforms, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of: . injury or loss of life; . severe damage to and destruction of property, natural resources and equipment; . pollution and other environmental damage; . clean-up responsibilities; . regulatory investigation and penalties; . suspension of our operations; and . repairs to resume operations. Offshore operations are also subject to a variety of operating risks peculiar to the marine environment, such as capsizing, collisions and damage or loss from hurricanes or other adverse weather conditions. These conditions can cause substantial damage to facilities and interrupt production. As a result, we could incur substantial liabilities that could reduce or eliminate the funds available for development or leasehold acquisitions, or result in loss of equipment and properties. Because third party drilling contractors are used to drill our wells, we may not realize the full benefit of workmen's compensation laws in dealing with their employees. Our insurance does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect our operations. We may be unable to identify liabilities associated with the properties that we acquire or obtain protection from sellers against them. Our growth is due largely to acquisitions of proved undeveloped properties which we subsequently develop. The successful acquisition and development of proved undeveloped properties require an assessment of a number of factors. These factors include recoverable reserves, future natural gas and oil prices, operating costs and potential environmental and other liabilities and other factors. The assessments are inexact and their accuracy is inherently uncertain. In connection with the assessments, we perform a review of the subject properties, but such a review will not reveal all existing or potential problems. In addition, the review does not always permit us to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. In the course of our due diligence, we may not inspect every well, platform or pipeline. We cannot necessarily observe structural and environmental problems, such as pipeline corrosion, when an inspection is made. We may not be able to obtain contractual indemnities from the seller for liabilities that it created. We may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations. The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oilfield services could adversely affect our ability to execute on a timely basis our development plans within our budget. Shortages or an increase in cost of drilling rigs, equipment, supplies or personnel could delay or adversely affect our operations, which could have a material adverse effect on our business, financial condition and results of operations. Recently, drilling activity in the Gulf of Mexico has increased, and we have experienced increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services 12

and products of other vendors to the industry. Increased drilling activity in the Gulf of Mexico also decreases the availability of offshore rigs. These costs may increase further and necessary equipment and services may not be available to us at economical prices. Competition in our industry is intense, and we are smaller and have a more limited operating history than some of our competitors in the Gulf of Mexico. We compete with major and independent natural gas and oil companies for property acquisitions. We also compete for the equipment and labor required to operate and to develop these properties. Some of our competitors have substantially greater financial and other resources than us. In addition, larger competitors may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for natural gas and oil properties and may be able to define, evaluate, bid for and acquire a greater number of properties than we can. Our ability to acquire additional properties and develop new and existing properties in the future will depend on our ability to conduct operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. In addition, some of our competitors have been operating in the Gulf of Mexico and in the Southern Gas Basin of the U.K. North Sea for a much longer time than we have and have demonstrated the ability to operate through industry cycles. We may incur substantial impairment writedowns. We review our proved oil and gas properties for impairment when circumstances suggest there is a need for such a review. For each property determined to be impaired, we recognize an impairment loss equal to the difference between the carrying value and the fair value of the property on our balance sheet. Fair value is estimated to be the present value of expected future net cash flows computed by applying estimated future oil and gas prices, as determined by management, to the estimated future production of oil and gas reserves over the economic life of a property. Future cash flows are based upon our independent engineer's estimate of proved reserves. In addition, other factors such as probable and possible reserves are taken into consideration when justified by economic conditions and actual or planned drilling. Under the successful efforts method of accounting we must review our properties on a field by field basis. We recorded an impairment in 1997 of approximately $5.8 million, in 1998 of approximately $5.1 million, in 1999 of approximately $7.5 million and in the first half of 2000 of approximately $6.3 million. If natural gas and oil prices decrease or if the recoverable reserves on a property are revised downward, we may be required to record additional impairment writedowns in the future, which would result in a negative impact to our financial position. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations. Our success in the Gulf of Mexico area as well as the Southern Gas Basin of the U.K. North Sea will depend on our ability to retain and attract experienced geoscientists and other professional staff. As of August 31, 2000, we have 11 geologist/geophysicists, engineers and other technical personnel in our Houston office. We have hired five geologist/geophysicists, engineers and other technical personnel for our London location to focus on our U.K. activities. We depend to a large extent on the efforts, technical expertise and continued employment of these personnel and members of our management team. If a significant number of them resigns or becomes unable to continue in their present role and if they are not adequately replaced, our business operations could be adversely affected. Please read "Management" for information regarding the members of our management team. Rapid growth may place significant demands on our resources. We have experienced rapid growth in our operations and expect that significant expansion of our operations will continue. Our rapid growth has placed, and our anticipated future growth will continue to place, a significant demand on our managerial, operational and financial resources due to: . the need to manage relationships with various strategic partners and other third parties; 13

. difficulties in hiring and retaining skilled personnel necessary to support our business; . the need to train and manage a growing employee base; and . pressures for the continued development of our financial and information management systems. If we have not made adequate allowances for the costs and risks associated with this expansion or if our systems, procedures or controls are not adequate to support our operations, our business could be harmed. We may have difficulty financing our planned growth. We have experienced and expect to continue to experience substantial capital expenditure and working capital needs, particularly as a result of our acquisition and development program. Our capital expenditures on oil and gas properties were $39.4 million during 1997, $35.9 million during 1998, $56.1 million during 1999 and $40.6 million through the first six months of 2000. We expect to continue to require significant capital expenditures during the remainder of 2000 and in 2001 to fund our anticipated reserve replacement needs and our growth strategy. If low natural gas and oil prices, operating difficulties or other factors, many of which are beyond our control, cause our revenues or cash flows from operations to decrease, we may be limited in our ability to spend the capital necessary to complete our development program. In the event our resources or cash flows decrease, we may require additional financing, in addition to cash generated from our operations, to fund our planned growth. We cannot be certain that additional financing will be available to us on acceptable terms or at all. In the event additional capital resources are unavailable, we may curtail our acquisition, drilling, development and other activities or be forced to sell some of our assets on an untimely or unfavorable basis. Our hedging decisions may impact our potential gains from changes in commodity prices and may result in losses. To reduce our exposure to fluctuations in the prices of natural gas and oil, we have in the past and may in the future enter into hedging arrangements with respect to a portion of our expected production. Hedging arrangements expose us to risk of financial loss in some circumstances including the following: . production is less than expected; . the other party to the hedging contract defaults on its contract obligations; or . there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received. These hedging arrangements have limited and may continue to limit the benefit we would receive from increases in the prices for natural gas and oil. Furthermore, if we choose not to engage in hedging arrangements in the future, we may be more adversely affected by changes in natural gas and oil prices than had we engaged in hedging arrangements. We are subject to complex laws and regulations, including environmental regulations, that can adversely affect the cost, manner or feasibility of doing business. Development, production and sale of natural gas and oil in the U.S., especially in the Gulf of Mexico, and in the U.K., are subject to extensive laws and regulations, including environmental laws and regulations. We may be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation include: . discharge permits for drilling operations; . bonds for ownership, development and production of oil and gas properties; . reports concerning operations; and . taxation. Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. Failure to 14

comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations. In addition, we have not yet received approval from the Department of Trade and Industry to operate in the U.K. Failure to obtain this approval may adversely impact our growth strategy. Members of our management team own a significant amount of common stock, giving them influence or control in corporate transactions and other matters, and the interests of these individuals could differ from those of other shareholders. On completion of this offering, members of our management team will beneficially own approximately % of our outstanding shares of common stock and would own approximately % if they exercised all of their options to purchase shares of common stock. As a result, these shareholders will continue to be in a position to significantly influence or control the outcome of matters requiring a shareholder vote, including the election of directors, the adoption of an amendment to our articles of incorporation or bylaws and the approval of mergers and other significant corporate transactions. Their control of ATP may delay or prevent a change of control of ATP and may adversely affect the voting and other rights of other shareholders. Future sales of our common stock may result in a decrease in the market price of our common stock, even if our business is doing well. The market price of our common stock could drop due to sales of a large number of shares of our common stock in the market after the offering or the perception that such sales could occur. This could make it more difficult to raise funds through future offerings of common stock. Please read "Shares Eligible for Future Sale." On completion of this offering, we will have outstanding shares of our common stock. This includes the shares we are selling in this offering, all of which may be resold in the public market immediately unless purchased in the offering by one of our affiliates. All of the remaining 20,000,000 shares are owned by our executive officers and directors. An additional 158,333 shares may be acquired by our directors, executive officers and other key employees within 60 days after the closing of this offering through the exercise of stock options. These persons have agreed not to sell any shares of common stock for a period of 180 days from the date of this prospectus without the consent of Lehman Brothers Inc. After expiration of the lockup period, these 20,158,333 shares of common stock will be eligible for resale, subject to the volume and other limitations of Rule 144 under the Securities Act. In addition, 137,334 shares may be acquired by other employees beginning 60 days after closing of the offering through the exercise of stock options. These shares are not subject to a lockup agreement and may be sold under Rule 701 under the Securities Act beginning 90 days after the date of this prospectus. Our articles of incorporation and bylaws and the Texas Business Corporation Act contain provisions that could discourage an acquisition or change of control of ATP. Our articles of incorporation authorize our board of directors to issue preferred stock without shareholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire control of us. In addition, provisions of the articles of incorporation and bylaws, such as no shareholder action by written consent, no cumulative voting rights, limitations on shareholder proposals at meetings of shareholders and restrictions on the ability of our shareholders to call special meetings, could also make it more difficult for a third party to acquire control of us. Our bylaws provide that our board of directors is divided into three classes, each elected for staggered three-year terms. Thus, control of the board of directors cannot be changed in one year; rather, at least two annual meetings must be held before a majority of the members of the board of directors could be changed. In addition, the Texas Business Corporation Act imposes restrictions on mergers and other business combinations between us and any holder of 20% or more of our outstanding common stock. 15

These provisions of Texas law and our articles of incorporation and bylaws may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including attempts that might result in a premium over the market price for the common stock. Please read "Description of Capital Stock" for additional details concerning the provisions of Texas law and our articles of incorporation and bylaws. CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION Some of the statements in this prospectus contains forward-looking information. These statements express, or are based on, our expectations about future events. These include such matters as: . financial position; . business strategy, including expansion into the shallow-deep waters of the Gulf of Mexico and into the Southern Gas Basin of the U.K. North Sea; . budgets; . amount, nature and timing of capital expenditures; . drilling of wells and other planned development activities; . natural gas and oil reserves; . timing and amount of future production of natural gas and oil; . operating costs and other expenses; . future net cash flow and anticipated liquidity; . property acquisitions; and . marketing of natural gas and oil. There are many factors that could cause these forward-looking statements to be incorrect, including the risks described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus. When you consider these forward- looking statements, you should keep in mind these risk factors and the other cautionary statements in this prospectus. Our forward-looking statements speak only as of the date made. 16

USE OF PROCEEDS We estimate that we will receive net proceeds of $ million, or $ million if the underwriters exercise their over-allotment option in full, from the sale of the shares of common stock offered by this prospectus, after deducting underwriting discounts and estimated offering expenses. This estimate assumes an initial public offering price of $ per share, which is the mid-point of the offering price range on the cover of this prospectus. We intend to use the net proceeds as follows: . approximately $ million to repay all of our outstanding debt under our credit facility and our development program credit agreement; . approximately $ million to fund our acquisition and development program for the remainder of 2000 and a portion of 2001; and . approximately $ million for general corporate purposes. Until we use the proceeds from this offering, we will deposit them in short-term interest bearing accounts. Our credit facility matures in September 2001. At June 30, 2000, the average interest rate on borrowings outstanding under the credit facility was 10.125% per annum. These borrowings have been used primarily for acquisition and development of our natural gas and oil properties, working capital and general corporate purposes. Our development program credit agreement matures in November 2002. At June 30, 2000, the interest rate on borrowings outstanding under the development program credit agreement was 13.0% per annum. These borrowings have been used for acquisition and development of natural gas and oil properties. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for additional information about our credit facility and our development program credit agreement. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings and other cash resources, if any, for the operation and development of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Payment of any future dividends will be at the discretion of our board of directors after taking into account many factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. In addition, our current credit facility prohibits us from paying cash dividends on our common stock. Any future dividends may also be restricted by any loan agreements which we may enter into from time to time. 17

DILUTION Our net tangible book value at June 30, 2000 was approximately $(3.7) million, or $(0.18) per share of common stock. Net tangible book value per share is determined by dividing our tangible net worth, or tangible assets less total liabilities, by the total number of outstanding shares of common stock. After giving effect to the sale of common stock offered by this prospectus and the receipt of the estimated net proceeds, after deducting underwriting discounts and estimated offering expenses, our net tangible book value at June 30, 2000 would have been $ per share of common stock. This represents an immediate and substantial increase in the net tangible book value of $ per share to existing shareholders and an immediate dilution of $ per share, resulting from the difference between the public offering price and the net tangible book value after this offering, to new investors purchasing common stock in this offering. The following table illustrates the per share dilution to new investors purchasing common stock in this offering at an assumed offering price equal to mid-point of the offering price range on the cover of this prospectus:
Assumed initial public offering price per share................. $ Net tangible book value per share at June 30, 2000............ (0.18) Increase per share attributable to new investors.............. ----Net tangible book value per share after this offering........... -------Dilution per share to new investors............................. $ ========

The following table sets forth, at June 30, 2000, the number of shares of common stock purchased from us and the total consideration and average price per share paid by existing shareholders and by the new investors before deducting expenses payable by us, assuming an offering price of $ per share:
Total Average Shares Purchased Consideration Price ------------------ -------------Per Number Percent Amount Percent Share ---------- ------- ------ ------- ------(in thousands) Existing shareholders................. 20,000,000 % $ 52 % $0.0026 New investors......................... Total............................... 100% $ 100%

These computations assume that no additional shares are issued upon exercise of the underwriters' over-allotment option or outstanding stock options granted under our stock option plans. As of August 31, 2000, options to purchase 422,500 shares of our common stock at $1.00 per share and 404,500 shares of our common stock at $2.75 per share had been granted under our stock option plans and we intend to grant options to purchase an additional shares of common stock at the initial public offering price concurrently with the closing of this offering. In the event the shares currently subject to the underwriters' over-allotment option and options under our stock option plan were included in the calculations above, the net tangible book value per share before this offering would be $ , the net tangible book value per share after this offering would be $ and the dilution per share to new investors would be $ . In addition, the average price per share paid by existing shareholders would increase to $ per share. 18

CAPITALIZATION The following table presents our cash, capitalization and other information as of June 30, 2000 on two bases: . on an actual basis; and . on an as adjusted basis to reflect our sale of the shares of common stock in this offering at an assumed offering price of $ per share and the anticipated use of the net proceeds. You should read the table in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included in this prospectus.
As of June 30, 2000 -----------------As Actual Adjusted -------- -------(in thousands) Cash........................................................ $ 8,195 $ ======== ======== Long-term debt and non-recourse borrowings ................. $101,966 $ Shareholders' equity(1): Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued or outstanding................ -Common stock, $0.001 par value, 100,000,000 shares authorized; 20,000,000 shares issued and outstanding, actual; shares issued and outstanding, as adjusted................................................... 20 Additional paid-in capital.................................. 32 Accumulated deficit......................................... (3,707) -------Total shareholders' equity (deficit)...................... (3,655) -------- -------Total capitalization.................................... $ 98,311 $ ======== ========

(1) The descriptions of our common and preferred stock reflect changes to our capital structure that will occur prior to the closing of this offering. 19

SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION The following table sets forth some of our historical and unaudited pro forma financial information. You should read the following data with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and the related notes and our pro forma financial statements and the related notes included elsewhere in this prospectus. We derived the statement of operations data for the three-year period ended December 31, 1999 and the balance sheet data as of December 31, 1997, 1998 and 1999 from our consolidated financial statements, which have been audited by KPMG LLP, independent certified public accountants, and are included in this prospectus. We derived the statement of operations data for the two- year period ended December 31, 1996 and the balance sheet data as of December 31, 1995 and 1996 from our unaudited financial statements, which are not included in this prospectus. We derived the statement of operations data for the six-month periods ended June 30, 1999 and 2000 from our unaudited consolidated financial statements, which are included in this prospectus. In the opinion of our management, the unaudited financial information includes all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation of that information. Our results of operations for the six-month period ended June 30, 2000 are not necessarily indicative of the results that we may achieve for the entire year. The unaudited pro forma financial information for the periods reflected below has been derived from the unaudited pro forma financial statements included elsewhere in the prospectus. Pro forma information is based on assumptions and include adjustments as explained in the notes to the unaudited pro forma financial information included in this prospectus. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have been achieved for these periods or that may be achieved in the future. 20

Statement of Operations Data: Revenues: Oil and gas production........... Gas sold--marketing... Total revenues...... Costs and operating expenses: Lease operating....... Gas purchased-marketing............ General and administrative....... Depreciation, depletion and amortization......... Impairment of oil and gas properties....... Other................. Total operating expenses............. Net income (loss) from operations............ Other income (expense): Gain on sale of oil and gas properties... Interest income....... Interest expense...... Income (loss) before income taxes and extraordinary item.... Income tax benefit (expense)............. Income (loss) before extraordinary item.... Gain on extinguishment of debt, net of tax... Net income (loss)...... Weighted average number of common shares outstanding: Basic................. Diluted............... Income (loss) per common share before extraordinary item: Basic................. Diluted............... Net income (loss) per common share: Basic................. Diluted............... Other Financial Data: EBITDA (1)............. EBITDA margin (2)......

Six Months Ended Years Ended December 31, June 30, -------------------------------------------------------------------------------------------------Pro Forma 1995 1996 1997 1998 1999 1999 1999 2000 ---------- ---------- ----------- ----------- ----------- ----------------------- ---------(unaudited) (unaudited) (unaudited) (in thousands, except share and per share data)

$

543 ----------543 264 -233 5 -----------502 ---------41 -8 ----------49

$

3,009 ----------3,009 308 -505 1,672 -----------2,485 ---------524

$

7,359 -----------7,359 1,513 -1,170 4,206 5,787 -----------12,676 ----------(5,317)

$

20,410 -----------20,410 3,193 -2,591 17,442 5,072 -----------28,298 ----------(7,888)

$

34,981 7,703 ----------42,684 5,587 7,402 3,541 22,521 7,509 -----------46,560 ----------(3,876)

$

37,252 7,703 ----------44,955 6,289 7,402 3,541 22,744 7,509 -----------47,485 ----------(2,530)

$

18,323 3,423 ---------21,746 2,484 3,361 1,550 12,667 2,442 ----------22,504 ---------(758)

$

36,252 2,919 ---------39,171 6,422 2,802 2,738 16,695 6,255 749 ---------35,661 ---------3,510

-304 -287 287 -33 45 207 141 202 202 48 255 (107) (1,212) (7,963) (9,399) (10,487) (6,078) (5,146) ---------- ----------- ----------- ----------- ----------- ---------- ---------462 (6,018) (15,710) -----------(15,710) (12,786) 1,829 ----------(12,528) 1,739 ----------(6,788) (1,348)

(105) (1) ----------- ---------- ----------(56) 461 (6,018)

(281) 474 ---------- ---------(7,069) 29,185 ---------$ 22,116 ========== (874) ----------$ (874) ==========

(10,957) $ (10,789) ===========

------------ ---------$ (56) $ 461 ========== ==========

--29,185 ----------- ----------- ----------$ (6,018) $ (15,710) $ 18,228 =========== =========== ===========

10,563,697 10,563,697

11,543,718 11,543,718

14,794,867 14,794,867

16,696,099 16,696,099

20,000,000 20,000,000

20,000,000 20,000,000

20,000,000 20,000,000

20,000,000 20,000,000

$ $ $ $ $ (0.01) $ (0.01) $ 54 $ 10% 0.04 0.04 $ $ (0.41) $ (0.41) $ 5,187 $ 70% (0.94) $ (0.94) $ 14,767 $ 72% 0.91 0.91 26,643 $ 62%

(0.54) (0.54) $ $ 28,212 $ 63% 1.11 1.11 $ $ (0.04) (0.04) 26,748 68%

2,241 $ 74%

14,399 $ 66%

Balance Sheet Data: Cash and cash equivalents............ $120 $1,088 $ 1,806 $ 3,411 $ 17,779 Working capital......... (71) 2,574 3,340 (4,853) 13,719 Net oil and gas properties............. 360 5,201 34,073 47,612 72,278 Total assets............ 592 9,074 49,625 61,354 107,054 Total long-term debt.... --- 42,194 62,690 91,723 Total liabilities....... 359 8,369 54,936 82,363 109,835 Shareholders' equity (deficit).............. 234 705 (5,311) (21,009) (2,781)

As of December 31, ---------------------------------------1995 1996 1997 1998 1999 ---- ------ ------- -------- -------(unaudited) (in thousands)

As of June 30, 2000 ----------(unaudited)

$

8,195 5,309

90,029 128,844 101,966 132,499 (3,655)

(1) EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation, depletion and amortization, and impairment of oil and gas properties. EBITDA is not a calculation based on generally accepted accounting principles and should not be considered as an alternative to net income (loss) or operating income (loss), as an indicator of a company's financial performance or to cash flow as a measure of liquidity. In addition, our EBITDA calculation may not be comparable to other similarly titled measures of other companies. We have presented EBITDA because of its wide acceptance as a financial indicator.

(2) Represents EBITDA divided by total revenues. 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Our results of operations reflect rapid growth in natural gas and oil production and revenues over the past three years driven primarily by our strategy of acquiring and developing properties with proved undeveloped reserves. We have acquired 32 blocks since the beginning of 1997 and have increased production from 2,807 MMcfe in 1997 to 17,301 MMcfe in 1999. Our production in the first half of 2000 was 12,874 MMcfe. The acquisition and development of proved undeveloped natural gas and oil properties has been the primary contributor to our oil and gas revenue growth. During 1999 and the first half of 2000, revenues have also reflected the positive effect of rising prices for natural gas and oil, offset in part by our hedging activity. Our revenues in future periods will reflect both our ability to continue to identify, acquire and develop properties which are consistent with our development strategy as well as commodity prices and hedging activity. We have financed our acquisitions and development activity through a combination of project-based development financing, bank financing and cash from operations. In project-based development financings, the lender is repaid from a portion of the net revenues from particular properties. Such transactions are typically non-recourse to us and our other properties. At June 30, 2000, we had $80.0 million outstanding under our project-based development facility and $22.0 million outstanding under our bank credit facility. We expect to repay all of our outstanding indebtedness with the proceeds of this offering. Future capital requirements will be met through a combination of proceeds from this offering, cash from operations or borrowings under existing or new debt facilities. From time to time, we have utilized and may continue to utilize hedging transactions with respect to a portion of our natural gas and oil production to achieve a more predictable cash flow as well as to reduce our exposure to price fluctuations. These transactions generally are swaps or price collars and are entered into with major financial institutions or commodities trading institutions. We entered into our first hedging transactions in January 1999 in connection with our bank credit facility. Our development program credit agreement requires us to hedge a portion of our expected production from the properties financed through such facility. At June 30, 2000, we had hedged approximately 14,303,000 MMbtu, or 92% of our expected remaining 2000 natural gas production from our current portfolio of properties, and 14,527,000 MMbtu, or 44% of our expected 2001 natural gas production from our current portfolio of properties. The average price of hedged production is approximately $2.95 per MMbtu for 2000 and $3.03 per MMbtu for 2001. We had no natural gas hedges in effect beyond October 2001. At June 30, 2000, we had hedged approximately 101,300 bbls of oil, or 47% of our expected remaining 2000 oil production from our current portfolio of properties. The average price of hedged oil production is $23.99 per bbl. We have no oil hedges in effect beyond December 2000. Based on prices in effect at June 30, 2000, the above hedge positions would reduce expected future net revenues by $21.4 million in the last six months of 2000 and $11.3 million in 2001. We use the successful efforts method of accounting for our investments in oil and natural gas properties. Under this method, we capitalize lease acquisition costs and intangible drilling and development costs on successful wells and development nonproductive wells. Depreciation, depletion and amortization of these capitalized costs are computed separately for each field based on the unit of production method using only proved natural gas and oil reserves. The successful efforts method of accounting requires us to review each of our natural gas and oil properties on a field level for impairment when circumstances indicate that the capitalized costs less accumulated depreciation, depletion and amortization (also referred to as "carrying value") of the property may 22

not be recoverable. If the carrying value of the property exceeds the expected future undiscounted cash flows, an amount equal to the excess of the carrying value over the fair value of the property is charged as an expense. An impairment results in a non-cash charge to earnings which typically does not affect cash flow. Substantial impairment writedowns may result in a reduction in our borrowing base under our bank credit facility which would require us to use additional cash to reduce debt. Since 1997, we have recorded impairments on nine different properties. Impairment expense totaled $5.8 million in 1997, $5.1 million in 1998, $7.5 million in 1999 and $6.3 million in the first six months of 2000. Since June 30, 1999, we have granted options to employees to purchase 33,500 shares of common stock at $1.00 per share and 404,500 shares of common stock at $2.75 per share. At August 31, 2000 we have outstanding options to purchase a total of 827,000 shares. One-third of the options vest 60 days after our initial public offering, and one-third of the options vest on each of the first and second anniversaries of our initial public offering. We expect to recognize a material amount of compensation expense following our initial public offering relating to previous option grants. We will recognize as expense any difference between the exercise price for certain of these options and the fair market value of our stock as of the date of grant. Under applicable accounting guidelines, the fair market value of our common stock will be measured based upon our initial public offering price. The expense will be recognized in the periods in which the options vest. Based upon the vesting schedule and the mid- point of the initial public offering price range for our shares of $ , we estimate that we will incur a non-cash compensation expense of approximately $ in 2000, approximately $ in 2001 and approximately $ in 2002 relating to such option grants. We have two wholly owned subsidiaries, ATP Energy and ATP Oil & Gas (UK) Limited. ATP Energy has entered into agreements to purchase and sell gas from unrelated entities. ATP Oil & Gas (UK) Limited is responsible for our activities in the Southern Gas Basin of the U.K. North Sea. Please read "Subsidiary Activities" for a more complete discussion of these transactions. Results of Operations Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Oil and Gas Revenue. Our revenue from natural gas and oil production for the six months ended June 30, 2000 increased over the first six months of 1999 by 97.8%, from $18.3 million to $36.3 million. This increase resulted from increases of 39.7% in realized natural gas prices and 84.6% in realized oil prices as well as a 37.2% increase in production. The increase in production volumes from 9,385 MMcfe to 12,874 MMcfe was attributable to nine properties that were on production during the first six months of 2000 that were not on production during the same period in 1999. Hedging transactions reduced oil and natural gas revenues by $6.3 million, or $0.48 per Mcfe, in the first half of 2000 and $0.4 million, or $0.05 per Mcfe, in the first half of 1999. Marketing Revenue. During the six months ended June 30, 2000, revenues from natural gas marketing activities amounted to $2.9 million, a decrease of $0.5 million from the same period in 1999. The reason for the decrease was a reduction in the average daily natural gas contract amount from 9,000 MMBtu per day in 1999 to 5,000 MMBtu per day in 2000. The decrease was offset in part by an average increase in the sales price per MMBtu from $2.10 in 1999 to $3.21 in 2000. For more information regarding this marketing arrangement, please read "Subsidiary Activities" below. Lease Operating Expense. Our lease operating expense for the six months ended June 30, 2000 increased 158.5% from $2.5 million to $6.4 million. This increase was primarily the result of an increase in the number of producing wells owned by us, an increase in their total production volume and an increase in the level of workover activity. During the first half of 1999, we held a working interest in 20 producing blocks (24 producing wells/19.2 net wells). During the first half of 2000, we held a working interest in 26 producing blocks (33 producing wells/29.6 net wells). For the first six months of 1999, our net production from these wells was 8,848 MMcf and 89,378 bbls. For the first six months of 2000, our net production from these wells 23

was 11,804 MMcf and 178,361 bbls, an increase of 2,956 MMcf and 88,983 bbls. Workover spending increased from $0.3 million in the first half of 1999 to $2.0 million in the first half of 2000. The remaining increase in lease operating expense was primarily attributable to transportation related costs. On a per Mcfe basis, lease operating expense increased from $0.26 to $0.50. Gas Purchased-Marketing. Our cost of purchased gas was $2.8 million the first six months of 2000 compared to $3.4 million for the first six months in 1999. The daily gas contract amount in our third party marketing arrangement decreased from 9,000 MMBtu/day in the first half of 1999 to 5,000 MMBtu/day in the first half of 2000. Lower volumes were offset by an increase in the average gas cost from $2.05 per MMbtu in the 1999 period to $3.08 per MMbtu in the 2000 period. General and Administrative Expense. General and administrative expense increased to $2.7 million for the first six months of 2000 compared to $1.6 million for the first half of 1999. The primary reason for the increase was the result of compensation and related expenses increasing from $0.8 million to $1.4 million period to period. Our total employees increased from 16 at June 30, 1999 to 23 at June 30, 2000. On an Mcfe basis, general and administrative expense increased from $0.17 to $0.21 from period to period. Depreciation, Depletion and Amortization Expense. Depreciation, depletion and amortization expense increased 31.8% during the six months ended June 30, 2000 from $12.7 million to $16.7 million. The average depreciation, depletion and amortization rate was $1.30 per Mcfe during the first half of 2000 compared with $1.35 per Mcfe in the first half of 1999. Impairment Expense. For the first half of 2000, we recorded an impairment of $6.3 million related to one property. During the first half of 1999, we recorded an impairment of $2.4 million related to two properties. The impairment in 2000 was the result of a reduction in recoverable reserves from the one property. The impairment in 1999 was primarily the result of depressed oil and gas prices and a reduction in recoverable reserves for the two properties. Other Income (Expense). For the six months ended June 30, 2000, interest expense was $5.1 million compared to $6.1 million for the same period in 1999. Our borrowings increased from period to period but were more than offset by a decrease in interest rates under our new development program credit agreement. As required by applicable accounting pronouncements, we capitalize interest while a property is being developed until it is ready to commence production. During the first six months of 2000 we capitalized $0.7 million of interest. We did not capitalize any interest in the first six months of 1999. Other expense for the first six months of 2000 also includes an expense of $0.8 million on a natural gas derivative position. It is our policy not to acquire derivative products for the purpose of speculating on price changes. However, if a hedging position exceeds our expected production in an upcoming period, we are required to account for the position using the mark-to-market method. The charge in the first half of 2000 reflects such a position in excess of expected production. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Oil and Gas Revenue. Our revenue from natural gas and oil production for 1999 increased over 1998 revenues by 71.4%, from $20.4 million to $35.0 million primarily as a result of increased production. Natural gas production increased by 83.2% from 1998 to 1999 and realized natural gas prices fell by 3.4%. Oil production decreased by 15.3% period to period but average realized prices for oil increased by 33.7%. The increase in production volumes from 9,933 MMcfe to 17,301 MMcfe was attributable to new production resulting from development activities on four properties which began production in the second half of 1998, new production resulting from development activities on four properties that began producing in 1999, and production from producing properties acquired in the fourth quarter of 1998. Hedging transactions reduced oil and natural gas revenues by $3.8 million, or $0.22 per Mcfe, in 1999. We had no hedging transactions in 1998. 24

Marketing Revenue. During the year ended December 31, 1999, we recorded revenues from gas marketing activities of $7.7 million. There were no corresponding revenues for 1998. Gas marketing activities relate to the sale of 9,000 MMBtu per day to an unrelated entity. The average sales price during 1999 was $2.34 per MMBtu. Lease Operating Expense. Our lease operating expense for 1999 increased by 75.0%, from $3.2 million to $5.6 million. The increase in expense was primarily the result of an increase in our number of producing wells and our total production volume. During 1998, we held a working interest in 22 producing blocks (27 producing wells/19.5 net wells). During 1999, we held a working interest in 23 producing blocks (29 producing wells/24.7 net wells). For 1998, our net production from these wells was 9,026 MMcf and 151,152 bbls. For 1999, our net production from these wells was 16,533 MMcf and 127,986 bbls, an increase of 7,507 MMcf and a decrease of 23,166 bbls. On a per Mcfe basis, lease operating expense remained unchanged at $0.32 per Mcfe. Gas Purchased-Marketing. In 1999 we purchased 9,000 MMBtu per day for a total cost of $7.4 million. The average cost of purchases in 1999 was $2.25 per MMBtu. There was no corresponding expense in 1998. General and Administrative Expense. General and administrative expense increased to $3.5 million in 1999 from $2.6 million in 1998. The primary reason for the increase was the result of compensation and related expenses increasing to $1.8 million in 1999 compared with $1.2 million in 1998. Our total number of employees increased from 11 at January 1, 1998 to 15 at December 31, 1998 and to 19 at December 31, 1999. On an Mcfe basis, general and administrative expense decreased from $0.26 during 1998 to $0.20 during 1999. Depreciation, Depletion and Amortization Expense. Depreciation, depletion and amortization expense increased 29.1% from $17.4 million in 1998 to $22.5 million in 1999. Our average depreciation, depletion and amortization rate was $1.30 per Mcfe in 1999 and $1.76 per Mcfe in 1998. This decrease was attributable to production in 1999 from properties that required a lower relative development cost than the average cost of the producing properties in 1998. Impairment Expense. As of December 31, 1999, the future undiscounted cash flows for our properties were $183.0 million and the net book value for the properties was $79.8 million before current year impairment expense. At December 31, 1998, the future undiscounted cash flows for our properties were $69.6 million and the net book value for the properties was $52.7 million before current year impairment expense. However, for four of the properties in 1999 and four of the properties in 1998, the future undiscounted cash flows were less than their individual net book value. As a result, we recorded impairments of $7.5 million in 1999 and $5.1 million in 1998. The impairments in 1998 and 1999 were primarily the result of depressed natural gas and oil prices and a reduction in recoverable reserves individually attributable to the particular properties. Other Income (Expense). Other income (expense) consists primarily of interest income and interest expense. For the year ended December 31, 1999, interest income was $0.2 million compared to $0.1 million for the same period in 1998. This increase was primarily the result of the implementation of a new cash management system in late 1999. For 1999, interest expense was $9.4 million compared to $8.0 million for 1998. This increase was primarily the result of an increase in our non-recourse borrowings under our development program credit agreement. During 1999, we capitalized $0.6 million of interest incurred while developing properties. We capitalized $1.6 million during 1998 for the same purpose. Extraordinary Gain. In June 1999, we agreed with the lender under a prior development program credit agreement to prepay the amount outstanding at a discount. As a result, we recorded an extraordinary gain of $29.2 million. 25

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Oil and Gas Revenue. Our revenue from natural gas and oil production for 1998 increased over 1997 by 177.3%, from $7.4 million to $20.4 million primarily as a result of substantially increased production. Natural gas production increased by 232.7% from 1997 to 1998 while realized natural gas prices fell by 20.4%. Oil production increased by 873.0% from year to year and realized oil prices decreased by 38.7%. The increase in production volumes from 2,807 MMcfe to 9,933 MMcfe was attributable to new production resulting from development activities on four properties that began producing in the second half of 1997 and new production resulting from development activities on five properties that began production in 1998. We had no hedging transactions in either 1998 or 1997. Lease Operating Expense. Our lease operating expense for 1998 increased 111.0%, from $1.5 million to $3.2 million. The increase in these expenses was primarily the result of an increase in our number of producing wells and total production volume. During 1997, we held a working interest in nine producing blocks (10 producing wells/7.8 net wells). During 1998, we held a working interest in 22 producing blocks (27 producing wells/19.5 net wells). For 1997, our net production was 2,713 MMcf and 15,535 bbls. For 1998, our net production was 9,026 MMcf and 151,152 bbls, an increase of 6,313 MMcf and 135,617 bbls. On a per Mcfe basis, lease operating expense decreased from $0.54 to $0.32, primarily as a result of individual properties which produce at a higher rate combined with mostly fixed lease operating cost. General and Administrative Expense. General and administrative expense increased from $1.2 million in 1997 to $2.6 million in 1998. The primary reason for the increase was the result of compensation and related expenses increasing from $0.6 million in 1997 to $1.2 million in 1998. Our total number of employees increased from four at January 1, 1997 to 11 at December 31, 1997 and to 15 at December 31, 1998. On a per Mcfe basis, general and administrative expense decreased from $0.42 during 1997 to $0.26 during 1998. Depreciation, Depletion and Amortization Expense. Depreciation, depletion and amortization expense increased from $4.2 million in 1997 to $17.4 million in 1998. The average depreciation, depletion and amortization rate was $1.50 per Mcfe during 1997 and $1.76 per Mcfe in 1998. This increase was attributable to production in 1998 from properties that required a higher relative development cost than the average cost of the producing properties in 1997. Impairment Expense. As of December 31, 1998, the future undiscounted cash flows for our properties were $69.6 million and the net book value for the properties was $52.7 million before current year impairment expense. As of December 31, 1997, the future undiscounted cash flows for our properties were $91.9 million and the net book value for the properties was $39.9 million. However, for four of the properties in 1998 and for three of the properties in 1997, the future undiscounted cash flows were less than their individual net book value. As a result, we recorded impairments of $5.1 million in 1998 for four properties and $5.8 million in 1997 for three properties. The impairments in 1998 and 1997 were primarily the result of depressed oil and gas prices and a reduction in recoverable reserves individually attributable to the particular properties. Other Income (Expense). Other income (expense) consists primarily of interest income and interest expense. For 1998, interest income was $0.1 million compared to $0.2 million for 1997. This decrease was primarily the result of a decrease in cash required to be held in an escrow account. For 1998, interest expense was $8.0 million compared to $1.2 million for 1997. This increase was primarily the result of an increase in non-recourse debt as well as borrowings under our credit facility. During 1998, we capitalized $1.6 million of interest relating to the interest cost incurred while developing properties. We capitalized $2.1 million during 1997. 26

Liquidity and Capital Resources We have financed our acquisition and development activity through a combination of project-based development and bank borrowing as well as cash from operations. At June 30, 2000, we had $80.0 million outstanding under our current development program credit agreement and $22.0 million outstanding under our bank credit facility. Our operating activities contributed cash flow, including changes in working capital, as follows:
Cash flow from operations ------------$ 3.6 million 13.2 million 10.8 million 24.7 million

Period -----1997........................................................... 1998........................................................... 1999........................................................... First Six Months 2000..........................................

Development Program Credit Agreement We entered into our current non-recourse development program credit agreement in April 1999. From April 1999 through August 2000, we included ten projects in this financing and obtained total funding of $94.0 million. The lender receives 90% of the monthly net revenues (after payment of operating costs) from the pledged properties. From April 1999 through August 2000, we made payments to the lender of $25.7 million under the facility. The average interest rate was 11.5% in 1999 and 12.5% during the first six months of 2000. At December 31, 1999, the amount outstanding was $75.3 million at an interest rate of 12.0%. At June 30, 2000, the amount outstanding was $80.0 million at an interest rate of 13.0%. The lender has a future specified overriding royalty interest in the properties that serve as collateral under the facility. This overriding royalty interest applies to each property that serves as collateral and does not become effective until after all of the indebtedness has been paid in full or when a property is removed from the collateral base. Each overriding royalty is only for a specified volume of production from the property and is contingent on the future performance of the property. Bank Credit Agreement In September 1998, we entered into a revolving credit facility with Chase Bank of Texas, N.A., as administrative agent. The amount available for borrowing under the facility is limited to the loan value, as determined by the bank, of certain oil and gas properties pledged under the facility. At September 1998, the initial borrowing base was $6.5 million. The amount available for borrowing at June 30, 2000 had increased to $39.0 million. As of June 30, 2000, we had $22.0 million outstanding under the credit facility resulting in $17.0 million in availability. Our borrowings under the credit facility have increased to $34.5 million as of August 31, 2000. Advances under the credit facility can be in the form of either base rate loans or Eurodollar loans. The interest on a base rate loan is a fluctuating rate equal to the higher of the Federal funds rate plus 0.5% and the bank base rate, plus a margin of either 0.625%, 0.875%, or 1.25% depending on the amount outstanding under the credit agreement. The interest on a Eurodollar loan is equal to the Eurodollar rate quoted by Chase Bank, plus a margin of 2.375%, 2.625%, or 3.00% depending on the amount outstanding under the credit facility. The credit facility matures in September 2001. Prior to maturity, there are scheduled reductions in the amount that may be outstanding. The average per annum interest rate on borrowings under the credit facility was approximately 8.1% at December 31, 1998, 8.9% at December 31, 1999, and 10.1% at June 30, 2000. In connection with our credit facility, we are not permitted to: . enter into any arrangement to sell or transfer any of our material property; . merge into or consolidate with any other person or sell or dispose of all or substantially all of our assets; . allow the ratio of our current assets to our current liabilities to be less than 1:1 at any time. 27

. allow our ratio of debt to our consolidated EBITDA for four consecutive quarters to be greater than 3 to 1. . allow our ratio of EBITDA for four consecutive quarters to interest payments made during those quarters to be less than 2.5 to 1. . declare or pay any cash dividend; purchase, redeem or otherwise acquire for value any of our outstanding stock; return capital to shareholders; or make any distribution of our assets to our shareholders. As of August 31, 2000, we were in compliance with all of the covenants of our credit facility. Capital Expenditures Our capital expenditures consist primarily of acquisition and development costs related to our oil and gas properties. We invested the following amounts in oil and gas properties:
Investments in Oil and Gas Properties ------------$39.4 million 35.9 million 56.1 million 40.6 million

Period -----1997........................................................... 1998........................................................... 1999........................................................... First Six Months 2000..........................................

We estimate our capital expenditure requirements on a project by project basis. At the beginning of the year, we estimate the development costs for our projects in inventory for that year. During the year as properties are acquired and scheduled for development, our actual level of capital spending may increase significantly. For example, at the beginning of 1999, we identified capital expenditures on projects then in inventory of $11.1 million. As a result of acquisition opportunities and additional development spending on newly acquired properties, our capital expenditures for the year totaled $56.1 million. At the beginning of this year, we budgeted $29.0 million for development projects in inventory. At June 30, 2000, we had incurred capital expenditures of $40.6 million. We will continue to seek opportunities for acquisitions of proved reserves with development potential. The size and timing of capital requirements for acquisitions is inherently unpredictable. Actual levels of future capital expenditures and their timing may vary significantly due to a variety of factors, including: . drilling results; . product prices; . industry conditions and outlook; and . future acquisitions of properties. In connection with our initial public offering, we intend to repay all of our outstanding indebtedness. We believe that cash from our offering, cash flow from operations and cash from borrowings under our existing or new credit facilities will be sufficient to fund our operations at least through 2001. We believe that our capital resources are adequate to meet the requirements of our business. However, future cash flows are subject to a number of variables including the level of production and oil and natural gas prices. We cannot assure you that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures. 28

Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on our cash and cash equivalents and the interest rate paid on borrowings under the credit agreements. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Commodity Price Risk Our revenues, profitability and future growth depend substantially on prevailing prices for natural gas and oil. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital. The amount we can borrow under our bank credit facility is subject to periodic re-determination based in part on changing expectations of future prices. Lower prices may also reduce the amount of natural gas and oil that we can economically produce. We currently sell most of our natural gas and oil production under price sensitive or market price contracts. To reduce exposure to fluctuations in natural gas and oil prices and to achieve more predictable cash flow, we periodically enter into hedging arrangements that usually consist of swaps or price collars that are settled in cash. However, these contracts also limit the benefits we would realize if commodity prices increase. Our internal hedging policy provides that we examine the economic effect of entering into a commodity contract with respect to the properties that we acquire. We generally acquire properties at prices that are below the value of estimated reserves at the then current natural gas and oil prices. We will enter into short term hedging arrangements if we are able to obtain commodity contracts at prices sufficient to secure an acceptable internal rate of return on a particular property or on a group of properties. As of August 31, 2000, we had the following financial hedges on natural gas outstanding:
Average Average Period MMBtu/Day $/MMBtu -------------- ------Fourth quarter 2000.......................................... 69,700 $3.02 First quarter 2001........................................... 69,700 3.05 Second quarter 2001.......................................... 29,000 2.83 Third quarter 2001........................................... 28,400 2.84 Fourth quarter 2001(1)....................................... 9,400 2.87

(1) We have no gas hedges beyond October 2001. As of August 31, 2000, we have the following financial hedges on oil outstanding:
Average Average Period Bbls/Day $/Bbl ------------- ------Fourth quarter 2000(2)........................................ 500 24.39

(2) We have no oil hedges beyond December 2000. In addition to the above financial hedges on natural gas we have entered into two other financial hedges that provide us a price for natural gas above the then prevailing market price, but with a ceiling price. For the period July 2000 through October 2000, we receive NYMEX settlement plus $0.15 with a ceiling price of $3.01 per MMBtu on 15,000 MMBtu per day. For the period April 2001 through October 2001, we receive NYMEX settlement plus $0.15 with a ceiling price of $3.35 per MMBtu on 10,000 MMBtu per day. These transactions are designated as hedges and accounted for on the accrual basis with realized gains and losses recognized in revenues when the related production occurs. The estimated fair value of the above listed open hedging arrangements as of August 31, 2000 is an unrealized loss of approximately $22.2 million for the fourth quarter of 2000 and $11.3 million in 2001 using natural gas and oil prices as of August 31, 2000. 29

Subsidiary Activities In 1998, our wholly-owned subsidiary, ATP Energy, entered into an agreement with an unrelated entity to purchase gas over a ten-year period. The amount of gas to be purchased was 9,000 MMBtu per day for the first year and 5,000 MMBtu per day for years two through ten. The contract requires ATP Energy to purchase the gas at a premium to the Gas Daily Henry Hub Index; however, the seller is required to reimburse ATP Energy for this premium during the term of the contract. In addition, ATP Energy received a non-refundable fee of $2.0 million from the seller at the time of signing. ATP Energy recorded the fee as a long- term deferred revenue at December 31, 1998. As the gas is purchased, ATP Energy recognizes the fee over the life of the contract. ATP Energy entered a transaction in 1998 with another unrelated entity to sell gas for three years. The contract requires delivery of 9,000 MMBtu per day during 1999 and 5,000 MMBtu per day during 2000 and 2001. The price for the gas is the Gas Daily Henry Hub Index less $0.015. We formed ATP Oil & Gas (UK) Limited on May 5, 2000 to conduct our activities in the Southern Gas Basin of the U.K. North Sea. Since then we have entered into a letter of intent to acquire a 50% interest in Block 49/12A, the Venture Field, from BP Amoco. Conoco owns the other 50%. We expect to close the acquisition transaction with BP Amoco in the fourth quarter of 2000 with development activities on the block scheduled to begin in early 2001. We have hired six employees for ATP Oil & Gas (UK) Limited. 30

BUSINESS AND PROPERTIES About ATP Oil & Gas Corporation ATP is engaged in the acquisition, development and production of natural gas and oil properties primarily in the outer continental shelf of the Gulf of Mexico. We recently have entered into agreements to expand our business to include the acquisition and development of properties in the shallow-deep waters of the Gulf of Mexico and in the Southern Gas Basin of the U.K. North Sea. We focus our efforts on natural gas and oil properties with proved undeveloped reserves that are economically attractive to us but are not strategic to major or exploration-oriented independent oil and gas companies. We attempt to achieve a high return on our investment in these properties by limiting our up-front acquisition costs and by developing our acquisitions quickly. Our management team has extensive engineering, geological, geophysical, technical and operational expertise in successfully developing and operating properties in both our current and planned areas of operation. Our Business Strategy Our business strategy is to enhance shareholder value primarily through the acquisition, development and production of proved undeveloped natural gas and oil reserves in areas that have: . substantial existing infrastructure and geographic proximity to well- developed markets for natural gas and oil; . a large number of properties that major oil companies, exploration- oriented independents and others consider non-strategic; and . a history of government stability with consistently applied regulations for offshore natural gas and oil development and production. To date, our area of concentration has been on the outer continental shelf of the Gulf of Mexico, which exhibits each of the above characteristics. We believe these characteristics are also present in the shallow-deep waters of the Gulf of Mexico and in the Southern Gas Basin of the U.K. North Sea, where we are actively pursuing the acquisition and development of properties with proved undeveloped reserves. We believe our strategy significantly reduces the risks associated with traditional natural gas and oil exploration. Unlike oil and gas companies that conduct exploration activities, our focus is to acquire properties that have been previously explored by others and found to contain proved reserves. During the life span of these properties, they may become non-core or non- strategic to their original owners. Reasons that a property may become non- core or non-strategic are varied. For example, companies may elect to concentrate their efforts elsewhere, to reduce their capital spending for development, or to pursue exploration projects as opposed to development projects. Also, a lease expiration date may be approaching and the owner may be unwilling to complete a development program. If such a project is economically attractive to us and is in our core areas, we will attempt to acquire the project. Each natural gas and oil discovery by another company in our core areas is a potential opportunity for the application of our approach. Companies pursuing exploration success may discover hydrocarbons which may not provide an acceptable economic return for them but which may prove attractive to us. We implement our business strategy through the following two steps: . Acquisition. We continually review opportunities to acquire proved natural gas and oil reserves that are not strategic to the companies from which we acquire them. Because we focus on undeveloped properties, we are typically able to acquire our properties by granting overriding royalty interests and for a minimal cash outlay. . Development and Production. We focus on developing projects in the shortest time possible between initial investment and first revenue generated in order to maximize our rate of return. Since we usually 31

operate the properties in which we acquire a working interest and begin a development program with proved reserves, we are able to expeditiously commence a project's development. We typically initiate new development projects by simultaneously obtaining the various required components such as the pipeline and the production platform or subsea well completion equipment. This strategy, combined with our ability to rapidly evaluate and implement a project's requirements, allows us to complete the development project and commence production as quickly and efficiently as possible. Our Strengths . Operating Efficiency. We emphasize a low overhead and operating expense structure. For the six months ended June 30, 2000, our lease operating expense was $0.50 per Mcfe of production and our general and administrative expense was $0.21 per Mcfe of production. We believe that our focus on a low cost structure allows us to pursue the acquisition, development and production of properties that may not be economically attractive to others. For the three year period ended December 31, 1999, our total average cost incurred for finding and developing our net proved reserves was $1.28 per Mcfe. . Operating Control. We currently operate 90% of our offshore platforms and 100% of our subsea wells. Being an operator allows us greater control of costs, the timing and amount of capital expenditures, and the selection of completion and production technology. . Technical Expertise and Significant Experience. We have assembled an experienced management team and technical staff with specific expertise in offshore property development, including the implementation of subsea completion technology. Our staff has the following characteristics: . 61% of our employees have over 20 years of industry experience, . 84% hold a bachelor's degree with 62% holding an advanced degree and/or professional certification, . 67% of those who hold masters degrees hold an MBA or MS in Finance. . Employee Ownership. Through employee ownership, we have built a staff whose business decisions are aligned with our shareholders. Prior to the offering, our employees own 100% of ATP. Following this offering, our employees will own % of ATP on a fully diluted basis. 32

Significant Properties We have summarized our most significant properties in the tables below.
ATP ATP Net Revenue Working Interest Interest ---------------- ----------100% 100% 100% 100% 100% 100% 76% 80% 77% 82% 62% 82% As of 6/30/00 July 2000 Net Proved Reserves (1)Average Daily ---------------------- Production Bcfe % Gas % Developed (MMcfe) (2) ---- ----- ----------- ------------16.8 16.1 15.2 6.4 4.6 3.5 100 68 100 92 98 92 71 36 93 100 100 100 8.7 8.7 11.8 3.7 6.5 9.6 16.9 ---65.9 ====

Significant Producing Properties -------------------Gulf of Mexico-Shelf High Island A-354....... Eugene Island 30........ Vermilion 410 Field..... East Cameron 240........ Brazos 544.............. High Island A-253....... Other properties........ Total.................

ATP Significant ATP Net Revenue Projected Development Properties Working Interest Interest Bcfe % Gas Production Date ---------------------- ---------------- ----------- ---------------------- ------------------Gulf of Mexico-Shelf West Cameron 635........ 100% 80% 7.7 94 First quarter 2001 Vermilion 63............ 100% 76% 4.4 94 Fourth quarter 2000 Main Pass 282........... 100% 79% 3.9 92 First quarter 2001 Vermilion 260........... 100% 79% 3.8 97 Fourth quarter 2000 West Cameron 492........ 50% 36% 3.4 100 Fourth quarter 2000 Gulf of Mexico-ShallowDeep Waters Garden Banks 409 (Ladybug).............. 50% 39% 19.4 35 Second quarter 2001 Southern Gas Basin-U.K. North Sea Block 49/12a (Venture) (4).......... 50% 50% 18.1 99 First quarter 2002

As of 6/30/00 Net Proved Undeveloped Reserves (3) ----------------------

(1) Estimates of net proved reserves are based on our third party independent reserve reports as of December 31, 1999, mechanically adjusted to June 30, 2000 to account for projected production. (2) Reflects our net revenue interest in each property. (3) Estimates of net proved undeveloped reserves for our properties under development are derived from our internal reserve reports. (4) We have an executed letter of intent to acquire 50% of this property and expect to close the acquisition in the fourth quarter of 2000. 33

High Island A-354 We acquired a 100% working interest in High Island A-354 from Seneca Resources Corporation in January 1999 for an overriding royalty interest. There was no production from this property as of the date acquired. We are the operator of this property. Prior to our acquisition, Seneca drilled two wells in approximately 300 feet of water which encountered hydrocarbons, but did not develop these proved reserves. One of those wells, Seneca HI A-354 #1, was temporarily abandoned. This well contains approximately 180 net feet of natural gas and condensate in five sands between 7,200 feet and 7,700 feet total vertical depth. We developed this property by completing the A-354 #1 well, drilling and completing another well, installing a platform with production facilities and laying a pipeline. Production of this property commenced in March 2000. Our total development cost was $17.9 million. High Island A-354 had estimated proved reserves of approximately 16.8 Bcf as of June 30, 2000, net to our interest. During July 2000, this well produced 8.5 MMcf per day and 27 bbls of condensate per day, net to our interest. Eugene Island 30 We acquired Eugene Island 30 in September 1999 from a unit of Enron Capital Corporation for $16.3 million. One well drilled on this property had previously produced and two wells (the C-1 and C-2 wells) were shut-in awaiting pipeline connections and an upgrade to the production facilities. At the date acquired, one well was producing 2.3 MMcf per day and 112 bbls of condensate and oil per day, net to our interest. We are the operator of this property. We performed development operations to the C-1 and the C-2 wells. The C-1 well was brought on production in March 2000, and the C-2 well was brought on production in April 2000. The development operations included laying two pipelines and upgrading production equipment. Our total development cost was $5.0 million. Eugene Island 30 is located in approximately 15 feet of water and had estimated proved reserves of approximately 10.9 Bcf and 872,300 bbls of oil as of June 30, 2000, net to our interest. During July 2000, the property produced 6.7 Mcf per day and 330 bbls of oil and condensate per day, net to our interest, from the C-1 and C-2 wells. As of August 2000, average flowing tubing pressures were 2,100 psia for the C-1 well and 3,450 psia for the C-2 well. Vermilion 410 Field In December 1998, we purchased a 50% working interest in the Vermilion 410 Field from Statoil Exploration (US) Inc. for $9.8 million. The average production during December 1998 was approximately 12.4 MMcf per day, net to our interest. We are the operator of this field. This four-block producing field was a part of Statoil's 17 block Gulf of Mexico shelf divestment package. This package also included two other producing fields covering three blocks along with ten blocks with exploration potential. During 1999, we sold several of the exploratory blocks to Houston Exploration Company for a cash payment plus a retained production payment in those blocks if a certain level of production is achieved. We have been informed by Houston Exploration Company that three successful exploratory wells have been drilled on three of the exploratory blocks and may result in future development. In February 1999, we purchased McMoRan Oil & Gas LLC's 37.5% working interest in the Vermilion 410 Field for $5.8 million. This was the first of three separate acquisitions from McMoRan. In April 2000, we purchased the remaining 12.5% working interest in this field from EEX Corporation for $1.0 million. The Vermilion 410 Field had estimated proved reserves of approximately 15.2 Bcf of natural gas as of June 30, 2000, net to our interest. The four offshore blocks that comprise this field are East Cameron Block 362, Vermilion Block 34

389, Vermilion Block 409 and Vermilion Block 410. The production platform is located in Vermilion Block 410 in approximately 365 feet of water. During July 2000, the Vermilion 410 Field produced 11.8 MMcf per day, net to our interest. East Cameron 240 In August 1999, we acquired East Cameron 240 from Enron Oil & Gas Company for $1.5 million. We are the operator of this property. One well had previously been drilled and was temporarily abandoned. The well had approximately 30 net feet of natural gas and condensate in the L-1 sand at approximately 11,500 feet measured depth, and 43 net feet of natural gas and condensate in the JR-1 sand at approximately 9,160 feet measured depth. There was no production from this well on the date we acquired East Cameron 240. We developed this property by completing the temporarily abandoned well, installing a platform without production equipment and laying a flowline from the platform to another platform approximately three miles away. Production from the well commenced in March 2000. Our total development cost was $7.2 million. East Cameron 240 is located in approximately 140 feet of water. East Cameron 240 had estimated proved reserves of approximately 5.9 Bcf and 82,300 bbls of condensate as of June 30, 2000, net to our interest. During July 2000, the well produced 0.7 MMcf per day and 503 bbls of oil per day, net to our interest, with an average flowing tubing pressure of 1,900 psia. Brazos 544 In May and June 1997, we acquired Brazos 544 from Newfield Exploration Company and Cockrell Oil & Gas L.P. for $0.7 million and an overriding royalty interest. We are the operator of this property. This property had an existing "A" platform with two shut-in wells (the A-1 and A-2) and another well (the B1) that was drilled and temporarily abandoned. The temporarily abandoned B-1 well had approximately 20 net feet of natural gas in the Big Hum A sand with an original bottom-hole pressure of 8,256 psia. There was no production from any of these three wells on the date we acquired this property. Brazos 544 was the first of two properties that we acquired from Newfield. We developed this property by completing the temporarily abandoned B-1 well, installing the "B" platform and laying a flowline from the "B" platform to the "A" platform. Production of the B-1 well commenced in July 1998. Our total development cost was $9.0 million. Brazos 544 is located in approximately 95 feet of water. Brazos 544 had estimated proved reserves of approximately 4.5 Bcf and 17,500 bbls of condensate as of June 30, 2000, net to our interest. Current proved reserves in the Big Hum A sand exclude the attic volume of the reservoir and the area and volume of the adjacent fault block. The well's performance indicates that the B-1 well may drain some portion of these currently non- proved reserves. During July 2000, the B-1 well produced 6.2 MMcf per day and 42 bbls of oil and condensate per day, net to our interest, with an average flowing tubing pressure of 3,300 psia. High Island A-253 In May and June 1999, we acquired High Island A-253, with less than 10 days before its lease expired, from Vastar Resources, Inc. and two other companies. We paid $35,000 and an overriding royalty interest for this property. As operator of the property, we were able to obtain an extension of the primary lease term from the Minerals Management Service. We proceeded to develop the lease by completing the temporarily abandoned well, installing subsea completion equipment and laying an umbilical and flowline from the subsea well to an existing platform at High Island A-270. 35

High Island A-253 began production in March 2000. It is located in approximately 130 feet of water and had estimated proved reserves of approximately 3.3 Bcf of natural gas and 47,300 bbls of condensate as of June 30, 2000, net to our interest. During July 2000, this well produced 8.8 MMcf per day and 131 bbls of condensate per day, net to our interest. In July 2000, we also acquired another property, Main Pass 282, from one of the previous owners of High Island A-253. West Cameron 635 In May 2000, we acquired West Cameron 635, located in approximately 337 feet of water, at the central Gulf of Mexico offshore federal lease sale for $1.1 million. There was no production from this property as of the date we acquired it. We are the operator of this property. Meridian Oil drilled one well in December 1995 indicating 60 feet of natural gas and condensate in the PL-18 sand, which was subsequently abandoned. Meridian allowed the lease to expire, and the property returned to the Minerals Management Service. We plan to develop this property by drilling and completing a new well, installing subsea completion equipment and installing an umbilical and flowline from the subsea well to another platform. The development costs are expected to be approximately $7.5 million. West Cameron 635 had estimated proved reserves of approximately 7.3 Bcf of natural gas and 72,700 bbls of condensate as of June 30, 2000, net to our interest. We anticipate first production in the first quarter of 2001. Vermilion 63 We acquired a 100% working interest in Vermilion 63 in July 2000 for an overriding royalty interest. This property is located in approximately 40 feet of water. The property was acquired pursuant to a farmout from El Paso Production GOM Inc. There was no production from this property as of the date we acquired it. We are the operator of this property. Vermilion 63 had less than 60 days until its lease was to expire when we acquired it. We were able to commence drilling operations in an expedited fashion to maintain the lease and encountered two natural gas and condensate sands in the well. We plan to develop this property by completing the well, installing a small structure and installing a flowline from the structure to a Unocal Corporation platform. Our total drilling and development cost is estimated to be approximately $5.2 million. Vermilion 63 had estimated proved reserves of approximately 4.1 Bcf of natural gas and 41,200 bbls of condensate as of June 30, 2000, net to our interest. We expect initial production to be in the fourth quarter of 2000. Main Pass 282 In July 2000, we acquired Main Pass 282, with less than 60 days until lease expiration, from Dominion Exploration & Production, Inc. and Union Oil Company of California for an overriding royalty interest. The two companies that owned this property decided not to complete the temporarily abandoned well. There was no production from this property as of the date we acquired it. We are the operator of this property. We plan to develop this property by completing the temporarily abandoned well, installing subsea completion equipment and installing an umbilical and flowline from the subsea well to another platform. The approximate water depth for this property is 515 feet and the development costs are expected to be approximately $6.5 million. Main Pass Block 282 had estimated proved reserves of approximately 3.6 Bcf of natural gas and 53,500 bbls of condensate as of June 30, 2000, net to our interest. We anticipate first production in the first quarter of 2001. 36

Vermilion 260 In April 2000, we acquired Vermilion 260 from McMoRan for $125,000 and an overriding royalty interest. This was the third property we had acquired from McMoRan. There was no production from this property as of the date we acquired it. We are the operator of this property. We plan to develop this property by completing the existing temporarily abandoned Vermilion 260 #1 well, installing subsea completion equipment and installing a flowline and umbilical from the subsea well to the "A" platform on Vermilion Block 261. Our total development cost is estimated to be approximately $5.7 million. This property is located in approximately 160 feet of water. This property had estimated proved reserves of approximately 3.7 Bcf of natural gas and 19,300 bbls of condensate as of June 30, 2000, net to our interest. The reserves are located in three sands at approximately 9,000 feet true vertical depth. We anticipate first production to be in the fourth quarter of 2000. West Cameron 492 In August 1999, we acquired a 50% working interest in West Cameron 492 from McMoRan for $1.3 million and an overriding royalty interest. There was no production from this property as of the date we acquired it. We are the operator of this property. In 1997, McMoRan drilled two wells (the #1 and #3 wells) and temporarily abandoned both wells. The #1 well encountered five sands with hydrocarbons. The #3 well encountered both natural gas and oil in one sand. We developed this property by completing the #1 well, drilling and completing the #2 well, installing a platform with production facilities and laying a 4,000 foot flowline from the platform to connect with the Tennessee Gas pipeline. The total development cost net to our 50% working interest was approximately $4.1 million. We plan to subsequently develop the #3 well. West Cameron 492 had estimated proved reserves of approximately 3.4 Bcf of natural gas as of June 30, 2000, net to our interest. This reserve estimate does not include the reserves discovered in the #3 well. We expect first production to be in the fourth quarter of 2000. Garden Banks 409 In July 2000, we acquired Texaco Exploration and Production Inc.'s 50% working interest in Garden Banks 409, also known as "Ladybug," for an overriding royalty interest. Union Oil Company of California owns the other 50% working interest. There was no production from this property as of the date we acquired it. We are the operator of this property. Garden Banks 409 is located in approximately 1,360 feet of water. We plan to develop the property by completing two wells, installing subsea completion equipment, installing approximately 18 miles of umbilical and flowline from the subsea wells to the Texaco and Unocal "Tick" Platform in Garden Banks Block 189 and performing modifications to the Tick platform. We expect our 50% share of the development costs to be approximately $20 million. We anticipate first production from the property to be in the second quarter of 2001. Garden Banks 409 had estimated proved reserves of approximately 6.8 Bcf of natural gas and 2.1 million bbls of oil as of June 30, 2000, net to our interest. Block 49/12a (Venture Field) We have an executed letter of intent with BP Amoco to acquire a 50% working interest in the Venture Field for three payments totaling $2.85 million. The other 50% working interest is held by Conoco. 37

We expect to close the transaction with BP Amoco in the fourth quarter of 2000 and to begin development activities in 2001. The Venture Field was selected as our first development in the Southern Gas Basin of the U.K. North Sea. This field is located offshore England in the UK Sector of the North Sea, about 80 miles northeast of Great Yarmouth. This field had estimated proved undeveloped reserves of 17.9 Bcf of natural gas and 35,800 bbls of condensate in three Rotliegendes sand layers as of June 30, 2000, net to our interest. The project involves re-entering a temporarily abandoned well in 91 feet of water, installing subsea completion equipment and constructing a 10 kilometer flowline to an existing platform for entry into an existing transportation system. The well designated for re-entry was originally drilled to a depth of 11,620 feet in 1989 and temporarily abandoned for development at a later time. We expect that our 50% share of costs to develop this property will be approximately $12 million. We expect first production to be in the first quarter of 2002. Natural Gas and Oil Reserves The following table presents our estimated net proved natural gas and oil reserves and the net present value of our reserves at December 31, 1999 based on reserve reports prepared by Ryder Scott Company, L.P. and Schlumberger Holditch-Reservoir Technologies Consulting Services. The present values, discounted at 10% per annum, of estimated future net cash flows before income taxes shown in the table are not intended to represent the current market value of the estimated natural gas and oil reserves we own. The present value of future net cash flows before income taxes as of December 31, 1999 was determined by using the December 31, 1999 prices of $2.28 per MMBtu of natural gas and $25.59 per Bbl of oil.
Proved Reserves -----------------------------Developed Undeveloped Total --------- ----------- -------67,314 26,683 93,997 710 979 1,689 71,575 32,553 104,128 $111,866 $44,449 $156,315

Natural gas (MMcf)............................. Oil and condensate (MBbls)..................... Total proved reserves (MMcfe).................. PV-10 (in thousands)...........................

Our estimates of proved reserves in the table above do not differ from those we have filed with other federal agencies. The process of estimating natural gas and oil reserves is complex. It requires various assumptions, including assumptions relating to natural gas and oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. We must project production rates and timing of development expenditures. We analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. Therefore, estimates of natural gas and oil reserves are inherently imprecise. Actual future production, natural gas and oil prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable natural gas and oil reserves most likely will vary from our estimates and these variances may be material. Read "Risk Factors--Estimating reserves and future net cash flow is difficult to do with any certainty." You should not assume that the present value of future net cash flows referred to in this prospectus is the current market value of our estimated natural gas and oil reserves. In accordance with SEC requirements, we generally base the estimated discounted future net cash flows from proved reserves on prices and costs on the date of the estimate. Actual future prices and costs may differ materially from those used in the net present value estimate. 38

Our business strategy is to acquire proved reserves, usually proved undeveloped, and to bring those reserves on production as rapidly as possible. At December 31, 1999, approximately 31% of our estimated equivalent net proved reserves were undeveloped. Recovery of undeveloped reserves generally requires significant capital expenditures and successful drilling operations. The reserve data assumes that we will make these expenditures. Although we estimate our reserves and the costs associated with developing them in accordance with industry standards, the estimated costs may be inaccurate, development may not occur as scheduled and results may not be as estimated. The following table highlights our history of bringing to production our proved undeveloped reserves: Gross Number of Blocks
1997 1998 1999 --------------------- --------------------- -----------------------Undeveloped Developed Undeveloped Developed Undeveloped Developed ----------- --------- ----------- --------- ------------------At January 1............ 4 5 4 10 11 22 Acquisitions............ 5 11 8 7 1 Divestitures............ (10)(/1/) Undeveloped to productive............. (5) 5 (4) 4 (2) 2 Undeveloped to nonproductive.......... ------------------------At December 31.......... 4 10 11 22 6(/2/) 25 ===== ===== ===== ===== ===== =====

(1) Includes nine undeveloped exploration blocks that we sold. We retained a non-working future interest in seven of those blocks. (2) Five of these blocks were brought to production in the six months ended June 30, 2000. Volumes, Prices and Operating Expenses The following table presents information regarding the production volumes of, average sales prices received for and average production costs associated with our sales of natural gas and oil for the periods indicated:
Years Ended December 31, -------------------1997 1998 1999 ------ ------ -----Six Months Ended June 30, --------------1999 2000 ------ ------8,848 89 -----9,385 $ 1.99 11,804 178 ------12,874 $ 3.18

Production: Natural gas (MMcf).................... Oil and condensate (MBbls)............

2,713 9,026 16,533 16 151 128 ------ ------ -----Total (MMcfe)....................... 2,807 9,933 17,301 Average sales price per unit: Natural gas revenues from production (per Mcf)............................ $ 2.60 2.07 $ 2.23 Effects of hedging activities (per Mcf)................................. --- (0.23) ------ ------ -----Average gas price................... $ 2.60 $ 2.07 $ 2.00 Oil and condensate revenues from production (per Bbl)................. $18.75 11.50 $15.37 Effects of hedging activities (per Bbl)................................. --------- ------ -----Average oil price................... $18.75 $11.50 $15.37 Total revenues from production (per Mcfe)................................ $ 2.62 $ 2.05 $ 2.24 Effects of hedging activities (per Mcfe)................................ --- (0.22) ------ ------ -----Total average price (per Mcfe)...... $ 2.62 $ 2.05 $ 2.02 Expenses (per Mcfe): Lease operating....................... $ 0.54 $ 0.32 $ 0.32 General and administrative............ 0.42 0.26 0.20 Depreciation, depletion and amortization--natural gas and oil properties........................... 1.50 1.76 1.30

(0.05) (0.47) ------ ------$ 1.94 $ 2.71 $12.93 ------$12.93 $ 2.00 $ 27.97 (4.10) ------$ 23.87 $ 3.30

(0.05) (0.48) ------ ------$ 1.95 $ 2.82 $ 0.26 0.17 1.35 $ 0.50 0.21 1.30

39

Development and Acquisition Capital Expenditures The following table presents information regarding our net costs incurred in the acquisition of proved properties and development activities (in thousands):
For the Years Ended For the Six December 31, Months ----------------------- Ended June 1997 1998 1999 30, 2000 ------- ------- ------- ----------Proved property acquisition costs........... $ 1,105 $12,070 $25,274 $ 2,284 Development costs........................... 38,256 23,866 30,777 38,293 ------- ------- ------------Total costs incurred...................... $39,361 $35,936 $56,051 $40,577 ======= ======= ======= =======

Drilling Activity The following table shows our drilling and completion activity. In the table, "gross" refers to the total wells in which we have a working interest and "net" refers to gross wells multiplied by our working interest in such wells. We did not complete any exploratory wells in any period presented.
For the Six Months Ended June 30, 2000 ---------Gross Net ----- ---7.0 ---7.0 ====

Development Wells: Productive........................ Nonproductive.....................

For the Years Ended December 31, -------------------------------1997 1998 1999 ---------- ---------- ---------Gross Net Gross Net Gross Net ----- ---- ----- ---- ----- ---3.4 5.0 ---- ---3.4 5.0 ==== ==== 5.0 3.0 ---- ---5.0 3.0 ==== ====

5.0 ---Total........................... 5.0 ====

2.2 7.0 ---- ---2.2 7.0 ==== ====

As of June 30, 2000, we were conducting completion activities on four gross (three net) wells. Productive Wells The following table presents the number of productive natural gas and oil wells in which we owned an interest as of June 30, 2000. Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities.
Total Productive Wells(1) ----------Gross Net ----- ----Natural gas......................................................... 29.0 26.6 Oil................................................................. 4.0 3.0 ---- ----Total(1).......................................................... 33.0 29.6 ==== =====

(1) Includes four gross and 3.2 net wells with multiple completions. 40

Acreage The following table presents information regarding our developed and undeveloped acreage as of June 30, 2000.
Developed Acreage --------------Gross Net ------- ------Gulf of Mexico-Shelf............ 128,245 111,125 Gulf of Mexico-Shallow Deep Waters......................... --Southern Gas Basin-U.K. North Sea(1)......................... --------- ------Total....................... 128,245 111,125 ======= ======= Undeveloped Acreage Total ------------- --------------Gross Net Gross Net ------ ------ ------- ------14,995 14,995 143,240 126,120 5,760 2,880 5,760 2,880

13,900 6,950 13,900 6,950 ------ ------ ------- ------34,655 24,825 162,900 135,950 ====== ====== ======= =======

(1) We have an executed letter of intent to acquire 50% of this property and expect to close the acquisition in the fourth quarter of 2000. Marketing and Delivery Commitments We sell most of our natural gas and oil production under price sensitive or market price contracts. Our revenues, profitability and future growth depend substantially on prevailing prices for natural gas and oil. The price received by us for our natural gas and oil production fluctuates widely. Decreases in the prices of natural gas and oil could adversely affect the carrying value of our proved reserves and our revenues, profitability and cash flow. Although we are not currently experiencing any significant involuntary curtailment of our natural gas or oil production, market, economic and regulatory factors may in the future materially affect our ability to sell our natural gas or oil production. We entered into a contract in 1998 with an unrelated entity to sell gas for three years. The contract requires that we deliver 9,000 MMBtu per day during 1999 and 5,000 MMBtu per day during 2000 and 2001. The price for the gas is the Gas Daily Henry Hub Mid-Point less $0.015 which was $4.595 per MMBtu at August 31, 2000. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operation--Subsidiary Activities." We sell a portion of our natural gas and oil to end users through various gas marketing companies. Three of these gas marketing companies accounted for 52% of our natural gas and oil revenues for the period ended December 31, 1997, 58% for the period ended December 31, 1998, 70% for the period ended December 31, 1999 and 73% for the period ended June 30, 2000. Due to the nature of natural gas and oil markets, we do not believe the loss of any one of our customers would have a material adverse effect on our financial condition or results of operations. Competition We compete with major and independent natural gas and oil companies for property acquisitions. We also compete for the equipment and labor required to operate and to develop these properties. Some of our competitors have substantially greater financial and other resources. In addition, larger competitors may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for natural gas and oil properties and may be able to define, evaluate, bid for and acquire a greater number of properties than we can. Our ability to acquire and develop additional properties in the future will depend upon our ability to conduct operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. In addition, some of our competitors have been operating in the Gulf of Mexico or in the Southern Gas Basin of the U.K. North Sea for a much longer time than we have and have demonstrated the ability to operate through a number of industry cycles. 41

Regulation Federal Regulation of Sales and Transportation of Natural Gas. Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978 and the regulations promulgated thereunder by the Federal Energy Regulatory Commission. In the past, the federal government has regulated the prices at which natural gas could be sold. Deregulation of natural gas sales by producers began with the enactment of the Natural Gas Policy Act of 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act, which removed all remaining Natural Gas Act of 1938 and Natural Gas Policy Act of 1978 price and non-price controls affecting producer sales of natural gas effective January 1, 1993. Congress could, however, re-enact price controls in the future. Our sales of natural gas are affected by the availability, terms and cost of pipeline transportation. The price and terms for access to pipeline transportation remain subject to extensive federal regulation. Commencing in April 1992, the Federal Energy Regulatory Commission issued Order No. 636 and a series of related orders, which required interstate pipelines to provide open- access transportation on a basis that is equal for all natural gas suppliers. The Federal Energy Regulatory Commission has stated that it intends for Order No. 636 and its future restructuring activities to foster increased competition within all phases of the natural gas industry. Although Order No. 636 does not directly regulate our production and marketing activities, it does affect how buyers and sellers gain access to the necessary transportation facilities and how we and our competitors sell natural gas in the marketplace. The courts have largely affirmed the significant features of Order No. 636 and the numerous related orders pertaining to individual pipelines, although some appeals remain pending and the Federal Energy Regulatory Commission continues to review and modify its regulations regarding the transportation of natural gas. For example, the Federal Energy Regulatory Commission issued Order No. 637 which, among other things, (1) lifts the cost-based cap on pipeline transportation rates in the capacity release market until September 30, 2002, for short-term releases of pipeline capacity of less than one year, (2) permits pipelines to charge different maximum cost-based rates for peak and off-peak periods, (3) encourages, but does not mandate, auctions for pipeline capacity, (4) requires pipelines to implement imbalance management services, (5) restricts the ability of pipelines to impose penalties for imbalances, overruns and non-compliance with operational flow orders, and (6) implements a number of new pipeline reporting requirements. Order No. 637 also requires the Federal Energy Regulatory Commission Staff to analyze whether the Federal Energy Regulatory Commission should implement additional fundamental policy changes, including, among other things, whether to pursue performance-based ratemaking or other non-cost based ratemaking techniques and whether the Federal Energy Regulatory Commission should mandate greater standardization in terms and conditions of service across the interstate pipeline grid. In addition, in April 1999 the Federal Energy Regulatory Commission issued Order No. 603, which implemented new regulations governing the procedure for obtaining authorization to construct new pipeline facilities and, in September 1999, issued a policy statement establishing a presumption in favor of requiring owners of new pipeline facilities to charge rates based solely on the costs associated with such new pipeline facilities. We cannot predict what further action the Federal Energy Regulatory Commission will take on these matters, nor can we accurately predict whether the Federal Energy Regulatory Commission's actions will achieve the goal of increasing competition in markets in which our natural gas is sold. However, we do not believe that any action taken will affect us in a way that materially differs from the way it affects other natural gas producers, gatherers and marketers. The Outer Continental Shelf Lands Act, which the Federal Energy Regulatory Commission implements as to transportation and pipeline issues, requires that all pipelines operating on or across the Outer Continental Shelf provide open- access, non-discriminatory service. Historically, the Federal Energy Regulatory Commission has opted not to impose regulatory requirements under its Outer Continental Shelf Lands Act authority on gatherers and other entities outside the reach of its Natural Gas Act jurisdiction. However, the Federal Energy Regulatory Commission recently issued Order No. 639, requiring that virtually all non-proprietary pipeline transporters of natural gas on the Outer Continental Shelf report information on their affiliations, rates and conditions of service. Among the Federal Energy Regulatory Commission's purposes in issuing such rules was 42

the desire to increase transparency in the market to provide producers and shippers on the Outer Continental Shelf with greater assurance of (a) open- access services on pipelines located on the Outer Continental Shelf and (b) non-discriminatory rates and conditions of service on such pipelines. As to gatherers and other entities outside the reach of its Natural Gas Act jurisdiction, the Federal Energy Regulatory Commission retains authority under the Outer Continental Shelf Lands Act to exercise jurisdiction over those entities if necessary to ensure non-discriminatory access to service on the Outer Continental Shelf. We do not believe that any Federal Energy Regulatory Commission action taken under its Outer Continental Shelf Lands Act jurisdiction will affect us in a way that materially differs from the way it affects other natural gas producers, gatherers and marketers. Additional proposals and proceedings that might affect the natural gas industry are pending before Congress, the Federal Energy Regulatory Commission and the courts. The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach recently pursued by the Federal Energy Regulatory Commission and Congress will continue. Federal Leases. A substantial portion of our operations is located on federal natural gas and oil leases, which are administered by the Minerals Management Service pursuant to the Outer Continental Shelf Lands Act. Such leases are issued through competitive bidding, contain relatively standardized terms and require compliance with detailed Minerals Management Service regulations and orders that are subject to interpretation and change by the Minerals Management Service. For offshore operations, lessees must obtain Minerals Management Service approval for exploration, development and production plans prior to the commencement of such operations. In addition to permits required from other agencies such as the Coast Guard, the Army Corps of Engineers and the Environmental Protection Agency, lessees must obtain a permit from the Minerals Management Service prior to the commencement of drilling. The Minerals Management Service has promulgated regulations requiring offshore production facilities located on the Outer Continental Shelf to meet stringent engineering and construction specifications. The Minerals Management Service also has regulations restricting the flaring or venting of natural gas, and has proposed to amend such regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization. Similarly, the Minerals Management Service has promulgated other regulations governing the plugging and abandonment of wells located offshore and the installation and removal of all production facilities. To cover the various obligations of lessees on the Outer Continental Shelf, the Minerals Management Service generally requires that lessees have substantial net worth or post bonds or other acceptable assurances that such obligations will be met. The cost of these bonds or other surety can be substantial, and there is no assurance that bonds or other surety can be obtained in all cases. We currently have several supplemental bonds in place. Under some circumstances, the Minerals Management Service may require any of our operations on federal leases to be suspended or terminated. Any such suspension or termination could materially adversely affect our financial condition and results of operations. The Minerals Management Service also administers the collection of royalties under the terms of the Outer Continental Shelf Lands Act and the oil and gas leases issued under the Act. The amount of royalties due is based upon the terms of the oil and gas leases as well as of the regulations promulgated by the Minerals Management Service. These regulations are amended from time to time, and the amendments can affect the amount of royalties that we are obligated to pay to the Minerals Management Service. However, we do not believe that these regulations or any future amendments will affect us in a way that materially differs from the way it affects other oil and gas producers, gathers and marketers. Oil Price Controls and Transportation Rates. Sales of crude oil, condensate and natural gas liquids by us are not currently regulated and are made at market prices. In a number of instances, however, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to Federal Energy Regulatory Commission jurisdiction under the Interstate Commerce Act. In other instances, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to regulation by state regulatory bodies under state statutes. 43

The regulation of pipelines that transport crude oil, condensate and natural gas liquids is generally more light-handed than the Federal Energy Regulatory Commission's regulation of gas pipelines under the Natural Gas Act. Regulated pipelines that transport crude oil, condensate, and natural gas liquids are subject to common carrier obligations that generally ensure non-discriminatory access. With respect to interstate pipeline transportation subject to regulation of the Federal Energy Regulatory Commission under the Interstate Commerce Act, rates generally must be cost-based, although market-based rates or negotiated settlement rates are permitted in certain circumstances. Pursuant to Federal Energy Regulatory Commission Order No. 561, pipeline rates are subject to an indexing methodology. Under this indexing methodology, pipeline rates are subject to changes in the Producer Price Index for Finished Goods, minus one percent. A pipeline can seek to increase its rates above index levels provided that the pipeline can establish that there is a substantial divergence between the actual costs experienced by the pipeline and the rate resulting from application of the index. A pipeline can seek to charge market-based rates if it establishes that it lacks significant market power. In addition, a pipeline can establish rates pursuant to settlement if agreed upon by all current shippers. A pipeline can seek to establish initial rates for new services through a cost-of-service proceeding, a market-based rate proceeding, or through an agreement between the pipeline and at least one shipper not affiliated with the pipeline. The Federal Energy Regulatory Commission indicated in Order No. 561 that it will assess in 2000 how the rate-indexing method is operating. The Federal Energy Regulatory Commission issued a Notice of Inquiry on July 27, 2000 seeking comment on whether to retain or to change the existing index. With respect to intrastate crude oil, condensate and natural gas liquids pipelines subject to the jurisdiction of state agencies, regulation is generally less rigorous than the regulation of interstate pipelines. State agencies have generally not investigated or challenged existing or proposed rates in the absence of shipper complaints or protests. Complaints or protests have been infrequent and are usually resolved informally. We do not believe that the regulatory decisions or activities relating to interstate or intrastate crude oil, condensate, or natural gas liquids pipelines will affect us in a way that materially differs from the way it affects other crude oil, condensate, and natural gas liquids producers or marketers. Environmental Regulations. Our operations are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Public interest in the protection of the environment has increased dramatically in recent years. Offshore drilling in some areas has been opposed by environmental groups and, in some areas, has been restricted. To the extent laws are enacted or other governmental action is taken that prohibits or restricts offshore drilling or imposes environmental protection requirements that result in increased costs to the natural gas and oil industry in general and the offshore drilling industry in particular, our business and prospects could be adversely affected. The Oil Pollution Act of 1990 and regulations thereunder impose a variety of regulations on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A "responsible party" includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. The Oil Pollution Act of 1990 assigns liability to each responsible party for oil removal costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Even if applicable, the liability limits for offshore facilities require the responsible party to pay all removal costs, plus up to $75.0 million in other damages. Few defenses exist to the liability imposed by the Oil Pollution Act of 1990. The Oil Pollution Act of 1990 also requires a responsible party to submit proof of its financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill. As amended by the Coast Guard Authorization Act of 1996, the Oil Pollution Act of 1990 requires parties responsible for offshore facilities to provide financial assurance in the amount of $35.0 million to cover 44

potential Oil Pollution Act of 1990 liabilities. This amount can be increased up to $150.0 million if a study by the Minerals Management Service indicates that an amount higher than $35.0 million should be required. On August 11, 1998, the Minerals Management Service adopted a rule implementing these Oil Pollution Act of 1990 financial responsibility requirements. We are in compliance with this rule. In addition, the Outer Continental Shelf Lands Act authorizes regulations relating to safety and environmental protection applicable to lessees and permittees operating on the Outer Continental Shelf. Specific design and operational standards may apply to Outer Continental Shelf vessels, rigs, platforms and structures. Violations of lease conditions or regulations issued pursuant to the Outer Continental Shelf Lands Act can result in substantial civil and criminal penalties, as well as potential court injunctions curtailing operations and the cancellation of leases. Such enforcement liabilities can result from either governmental or private prosecution. The Oil Pollution Act of 1990 also imposes other requirements, such as the preparation of an oil spill contingency plan. We have such a plan in place. We are also regulated by the Clean Water Act, which prohibits any discharge into waters of the United States except in strict conformance with discharge permits issued by federal or state agencies. We have obtained, and are in material compliance with, the discharge permits necessary for our operations. We could become subject to similar state and local water quality laws and regulations in the future if we conduct production or drilling activities in state coastal waters. Failure to comply with the ongoing requirements of the Clean Water Act or inadequate cooperation during a spill event may subject a responsible party to civil or criminal enforcement actions. The Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on some classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. We could be subject to liability under CERCLA because our drilling and production activities generate relatively small amounts of liquid and solid wastes that may be subject to classification as hazardous substances under CERCLA. These wastes must be brought to shore for proper disposal under the Resource Conservation and Recovery Act. We minimize this potential liability by selecting reputable contractors to dispose of our wastes at government approved landfills or other types of disposal facilities. Our operations are also subject to regulation of air emissions under the Clean Air Act and the Outer Continental Shelf Lands Act. Implementation of these laws could lead to the gradual imposition of new air pollution control requirements on our operations. Therefore, we may incur capital expenditures over the next several years to upgrade our air pollution control equipment. We could also become subject to similar state and local air quality laws and regulations in the future if we conduct production or drilling activities in state coastal waters. We do not believe that our operations would be materially affected by any such requirements, nor do we expect such requirements to be any more burdensome to us than to other companies our size involved in natural gas and oil development and production activities. In addition, legislation has been proposed in Congress from time to time that would reclassify some natural gas and oil exploration and production wastes as "hazardous wastes," which would make the reclassified wastes subject to much more stringent handling, disposal and clean-up requirements. If Congress were to enact this legislation, it could increase our operating costs, as well as those of the natural gas and oil industry in general. Initiatives to further regulate the disposal of natural gas and oil wastes are also pending in some states, and these various initiatives could have a similar impact on us. 45

Our management believes that we are in substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on us. Operating Hazards and Insurance The natural gas and oil business involves a variety of operating risks, which could result in severe property or environmental damages or injury to personnel. Problems associated with those risks could affect well bores, platforms, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. Offshore operations also are subject to a variety of operating risks peculiar to the marine environment, such as capsizing, collisions, and damage or loss from hurricanes or other adverse weather conditions. These conditions can cause substantial damage to facilities and interrupt production. As a result, we could incur substantial liabilities that could reduce or eliminate the funds available for our development or leasehold acquisitions, or result in loss of properties. Please read "Risk Factors--The natural gas and oil business involves many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses." In accordance with industry practice, we maintain insurance against some, but not all, potential risks and losses. Because third party drilling contractors are used to drill our wells, we may not realize the full benefit of workmen's compensation laws in dealing with their employees. Our insurance does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect our operations. Employees At August 31, 2000, we had 25 full-time employees and three contract personnel in our Houston office and three full-time employees in our London office. Three other individuals have agreed to accept employment with us and will be joining our London office in September 2000. None of our employees is covered by a collective bargaining agreement. From time to time, we use the services of independent consultants and contractors to perform various professional services, particularly in the areas of construction, design, well- site supervision, permitting and environmental assessment. Independent contractors usually perform field and on-site production operation services for us, including gauging, maintenance, dispatching, inspection and well testing. Legal Proceedings From time to time, we may be a party to various legal proceedings. We currently are not a party to any material litigation. 46

MANAGEMENT Directors, Executive Officers and Other Key Employees The following table sets forth the names, ages and positions of our executive officers, directors, nominees for directors and other key employees.
Name Age Position ------------T. Paul Bulmahn............................ 57 Chairman, President and Director Gerald W. Schlief.......................... 53 Senior Vice President Albert L. Reese, Jr. ...................... 51 Senior Vice President and Chief Financial Officer Leland E. Tate............................. 53 Senior Vice President, Operations John E. Tschirhart......................... 49 Vice President, General Counsel G. Ross Frazer............................. 44 Vice President, Engineering Keith R. Godwin............................ 33 Vice President and Controller Carol E. Overbey........................... 49 Vice President, Corporate Secretary and Director Arthur H. Dilly............................ 71 Director Nominee Gerard J. Swonke........................... 55 Director Robert C. Thomas........................... 71 Director Nominee Walter Wendlandt........................... 71 Director Nominee

The following biographies describe the business experience of our executive officers, directors, nominees for directors and other key employees. T. Paul Bulmahn (BA, JD, MBA) has served as our Chairman and President since he founded the company in 1991. In 1991, he was elected Chairman, Houston Bar Association Oil, Gas and Mineral Law Section, and in 1992 was elected to serve for a three year term on the Oil & Gas Council of the State Bar of Texas. From 1988 to 1991, Mr. Bulmahn served as President and Director of Harbert Oil & Gas Corporation. From 1984 to 1988, Mr. Bulmahn served as Vice President, General Counsel of Plumb Oil Company. From 1978 to 1984, Mr. Bulmahn served as counsel for Tenneco's interstate gas pipelines and as regulatory counsel in Washington, D.C. From 1973 to 1978, Mr. Bulmahn served the Railroad Commission of Texas, the Public Utility Commission and the Interstate Commerce Commission as an administrative law judge. He has chaired various oil and gas industry seminars, including "Marginal Offshore Field Development" in 1996 and the "Upstream Oil and Gas E-Business Conference" in 2000, and has been a faculty lecturer in natural gas regulations. In June 2000, Mr. Bulmahn was selected Entrepreneur Of The Year 2000 in Energy & Energy Services by Ernst & Young LLP. Gerald W. Schlief (BBA, CPA, MBA) has served as our Senior Vice President since 1993 and is primarily responsible for acquisitions. Between 1990 and 1993, Mr. Schlief acted as a consultant for the onshore and offshore independent oil and gas industry. From 1984 to 1990, Mr. Schlief served as Vice President, Offshore Land for Plumb Oil Company where he managed the acquisition of interests in over 35 offshore properties. From 1983 to 1984, Mr. Schlief served as Offshore Land Consultant for Huffco Petroleum Corporation. He served as Treasurer and Landman for Huthnance Energy Corporation from 1981 to 1983. In addition, from 1974 to 1978, Mr. Schlief conducted audits of oil and gas companies for Arthur Andersen & Co., and from 1978 to 1981, he conducted audits of oil and gas companies for Spicer & Oppenheim. Albert L. Reese, Jr. (BBA, CPA, MBA) has served as our Chief Financial Officer since March 1999 and, in a consulting capacity, as our director of finance from 1991 until March 1999. He was also recently named Senior Vice President. From 1979 to 1986, Mr. Reese served as chief financial officer of Plumb Oil Company and its successor, Harbert Energy Corporation. From 1986 to 1991, Mr. Reese was employed with the Harbert Corporation where he established a registered investment bank for the company to conduct project and corporate financings for energy, cogeneration, and small power activities. Prior to 1979, Mr. Reese served in various capacities with Capital Bank in Houston, the firm of Peat, Marwick & Mitchell, and as a partner in Arnold, Reese & Swenson, a Houston-based accounting firm specializing in energy clients. 47

Leland E. Tate (BS--Petroleum Engineering) joined us in August 2000 as Senior Vice President, Operations, to oversee evaluations, operations, production and marketing functions. From 1969 to 2000, Mr. Tate worked in various capacities for Atlantic Richfield Company in reservoir and operations engineering and management, including two years as President, ARCO North Africa, three years as Vice President and District Manager in Lafayette, Louisiana, where he managed operations on the outer continental shelf of the Gulf of Mexico and in deepwater, and three years as Director of Operations for ARCO British Ltd., where he addressed operations in the North Sea. John E. Tschirhart (BS--Marine Transportation, JD) has served as our Vice President, General Counsel since 1997, and was named Managing Director of ATP Oil & Gas (UK) Limited in July 2000. Prior to joining us, he was in private practice from 1985 to 1997, and represented business, oilfield and maritime clients. From 1979 to 1985, he was with Coastal Oil & Gas Corporation and from 1974 to 1979 he was with Shell Oil Company. G. Ross Frazer (BS Summa Cum Laude--Nuclear Engineering) joined us in August 2000 as Vice President, Engineering. From 1993 to 2000, he served in various operations and engineering managerial capacities for British-Borneo Exploration, Inc., including responsibility for the deep water Gulf of Mexico Morpeth development in 1,700 feet of water and the Allegheny development in 3,300 feet of water. Between 1981 and 1993, he was an operations and production engineering consultant to the offshore oil and gas industry. From 1978 to 1981, Mr. Frazer held positions of increasing engineering responsibility for Houston Oil & Minerals Corporation, becoming Offshore Division Operations Engineer in 1980. From 1997 to 1998, he was Chairman of the American Petroleum Institute Houston Chapter Advisory Board and presently serves on its Deep Water Operations Steering Committee. Keith R. Godwin (BBA, CPA) has served as our Controller since 1997 and was recently named a Vice President. From 1995 to 1997, Mr. Godwin was in private industry as Corporate Accounting Manager with Champion Healthcare Corporation, a publicly traded company. From 1990 to 1995, Mr. Godwin was employed as an accountant with Coopers & Lybrand L.L.P. where he conducted audits primarily in the energy industry. Carol E. Overbey (BSW, AAS--RN) has served as a director since 1991 and presently is Vice President and Corporate Secretary. Since 1991, she has served as Corporate Secretary and was Treasurer from 1991 to 1999. From 1985 to 1991, Ms. Overbey was Vice President/Controller of Continuity Corporation. She also served in 1991 as Assistant to the President at Harbert Oil & Gas Corporation and assisted in developing gas marketing operations. Arthur H. Dilly (BA with honors, MA) has been nominated as a director of ATP. He currently serves as Chairman and Chief Executive Officer of Austin Geriatrics Center, Inc. and as Vice Chairman of the Board of Directors of the Shivers Cancer Foundation. From 1981 to 1998, Mr. Dilly served as Executive Secretary of the Board of Regents of the University of Texas System. From 1978 to 1981, he was Executive Director for Development, The University of Texas System. Prior to 1978, he was prominent in the field of hospital administration. Gerard J. Swonke (BA--Economics, JD) has served as a director since 1995. Since 1985, he has been Of Counsel to Greenberg, Peden, Siegmyer & Oshman, P.C. representing domestic and international oil and gas clients in contract drafting and negotiations, including in Indonesia, Africa and the North Sea. From 1975 to 1985 he was Counsel for Aminoil, Inc. with responsibility for onshore and offshore matters. From 1967 to 1974 when he received his law degree he was Controller for Automated Systems Corporation with responsibility for corporate accounting and preparation of financial statements and corporate tax returns. Robert C. Thomas (BS--Geological Engineering) has been nominated as a director of ATP. He currently serves as Chairman of the Board of The Energy Center of the University of Oklahoma. Additionally he is Vice Chairman of the Gas Research Institute Advisory Council, and also is a Senior Associate with Cambridge Energy Research Associates. Mr. Thomas served as Chairman, President and Chief Executive Officer of 48

Tenneco Gas Company when he reached mandatory retirement age after thirty-eight years with Tenneco beginning in 1956. He was with Tenneco's domestic exploration and production operations until 1970 when he was elected vice president of Tenneco Oil Company's Canadian subsidiary with responsibility for all engineering, drilling, processing plant and production operations. He was elected president of Tenneco Gas in 1983 and chairman and chief executive officer in 1990. Mr. Thomas is presently a member of the Board of Directors of Marine Drilling Companies, Inc. and PetroCorp Incorporated. He is Chairman of the Board of Directors of the YMCA of the Greater Houston Area and President of the Board of Directors of Houston Hospice. He additionally serves on the Board of Governors of The Houston Forum. Mr. Thomas has served over 10 years on each of the following Board of Directors: The Interstate Natural Gas Association of America (INGAA), the American Gas Association (AGA), Gas Research Institute (GRI), and the Institute of Gas Technology (IGT). From 1989 to 1994 he was a member of the National Petroleum Council (NPC) and served as a Vice President of the International Association of LNG Importers (GIIGNL) headquartered in Paris. Walter Wendlandt (BS--Mechanical Engineering, JD) has been nominated as a director of ATP. He was Director, Railroad Commission of Texas for eighteen years, and was the Republican Nominee for the Railroad Commission of Texas in 1976. He presently is in the private practice of law, and has served as a Trustee of the Augustana Annuity Trust, a Director of the Georgetown Railroad, and Director of Lamar Savings Association. He additionally has served as President, National Conference of State Transportation Specialists; Chairman, State Bar Committee on Public Utilities Law; President, Capital City A&M Club; and was a member for six years of the Technical Pipeline Safety Standards Committee of the U.S. Department of Transportation. Board of Directors Our board of directors currently has three members. Prior to the closing of this offering we plan to increase our board of directors to six members divided into three classes. The members of each class will serve for a staggered, three-year term. Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of shareholders in the year in which their term expires. The classes will be as follows: . Class I Directors. Mr. Bulmahn and Mr. Swonke will be Class I Directors whose terms will expire at the 2001 annual meeting of shareholders; . Class II Directors. Mr. Wendlandt and Ms. Overbey will be Class II Directors whose terms will expire at the 2002 annual meeting of shareholders; and . Class III Directors. Mr. Thomas and Mr. Dilly will be Class III Directors whose terms will expire at the 2003 annual meeting of shareholders. Committees of the Board of Directors In connection with this initial public offering, our board of directors intends to establish an audit committee and a compensation committee. Audit Committee The audit committee will consist of Messrs. Swonke, Thomas and Wendlandt. The audit committee will be responsible for: . recommending annually to our board of directors the selection of our independent public accountants; . reviewing and approving the scope of our independent public accountants' audit activity and the extent of non-audit services; . reviewing with management and the independent public accountants the adequacy of our basic accounting systems and the effectiveness of our internal audit plan and activities; . reviewing our financial statements with management and the independent public accountants and exercising general oversight of our financial reporting process; and 49

. reviewing our litigation and other legal matters that may affect our financial condition and monitoring compliance with our business ethics and other policies. Compensation Committee The compensation committee will consist of Messrs. Thomas, Dilly and Swonke. This committee's responsibilities include: . administering and granting awards under our 2000 Stock Option Plan; . reviewing the compensation of our President and recommendations of the President as to appropriate compensation for our other executive officers and key personnel; . examining periodically our general compensation structure; and . supervising our welfare and pension plans and compensation plans. Compensation Committee Interlocks and Insider Participation None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. Compensation of Directors Currently our directors receive no compensation. Upon the closing of this offering, we intend to grant to each of our non-employee directors options to purchase 5,000 shares of common stock at an exercise price equal to the price paid by the public in this offering for serving as a member of our board of directors. In addition, each outside director will receive $2,000 per board meeting, $500 per committee meeting attended and will be reimbursed for expenses incurred. Directors who are our employees will not receive cash compensation for their services as directors or members of committees of the board. Executive Compensation The following table sets forth information regarding the compensation of our President and each of our four other most highly compensated executive officers for the year ended December 31, 1999. The annual compensation amounts in the table exclude perquisites and other personal benefits because they did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for each executive officer: 1999 Summary Compensation Table
Annual Compensation ----------------All Other Name and Principal Position (1) Salary Bonus Compensation(2) -------------------------------------- -------- --------------T. Paul Bulmahn (3).......................... $125,000 $ 32,700 $4,700 Chairman and President Gerald W. Schlief (3)........................ $120,700 $ 53,800 $4,800 Senior Vice President Albert L. Reese, Jr.......................... $ 87,100 $104,600 $ 800 Senior Vice President and Chief Financial Officer

(1) On July 31, 2000, Mr. Ralph McBee, our former Vice-President of Engineering, and Mr. Stephen R. Locke, our former Vice-President of Operations, elected to leave the employment of ATP. In 1999, Mr. McBee earned a salary of $122,000, a bonus of $55,800 and matching 401k contributions of $4,800; Mr. Locke earned a salary of $106,700, a bonus of $50,500 and matching 401k contributions of $4,700. (2) Consists of matching contributions to our 401k savings plan. (3) As described in "Related Party Transactions," during 1999 Mr. Bulmahn and Mr. Schlief each received an overriding royalty interest in a property at the time we acquired our interest in the property. We recorded a non-cash charge of $0.6 million in connection with their receiving such interests. 50

Each of the bonus amounts shown in the table was awarded by the board of directors after consideration of the performance of each of the officers and bonuses paid to similarly situated executives of companies of comparable size in the natural gas and oil industry. Stock Options During 1999, we did not grant any stock options to the individuals named in the previous table. 2000 Stock Option Plan Prior to the closing of this offering, our board of directors and our shareholders plan to adopt the 2000 Stock Plan. The purpose of the plan is to provide directors, employees and consultants of ATP and its subsidiaries additional incentive and reward opportunities designed to enhance the profitable growth of our company. The plan will provide for the granting of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, options that do not constitute incentive stock options and restricted stock awards. The plan will be administered by the compensation committee of our board of directors. In general, the compensation committee will be authorized to select the recipients of awards and the terms and conditions of those awards. The number of shares of common stock that may be issued under the plan will not exceed shares, subject to adjustment to reflect stock dividends, stock splits, recapitalizations and similar changes in our capital structure. Shares of common stock which are attributable to awards which have expired, terminated or been canceled or forfeited are available for issuance or use in connection with future awards. The maximum number of shares of common stock that may be subject to awards granted under the plan to any one individual during the term of the plan will not exceed 50% of the aggregate number of shares that may be issued under the plan. The price at which a share of common stock may be purchased upon exercise of an option granted under the plan will be determined by the compensation committee but (a) in the case of an incentive stock option, such purchase price will not be less than the fair market value of a share of common stock on the date such option is granted, and (b) in the case of an option that does not constitute an incentive stock option, such purchase price will not be less than 50% of the fair market value of a share of common stock on the date such option is granted. Shares of common stock that are the subject of a restricted stock award under the plan will be subject to restrictions on disposition by the holder of such award and an obligation of such holder to forfeit and surrender the shares to the under certain circumstances. The restrictions will be determined by the compensation committee in its sole discretion, and the compensation committee may provide that the restrictions will lapse upon (a) the attainment of one or more performance targets established by the compensation committee, (b) the award holder's continued employment with ATP or continued service as a consultant or director for a specified 51

period of time, (c) the occurrence of any event or the satisfaction of any other condition specified by the compensation committee in its sole discretion or (d) a combination of any of the foregoing. No awards under the plan may be granted after ten years from the date the plan is adopted by our board of directors. The plan will remain in effect until all awards granted under the plan have been satisfied or expired. Our board of directors in its discretion may terminate the plan at any time with respect to any shares of common stock for which awards have not been granted. The plan may be amended, other than to increase the maximum aggregate number of shares that may be issued under the plan or to change the class of individuals eligible to receive awards under the plan, by our board of directors without the consent of our shareholders. No change in any award previously granted under the plan may be made which would impair the rights of the holder of such award without the approval of the holder. 1998 Stock Option Plan In December 1998, our board of directors and our shareholders adopted the ATP Oil & Gas Corporation 1998 Stock Option Plan. Following this offering, the options granted under the plan will remain outstanding until their termination date; however, no additional options will be granted. Options granted under the plan expire on the later to occur of five years from the date the 1998 Stock Option Plan was adopted or five years following an underwritten public offering in a minimum amount of $5,000,000. Options granted to an individual who, at the time of the grant, owned more than 10% of our common stock expire five years form the date of the grant. Each option under the 1998 Stock Option Plan may be exercised at any time after the grant, subject to the limitation that these options shall not be exercisable for more than a percentage of the aggregate number of shares offered by such option determined by the occurrence of an initial public offering in accordance with the following schedule:
% of shares Dates involving occurrence vested and of Initial Public Offering exercisable -----------------------------------Prior to date of initial public offering...................... 0 Sixty days after date of initial public offering.............. 33 1/3 First anniversary of initial public offering.................. 66 2/3 Second anniversary of initial public offering................. 100

If there is a merger or consolidation of ATP that results in at least 40% of the outstanding voting stock of ATP (or the successor of ATP) being owned by persons or entities other than the shareholders of ATP prior to the merger or consolidation, all outstanding options will become vested and fully exercisable for the remainder of their terms. If there is a change in control other than as described in the preceding sentence, then the compensation committee may effect certain alternatives with respect to the options, including permitting exercise of the options for a limited period of time, requiring surrender of the options in exchange for cash payments, or providing for subsequent exercise for the number and class of shares of stock or other securities or property in accordance with the terms of the transaction. From November 1998 through June 2000, we granted options exercisable for 675,750 shares of common stock at $1.00 each. In July and August 2000, we granted options exercisable for 404,500 shares of common stock at $2.75 per share. Please refer to note 4 in the financial statements for a more detailed discussion of the options. At August 31, 2000, we had outstanding options to purchase a total of 827,000 shares of common stock, of which options to purchase 422,500 shares will be exercisable at $1.00 per share, and options to purchase 404,500 shares will be exercisable at $2.75 per share. 401k Savings Plan Effective March 1, 1997, we adopted a 401k savings plan. This savings and profit sharing plan covers all of our employees. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and Section 401(a) of the Internal Revenue Code. 52

The assets of the plan are held and the related investments are executed by the plan's trustee. Participants in the plan have investment alternatives in which to direct their funds and may direct their funds in one or more of these investment alternatives. We pay all administrative fees on behalf of the plan. The plan provides for discretionary matching by ATP which is currently 50% of each participant's contributions up to 6% of the participant's compensation. We contributed $7,695 for the year ended December 31, 1998, $30,966 for the year ended December 31, 1999 and $29,146 for the six months ended June 30, 2000. ATP All-Employee Bonus Program The ATP All-Employee Bonus Program is a bonus program designed to benefit all employees based upon our overall performance. We have historically made payments to employees through the All-Employee Bonus Program on a semi-annual basis. The amount available for each employee under this program is based upon a formula that considers length of service and base compensation. Each employee is eligible to participate in the program allocations effective the first day of the month following the employee's date of employment with ATP. There are certain restrictions related to payment of an employee's allocation from the program within their first year of employment. Those payments have represented approximately 20% of average eligible compensation during the allocation period. RELATED PARTY TRANSACTIONS In 1997, 1998 and 2000, Mr. Bulmahn, Mr. Schlief and Ms. Overbey each received overriding royalty interests in three of our properties, ranging in amounts from 0.2% to 3.0%, at the time we acquired our interests in the properties. In 1999, Mr. Bulmahn and Mr. Schlief each received an overriding royalty interest of 1.0% in one of our properties at the time we acquired it. In connection with their receiving these interests, we recorded no charges in 1997 and non-cash charges of $526,100 in 1998, $558,000 in 1999 and $281,500 in the first six months of 2000. We intend to enter into indemnification agreements with our officers and directors containing provisions requiring us to, among other things, indemnify our officers and directors against liabilities that may arise by reason of their status or service as officers or directors, other than liabilities arising from willful misconduct of a culpable nature, and to advance expenses they incur as a result of any proceeding against them as to which they could be indemnified. 53

PRINCIPAL SHAREHOLDERS The following table presents information regarding beneficial ownership of our common stock as of August 31, 2000 and as adjusted to reflect the sale of common stock in this offering by: . each person who we know owns beneficially more than 5% of our common stock; . each of our directors and persons nominated to become directors; . the persons named in our 1999 Summary Compensation Table; and . all of our current executive officers and directors as a group. Unless otherwise indicated, each person listed has sole voting and dispositive power over the shares indicated as owned by that person, and the address of each shareholder is the same as our address. Furthermore, under the regulations of the SEC, shares are deemed to be "beneficially owned" by a person if the holder directly or indirectly has or shares the power to vote or dispose of these shares, whether or not the holder has any pecuniary interest in these shares, or if the holder has the right to acquire the power to vote or dispose of these shares within 60 days, including any right to acquire through the exercise of any option, warrant or right.
Beneficial Ownership ---------------------------Percent ----------------Before After Shares Offering Offering ---------- -------- -------12,619,695 63.1% 4,891,506 24.5% 1,630,633 8.2% 858,166 4.3% 5,000 * 5,000 * 5,000 * 5,000 * 100%

Beneficial Owner ---------------T. Paul Bulmahn................................... Gerard W. Schlief................................. Carol E. Overbey.................................. Albert L. Reese, Jr............................... Arthur H. Dilly(1)................................ Gerard J. Swonke(1)............................... Robert C. Thomas(1)............................... Walter Wendlandt(1)............................... All current executive officers, directors and nominees for directors as a group (8 persons)(1)(2)................................... 20,020,000

* Represents beneficial ownership of less than 1%. (1) Includes options to purchase 5,000 shares at an exercise price equal to the price paid by the public in this offering which we will grant to our non- employee directors upon the close of this offering. (2) Excludes 138,333 shares that may be acquired by other key employees 60 days after the closing of this offering through the exercise of stock options. 54

DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of August 31, 2000, we had outstanding 20,000,000 shares of common stock and no shares of preferred stock. As of August 31, 2000, there were 827,000 shares of common stock subject to outstanding options, none of which are currently exercisable. On completion of this offering, we will have outstanding shares (or shares if the underwriters exercise over-allotment option in full) of common stock and no shares of preferred stock. The descriptions of our common stock and preferred stock reflect changes to our capital structure that will occur prior to the closing of this offering. Common Stock Subject to any special voting rights of any series of preferred stock that we may issue in the future, each share of common stock has one vote on all matters voted on by our shareholders, including the election of our directors. Because holders of common stock do not have cumulative voting rights, the holders of a majority of the shares of common stock can elect all of the members of the board of directors standing for election, subject to the rights, powers and preferences of any outstanding series of preferred stock. No share of common stock affords any preemptive rights or is convertible, redeemable, assessable or entitled to the benefits of any sinking or repurchase fund. Holders of common stock will be entitled to dividends in the amounts and at the times declared by our board of directors in its discretion out of funds legally available for the payment of dividends. Holders of common stock will share equally in our assets on liquidation after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. All outstanding shares of common stock are fully paid and non-assessable. Preferred Stock At the direction of our board, we may issue shares of preferred stock from time to time. Our board of directors may, without any action by holders of the common stock: . adopt resolutions to issue preferred stock in one or more classes or series; . fix or change the number of shares constituting any class or series of preferred stock; and . establish or change the rights of the holders of any class or series of preferred stock. The rights of any class or series of preferred stock may include, among others: . general or special voting rights; . preferential liquidation or preemptive rights; . preferential cumulative or noncumulative dividend rights; . redemption or put rights; and . conversion or exchange rights. We may issue shares of, or rights to purchase, preferred stock the terms of which might: . adversely affect voting or other rights evidenced by, or amounts otherwise payable with respect to, the common stock; . discourage an unsolicited proposal to acquire us; or . facilitate a particular business combination involving us. Any of these actions could discourage a transaction that some or a majority of our shareholders might believe to be in their best interests or in which our shareholders might receive a premium for their stock over its then market price. 55

Anti-Takeover Provisions of our Articles of Incorporation and Bylaws The provisions of Texas law and our articles of incorporation and bylaws we summarize below may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the common stock. Business Combinations Under Texas Law We are a Texas corporation and, upon completion of the offering, will be subject to Part Thirteen of the Texas Business Corporation Act, known as the "Business Combination Law." In general, this law will prevent us from engaging in a business combination with an affiliated shareholder, or any affiliate or associate of an affiliated shareholder, for a three-year period after the date such person became an affiliated shareholder, unless: . our board of directors approves the acquisition of shares that causes such person to become an affiliated shareholder before the date such person becomes an affiliated shareholder, . our board of directors approves the business combination before the date such person becomes an affiliated shareholder, or . holders of at least two-thirds of our outstanding voting shares not beneficially owned by the affiliated shareholder or its affiliates or associates approve the business combination within six months after the date such person becomes an affiliated shareholder. Under this law, any person that owns or has owned 20% or more of our voting shares during the preceding three-year period is an "affiliated shareholder." The law defines "business combination" generally as including: . mergers, share exchanges or conversions involving an affiliated shareholder, . dispositions of assets involving an affiliated shareholder: --having an aggregate value equal to 10% or more of the market value of our assets, --having an aggregate value equal to 10% or more of the market value of our outstanding common stock, or --representing 10% or more of our earning power or net income, . issuances or transfers of securities by us to an affiliated shareholder other than on a pro rata basis, . plans or agreements relating to our liquidation or dissolution involving an affiliated shareholder, . reclassifications, recapitalizations, distributions or other transactions that would have the effect of increasing an affiliated shareholder's percentage ownership of our outstanding voting stock, and . the receipt of tax, guarantee, pledge, loan or other financial benefits by an affiliated shareholder other than proportionally as one of our shareholders. Written Consent of Shareholders Our articles of incorporation provide that any action by our shareholders must be taken at an annual or special meeting of shareholders. Special meetings of the shareholders may be called only by holders of not less than 50% of shares entitled to vote. Shareholders may not act by written consent. 56

Advance Notice Procedure for Shareholder Proposals Our bylaws establish an advance notice procedure for the nomination of candidates for election as directors as well as for shareholder proposals to be considered at annual meetings of shareholders. In general, notice of intent to nominate a director must contain specific information concerning the person to be nominated and must be delivered to or mailed and received at our principal executive offices as follows: . With respect to an election to be held at the annual meeting of shareholders, not less than 90 days nor more than 120 days prior to the first anniversary date of the preceding year's annual meeting of shareholders. . With respect to an election to be held at a special meeting of shareholders for the election of directors, not earlier than the close of business on the 120th day prior to the special meeting and not later than the close of business on the later of the 90th day prior to the special meeting or the 10th day following the day on which public disclosure is first made of the date of the special meeting. Notice of shareholders' intent to raise business at an annual meeting must be delivered to or mailed and received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the preceding year's annual meeting of shareholders. These procedures may operate to limit the ability of shareholders to bring business before a shareholders meeting, including with respect to the nomination of directors or considering any transaction that could result in a change of control. Classified Board; Removal of Director Our bylaws provide that the members of our board of directors are divided into three classes as nearly equal as possible. Each class is elected for a three-year term. At each annual meeting of shareholders, approximately one- third of the members of the board of directors are elected for a three-year term and the other directors remain in office until their three-year terms expire. Furthermore, our bylaws provide that neither any director nor the board of directors may be removed without cause, and that any removal for cause would require the affirmative vote of the holders of at least a majority of the voting power of the outstanding capital stock entitled to vote for the election of directors. Thus, control of the board of directors cannot be changed in one year without removing the directors for cause as described above; rather, at least two annual meetings must be held before a majority of the members of the board of directors could be changed. Our bylaws provide that the provisions related to the classified board and removal of directors cannot be altered, amended or repealed without the approval of the holders of at least two-thirds of the outstanding shares entitled to vote thereon. Limitation of Liability of Officers and Directors Our articles of incorporation provide that no director shall be personally liable to ATP or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability as follows: . for any breach of the director's duty of loyalty to ATP or its shareholders; . for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . for unlawful distributions on ATP's capital stock; and . for any transaction from which the director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of ATP and its shareholders, through derivative suits on behalf of ATP, to recover monetary damages against a director for a breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above. Transfer Agent and Registrar The transfer agent and registrar of our common stock is . 57

SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. Sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could cause the market price of our common stock to fall and could affect our ability to raise capital on terms favorable to us in the future. Upon completion of this offering, we will have outstanding shares of common stock. The shares of common stock sold in this offering, plus any shares issued upon exercise of the underwriters' over-allotment option, will be freely tradable without restriction under the Securities Act unless purchased by our affiliates as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock outstanding will be restricted securities under Rule 144. Restricted securities may be sold in the public market only if the sale is registered or if it qualifies for an exemption from registration, such as under Rule 144 under the Securities Act, which is summarized below. In addition, sales of these securities will be subject to the restrictions on transfer contained in the lock-up agreements described below. All of our directors, executive officers and other key employees have agreed that they will not, without the prior written consent of the representatives of the underwriters, sell or otherwise dispose of any shares of common stock or options to acquire shares of common stock during the 180-day period following the closing of this offering. See "Underwriting." Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, including the holding period of any prior owner except an affiliate, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or . the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing with the SEC of a notice on Form 144 with respect to the sale. Sales under Rule 144 also are subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 Rule 701 permits resales of shares in reliance on Rule 144 but without compliance with specified restrictions of Rule 144. Any employee, officer or director of ATP who receives shares upon exercise of options granted prior to the offering may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits our affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell those shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. After the expiration of that 90-day period, 137,334 shares subject to outstanding options could be sold under Rule 701. 58

Stock Options Following the consummation of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under our 2000 Stock Option Plan. Based on the number of shares currently reserved for issuance under the plan, that registration statement would cover up to shares issuable on exercise of options, of which options to purchase shares will have been issued as of the date of this offering. The registration statement on Form S-8 will automatically become effective upon filing. This registration will permit the resale of these shares by nonaffiliates in the public market without restriction under the Securities Act. Shares registered under the Form S-8 registration statement held by affiliates will be subject to Rule 144 volume limitations and the lock-up period described above. 59

UNDERWRITING Under the underwriting agreement, which is filed as an exhibit to the registration statement relating to this prospectus, Lehman Brothers Inc., CIBC World Markets Corp., Dain Rauscher Incorporated, Raymond James & Associates, Inc. and Fidelity Capital Markets, a division of National Financial Services LLC, are acting as representatives of each of the underwriters named below. Under the underwriting agreement, each of the underwriters has agreed to purchase from us the respective number of shares of common stock shown opposite its name below:
Underwriter ----------Lehman Brothers Inc. .............................................. CIBC World Markets Corp. .......................................... Dain Rauscher Incorporated......................................... Raymond James & Associates, Inc. .................................. Fidelity Capital Markets, a division of National Financial Services LLC............................................................... Total.......................................................... Number of Shares ----------

---------==========

The underwriting agreement provides that the underwriters' obligations to purchase shares of common stock depend on the satisfaction of the conditions contained in the underwriting agreement and that, if any of the shares of common stock are purchased by the underwriters under the underwriting agreement, all of the shares of common stock that the underwriters have agreed to purchase under the underwriting agreement must be purchased. The conditions contained in the underwriting agreement include the requirement that the representations and warranties made by us to the underwriters are true, that there is no material change in the financial markets and that we deliver to the underwriters customary closing documents. The following table shows the underwriting fees to be paid to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares described below. The underwriting fee is the difference between the public offering price and the amount the underwriters pay to us to purchase the shares from us. On a per share basis, the underwriting fee is % of the initial public offering price.
No Exercise Full Exercise ----------- ------------Per share............................................. $ $ Total................................................. $ $

The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus, and to dealers, who may include the underwriters, at this public offering price less a selling concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a concession not in excess of $ per share to brokers and dealers. After the offering, the underwriters may change the offering price and other selling terms. We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts, will be approximately $ . We have granted to the underwriters an option to purchase up to additional shares of common stock exercisable to cover over-allotments, if any, at the initial public offering price less the underwriting discounts shown on the cover page of this prospectus. The underwriters may exercise this option any time until 60

30 days after the date of the underwriting agreement. If this option is exercised, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to the underwriter's initial commitment as indicated in the table above and we will be obligated, under the over-allotment option, to sell the shares of common stock to the underwriters. We have agreed that, without the consent of Lehman Brothers Inc., we will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or exchanged for any shares of common stock for a period of 180 days from the date of this prospectus. All of our directors, executive officers and other key employees have agreed under lock-up agreements that, without the prior written consent of Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or exchanged for any shares of common stock for the period ending 180 days after the date of this prospectus. See "Shares Eligible for Future Sale." Prior to the offering, there has been no public market for the shares of our common stock. The initial public offering price has been negotiated between the representatives and us. The material factors considered in determining the initial public offering price of the common stock, in addition to prevailing market conditions, were: . our historical performance and capital structure; . estimates of our business potential and earning prospects; . an overall assessment of our management; and . the above factors in relation to market valuation of companies in related businesses. Fidelity Capital Markets, a division of National Financial Services LLC, is acting as an underwriter of this offering and will be facilitating electronic distribution through the Internet. We have applied for quotation of our common stock on the Nasdaq National Market under the symbol "ATPG." We have agreed to indemnify the underwriters against liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities. Until the distribution of the common stock is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters and selling group members to bid for and purchase shares of common stock. As an exception to these rules, the representatives are permitted to engage in transactions that stabilize the price of the common stock. These transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock. The underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares from the issuer in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. "Naked" short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely 61

affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the selling shareholders or the underwriters makes any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. Any offers in Canada will be made only under an exemption from the requirements to file a prospectus in the relevant province of Canada in which the sale is made. Purchasers of the shares of common stock offered in this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus. The representatives have informed us that they do not intend to confirm the sales of shares of common stock offered by this prospectus to any accounts over which they exercise discretionary authority in excess of five percent of the shares offered by them. At our request, the underwriters have reserved up to shares of the common stock offered by this prospectus for sale to our officers, directors, employees and their family members and to our business associates at the initial public offering price set forth on the cover page of this prospectus. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of shares available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. LEGAL MATTERS The validity of the issuance of the shares of common stock offered by this prospectus will be passed on for us by Vinson & Elkins L.L.P., Houston, Texas. Certain legal matters relating to the common stock offered by this prospectus will be passed on by Baker Botts L.L.P., Houston, Texas, as counsel for the underwriters. EXPERTS The audited consolidated financial statements as of December 31, 1998 and 1999, and for each of the years in the three-year period ended December 31, 1999 have been included in this prospectus and elsewhere in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The statement of revenues and direct operating expenses of the Eugene Island 30 property for the nine months ended September 30, 1999 has been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The estimated reserve evaluations and related calculations of Ryder Scott Company, L.P. and Schlumberger Holditch-Reservoir Consulting Services Inc., independent petroleum engineering consultants, included in this prospectus have been included in reliance on the authority of said firm as experts in petroleum engineering. 62

WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the common stock offered under this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information included in the registration statement and the attached exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or other document that is filed as an exhibit to the registration statement are summaries of the material provisions of those documents. These summaries are qualified in all respects by reference to the full text of such contract or document. The registration statement, including related exhibits and schedules, can be inspected and copied at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any portion of the registration statement can be obtained after payment of fees prescribed by the SEC. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC. The address of the site is www.sec.gov. Upon completion of this offering, we will be required to comply with the informational requirements of the Securities Exchange Act of 1934 and, accordingly, will file current reports on Form 8-K, quarterly reports on Form 10-Q, annual reports on Form 10-K, proxy statements and other information with the SEC. Those reports, proxy statements and other information will be available for inspection and copying at the Public Reference Room and internet site of the SEC referred to above. We intend to furnish our shareholders with annual reports containing consolidated financial statements certified by an independent public accounting firm. 63

ATP OIL & GAS CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---F-2 F-3 F-4 F-5 F-6 F-7 F-23 F-24 F-25 F-27 F-28 F-29

ATP OIL & GAS CORPORATION AND SUBSIDIARIES Independent Auditors' Report............................................. Consolidated Balance Sheets as of December 31, 1998, 1999 and June 30, 2000 (unaudited)........................................................ Consolidated Statements of Operations for the periods ended December 31, 1997, 1998, and 1999 and June 30, 1999 (unaudited) and 2000 (unaudited)............................................................. Consolidated Statements of Shareholders' Deficit for the periods ended December 31, 1997, 1998, and 1999 and June 30, 2000 (unaudited)......... Consolidated Statements of Cash Flows for the periods ended December 31, 1997, 1998, and 1999 and June 30, 1999 (unaudited) and 2000 (unaudited)............................................................. Notes to Consolidated Financial Statements............................... STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 FOR THE EUGENE ISLAND 30 PROPERTY Independent Auditors' Report............................................. Statement of Revenues and Direct Operating Expenses for the nine-months ended September 30, 1999................................................ Notes to Statement of Revenues and Direct Operating Expenses............. ATP OIL & GAS CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Unaudited Pro Forma Financial Information................................ Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1999................................................. Notes to Unaudited Pro Forma Consolidated Financial Statement............

F-1

INDEPENDENT AUDITORS' REPORT The Board of Directors ATP Oil & Gas Corporation: We have audited the accompanying consolidated balance sheets of ATP Oil & Gas Corporation and subsidiary as of December 31, 1998 and 1999, and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ATP Oil & Gas Corporation and subsidiary as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP Houston, Texas April 28, 2000

F-2

ATP OIL & GAS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1999 and June 30, 2000 (unaudited) (In thousands, except share data)
ASSETS -----1998 -------1999 -------$ 17,779 -11,119 1,048 -------29,946 135,609 (63,331) -------72,278 250 471 2,058 2,051 -------$107,054 ======== June 30, 2000 ----------(unaudited) 8,195 -23,637 2,269 -------34,101 173,608 (83,579) -------90,029 366 -2,532 1,816 -------$128,844 ======== $

Current assets: Cash and cash equivalents........................ $ 3,411 Cash held in escrow.............................. 439 Accounts receivable.............................. 4,325 Other current assets............................. 645 -------Total current assets........................... 8,820 Oil and gas properties: Oil and gas properties using the successful efforts method of accounting.................... 80,966 Less accumulated depreciation, depletion, impairment and amortization..................... (33,354) -------Oil and gas properties, net.................... 47,612 Furniture and fixtures (net of accumulated depreciation)..................................... 96 Restricted cash.................................... 4,000 Deferred tax assets................................ -Other assets....................................... 826 -------Total assets................................... $ 61,354 ======== LIABILITIES AND SHAREHOLDERS DEFICIT -----------------------------------Current liabilities: Accounts payable and accruals.................... $ 11,155 Current maturity of long-term debt............... 2,500 Other current liabilities........................ 18 -------Total current liabilities...................... 13,673 Long-term debt..................................... 12,000 Non-recourse borrowings............................ 50,690 Deferred revenue................................... 2,000 Other deferred obligations......................... 4,000 -------Total liabilities.............................. 82,363 -------Shareholders' deficit: Common stock: $0.001 par value, authorized 50,000,000 shares; issued and outstanding 20,000,000 shares at December 31, 1998 and 1999 and June 30, 2000 .............................. 20 Additional paid in capital....................... 32 Accumulated deficit.............................. (21,061) -------Total shareholders' deficit.................... (21,009) -------Commitments and contingencies Total liabilities and shareholders' deficit.... $ 61,354 ========

$ 12,408 3,750 69 -------16,227 16,450 75,273 1,667 218 -------109,835 --------

$ 27,782 -1,010 -------28,792 22,000 79,966 1,575 166 -------132,499 --------

20 32 (2,833) -------(2,781) -------$107,054 ========

20 32 (3,707) -------(3,655) -------$128,844 ========

See accompanying notes to the consolidated financial statements. F-3

ATP OIL & GAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Periods ended December 31, 1997, 1998 and 1999 and June 30, 1999 (unaudited) and 2000 (unaudited)

(In thousands, except share and per share data)
December 31, ---------------------------------1997 1998 1999 ---------- ---------- ---------Revenues: Oil and gas production........... Gas sold--marketing... June 30, -----------------------1999 2000 ----------- ----------(unaudited) (unaudited) $ 18,323 3,423 ---------21,746 ---------$ 36,252 2,919 ---------39,171 ----------

$

Costs and operating expenses: Lease operating expenses............. Gas purchased-marketing............ General and administrative expenses............. Depreciation, depletion and amortization......... Impairment of oil and gas properties....... Other Expense.........

7,359 ----------7,359 ----------

$

20,410 ----------20,410 ----------

$

34,981 7,703 ---------42,684 ----------

1,513 -1,170 4,206 5,787 ----------12,676 ----------

3,193 -2,591 17,442 5,072 ----------28,298 ----------

5,587 7,402 3,541 22,521 7,509 ----------46,560 ----------

2,484 3,361 1,550 12,667 2,442 ----------22,504 ----------

6,422 2,802 2,738 16,695 6,255 749 ---------35,661 ---------3,510 ---------33 255 (5,146) ---------(4,858) ---------(1,348) 474 ---------(874) ----------$ (874) ==========

Net income (loss) from operations..... Other income (expense): Gain on sale of oil and gas properties... Interest income....... Interest expense......

(5,317) (7,888) (3,876) (758) ---------- ---------- ---------- ---------304 -287 -207 141 202 48 (1,212) (7,963) (9,399) (6,078) ---------- ---------- ---------- ---------(701) (7,822) (8,910) (6,030) ---------- ---------- ---------- ---------(6,018) ----------(6,018) (15,710) ----------(15,710) (12,786) 1,829 ---------(10,957) (6,788) (281) ---------(7,069) 29,185 ---------$ 22,116 ==========

Net loss before extraordinary items............... Income tax benefit (expense).............. Loss before extraordinary item.. Gain on extinguishment of debt, net of tax.... Net income (loss).... Basic earnings (loss) per common share: Income (loss) before extraordinary item... Extraordinary gain, net of income taxes.. Net income (loss) per common share........ Diluted earnings (loss) per common share: Income (loss) before extraordinary item... Extraordinary gain, net of income taxes.. Net income (loss) per common share........ Weighted average number of common shares: Basic................. Diluted...............

--29,185 ---------- ---------- ---------$ (6,018) $ (15,710) $ 18,228 ========== ========== ==========

$

(0.41) $

(0.94) $

(0.55) $

(0.35)

$

(0.04)

-----------

-----------

1.46 ----------

1.46 ---------$ 1.11 ==========

----------$ (0.04) ==========

$ (0.41) $ (0.94) $ 0.91 ========== ========== ==========

$

(0.41) $

(0.94) $

(0.55) $

(0.35)

$

(0.04)

-----------

-----------

1.46 ----------

1.46 ---------$ 1.11 ========== 20,000,000 ========== 20,000,000 ==========

----------$ (0.04) ========== 20,000,000 ========== 20,000,000 ==========

$ (0.41) $ (0.94) $ 0.91 ========== ========== ========== 14,794,867 ========== 14,794,867 ========== 16,696,099 ========== 16,696,099 ========== 20,000,000 ========== 20,000,000 ==========

See accompanying notes to the consolidated financial statements.

F-4

ATP OIL & GAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT Periods ended December 31, 1998 and 1999 and June 30, 2000 (unaudited) (In thousands, except share data)
Common Additional Total Common share paid-in Accumulated shareholders' shares amount capital deficit deficit ---------- ------ ---------- ----------- ------------15,497,858 4,502,142 ----------20,000,000 ----------20,000,000 ----------20,000,000 ========== $15 5 ---20 ---20 ---$20 === $24 8 ---32 ---32 ---$32 === $(5,351) -(15,710) ------(21,061) 18,228 ------(2,833) (874) ------$(3,707) ======= $(5,312) 13 (15,710) ------(21,009) 18,228 ------(2,781) (874) ------$(3,655) =======

Balance, December 31, 1997................... Exercise of options... Net loss.............. Balance, December 31, 1998................... Net income............ Balance, December 31, 1999................... Net loss.............. Balance, June 30, 2000..

See accompanying notes to the consolidated financial statements. F-5

ATP OIL & GAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Periods ended December 31, 1997, 1998 and 1999 and June 30, 1999 (unaudited) and 2000 (unaudited)

(In thousands)
1997 ------Cash flows from operating activities: Net income (loss)........ Adjustments to reconcile net income (loss) from operations to net cash provided by operating activities: Depreciation, depletion and amortization....... Amortization of deferred financing costs........ Impairment of oil and gas properties......... Assignment of overrides to related party....... Other expense........... Recognition of deferred revenue................ Gain on early extinguishment of debt................... Gain on sale of oil and gas properties......... Change in assets and liabilities: (Increase) decrease in accounts receivable..... (Increase) decrease in cash held in escrow..... (Increase) in other current assets.......... Decrease in restricted cash.................... (Increase) in deferred tax assets.............. (Increase) decrease in other assets............ Increase (decrease) in accounts payable........ Increase (decrease) in other current liabilities............. (Decrease) in deferred obligations............. Cash provided by operating activities........... Cash flows from investing activities: Additions and acquisitions of oil and gas properties.......... Proceeds from sale of oil and gas properties...... Additions to furniture and fixtures............ Cash used by investing activities........... Cash flows from financing activities: Increase in long-term debt.................... Payments of long-term debt.................... Non-recourse borrowings.. Payments of non-recourse borrowings.............. Deferred financing costs incurred................ Receipt of deferred revenue................. Exercise of options to purchase common stock... Cash provided by financing activities........... 1998 -------1999 ------June 30, June 30, 1999 2000 ----------- ----------(unaudited) (unaudited) $22,116 $ (874)

$(6,018) $(15,710) $18,228

4,206 2 5,787 ----(304)

17,442 45 5,072 525 -----

22,521 280 7,509 557 -(333) (29,185) (287)

12,667 67 2,442 --(165) (29,185) --

16,695 157 6,255 282 749 (92) -(33)

(9,967) (411) (482) --32 10,794 19

7,205 981 (39) --(96) (2,156) (22)

(6,794) 439 (403) 3,529 (2,058) (714) 1,253 51 (3,782) ------10,811 -------

(6,619) 427 (399) 1,657 (951) (649) 2,095 122 (1,815) ------1,810 -------

(12,518) -(1,221) 471 (474) 179 15,033 192 (52) ------24,749 -------

(86) -------- -------3,572 ------13,247 --------

(39,361) 975

(35,936) (56,051) -1,137

(13,544) 950 (79) ------(12,673) -------

(40,577) -(148) ------(40,725) -------

(84) (46) (206) ------- -------- ------(38,470) (35,982) (55,120) ------- -------- -------

--39,924 (4,232) (78) -2 ------35,616

14,500 -20,113

5,700 -93,728

-(9,900) 54,239 (27,819) (824) --------15,696

3,300 (1,500) 13,461 (8,768) (101) --------6,392

(11,617) (39,420) (669) 2,000 13 -------24,340 (1,331) --------58,677

Increase (decrease) in cash and cash equivalents............. Cash and cash equivalents: At beginning of year..... At end of year...........

------718 1,088 ------$ 1,806 =======

-------1,605 1,806 -------$ 3,411 ========

------14,368 3,411 ------$17,779 =======

------4,833 3,411 ------$ 8,244 =======

------(9,584) 17,779 ------$ 8,195 =======

See accompanying notes to the consolidated financial statements. F-6

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) (Amounts for interim periods are unaudited) (1) Organization ATP Oil & Gas Corporation (ATP or the Company), a Texas corporation, was formed on August 8, 1991 and is engaged primarily in the acquisition, development and operation of oil and gas properties. ATP owns and operates its oil and gas properties utilizing financing arrangements with third parties and shared working interest arrangements. The Company operates in one business segment which is oil and gas operations. (2) Summary of Significant Accounting Policies General The accompanying consolidated financial statements of the Company have been prepared according to generally accepted accounting principles and pursuant to the rules and regulations of the Securities and Exchange Commission. These accounting principles require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications of amounts previously reported have been made to conform to current period presentations. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, ATP Energy, Inc. (ATP Energy) and ATP Oil & Gas (UK) Limited. All significant intercompany transactions are eliminated upon consolidation. Interim Financial Data The unaudited consolidated financial statements as of June 30, 2000, for the six-month periods ended June 30, 1999 and 2000, and all related footnote information for these periods have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows in accordance with generally accepted accounting principles. Cash and Cash Equivalents Cash and cash equivalents primarily consist of cash on deposit and investments in money market funds with original maturities of three months or less, stated at market value. Restricted Cash Restricted cash primarily consist of cash on deposit and investments in money market funds and fixed income funds stated at the lower of cost or current market value. Oil and Gas Producing Activities and Depreciation, Depletion and Amortization The Company follows the "successful efforts" method of accounting for oil and gas properties. Under this method, lease acquisition costs and intangible drilling and development costs on successful wells and development dry holes are capitalized. F-7

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) Capitalized costs relating to producing properties are depleted on the unit- of-production method. Proved developed reserves are used in computing unit rates for drilling and development costs and total proved reserves for depletion rates of leasehold, platform and pipeline costs. Estimated dismantlement, restoration and abandonment costs and estimated residual salvage values are taken into account in determining amortization and depletion provisions. Expenditures for repairs and maintenance are charged to expense as incurred; renewals and betterments are capitalized. The costs and related accumulated depreciation, depletion, and amortization of properties sold or otherwise retired are eliminated from the accounts, and gains or losses on disposition are reflected in the statements of operations. The Company performs a review for impairment of proved oil and gas properties on a depletable unit basis when circumstances suggest there is a need for such a review. For properties determined to be impaired, an impairment loss equal to the differences between the carrying value and the fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of expected future net cash flows computed by applying estimated future oil and gas prices, as determined by management, to estimated future production of oil and gas reserves over the economic lives of the reserves. Future net cash flows are based upon the Company's independent engineer's estimate of proved reserves. In addition, other factors such as probable and possible reserves are taken into consideration when justified by economic conditions and actual or planned drilling. The Company recorded an impairment during the years ended December 31, 1997, 1998 and 1999 and the six-month periods ended June 30, 1999 and 2000 of $5.8 million, $5.1 million, $7.5 million, $2.4 million and $6.3 million, respectively, primarily due to depressed oil and natural gas prices, unfavorable operating performance and a reduction of recoverable reserves. Acquisition In September 1999, the Company completed an acquisition of a 100% working interest and a 82% net revenue interest in Eugene Island 30 for a purchase price of $16.3 million. Subsequent to the acquisition, the Company became the operator of the property. The acquisition was financed through the Company's credit facility. The following table sets forth summary unaudited pro forma financial data which is presented to give effect to the Eugene Island 30 acquisition as if the event had occurred as of January 1, 1998. The information does not purport to be indicative of actual results, as if this transaction had been in effect for the periods indicated, or of future results. Unaudited Pro Forma Information (Amounts in thousands except per share data)
December 31, ----------------1998 1999 -------- ------Revenues.................................................. $ 23,757 $44,955 Net income (loss)......................................... $(15,894) $18,396 Basic and diluted earnings (loss) per share............... $ (0.95) $ 0.92

F-8

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) Furniture and Fixtures Furniture and fixtures consists of office furniture, computer hardware and software and leasehold improvements. Depreciation of furniture and fixtures is computed using the straight-line method over their estimated useful lives, which vary from three to ten years. Depreciation of furniture and fixtures included in depreciation, depletion and amortization expense was $27,000, $33,000, $52,000, $22,000 and $32,000 for the periods ended December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000, respectively. Capitalized Interest The Company capitalizes interest costs associated with borrowed funds while the property in a depletable unit is being developed. The Company ceases capitalizing interest costs when the property begins its first production. Interest costs capitalized for the periods ended December 31, 1997, 1998, and 1999 and June 30, 1999 and 2000 and were $2.1 million, $1.6 million, $0.6 million, none and $0.7 million, respectively. Other Current Assets Other current assets include prepaid expenses of $0.2 million, $0.2 million and $0.1 million and estimated royalty deposits with the Mineral Management Services of $0.5 million, $0.8 million and $2.2 million at December 31, 1998, and 1999 and June 30, 2000, respectively. Prepaid expenses are amortized to production and operating expenses over the term of the related agreements. Other Assets Other assets include debt financing costs of $0.7 million, $1.2 million and $1.1 million, assets held for resale of none, $0.7 million and $0.7 million, and spare parts inventory of $0.1 million, $0.2 million and $0.1 million at December 31, 1998, and 1999 and June 30, 2000, respectively. Debt financing costs relate to direct financing fees incurred in establishing the Company's credit facility agreements and non-recourse borrowing agreements, which are amortized to interest expense straight-line, over the term of the related agreements, which approximates the interest method. Amortization included in interest expense was $2,000, $45,000, $0.3 million, $0.1 million and $0.2 million for the periods ended December 31, 1997, 1998 and 1999, and June 30, 1999 and 2000, respectively. Environmental Liabilities Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. The Company has never had an environmental claim. If such a claim arose in the future, the liabilities would be recorded when environmental assessments and/or clean-ups are probable, and the costs could be reasonably estimated. Generally, the timing of these accruals coincides with the Company's commitment to a formal plan of action. Revenue Recognition The Company records as revenue only that portion of production sold and allocable to its ownership interest in the related property. Imbalances arise when a purchaser takes delivery of more or less volume from a property than the Company's actual interest in the production from that property. Such imbalances are reduced either by subsequent recoupment of over-and-under deliveries or by cash settlement, as required by applicable contracts. Under-deliveries are included in accounts receivable and over-deliveries are included in accounts payable. At December 31, 1998 and 1999 and June 30, 2000, the Company had over- deliveries included in accounts payable of $47,000, $0.2 million and $0.2 million, respectively. F-9

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) The Company has no allowance for doubtful accounts related to its trade accounts receivable for any period shown. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that enactment date. Financial Instruments The Company's financial instruments consist of cash and cash equivalents, receivables, payables and debt. The carrying amount of cash and cash equivalents, receivables and payables approximates fair value because of the short-term nature of these items. Derivative Financial Instruments From time to time, the Company has utilized and may continue to utilize hedging transactions with respect to a portion of its oil and gas production to achieve a more predictable cash flow as well as to reduce its exposure to price fluctuations. These transactions generally are swaps or price collars and are entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce the Company's exposure to declines in the market price of natural gas and crude oil. These derivative financial instruments will limit the effect on the Company's realized revenues if market prices fall below the contracted floor price. As a result, gains and losses on derivative financial instruments are generally offset in the Company's oil and gas revenues by similar changes in the realized price of natural gas and crude oil. The Company uses the hedge or deferral method of accounting for these instruments. To qualify as hedges, these instruments must highly correlate to anticipated future production such that the Company's exposure to the effects of price changes is reduced. Income and costs related to these hedging activities are recognized in oil and gas revenues when the commodities are produced. Income and costs on commodity derivative financial instruments that are closed before the hedged production occurs are also deferred until the production month originally hedged. In the event of a loss of correlation between changes in oil and gas prices under a commodity derivative financial instrument and actual oil and gas prices, income or costs are recognized currently to the extent the financial instruments had not offset changes in actual oil and gas prices. For the year ended December 31, 1997 and 1998, the Company had no hedge transactions. For the year ended December 31, 1999, the Company recorded $3.8 million as a reduction of oil and gas revenues related to hedging transactions. At June 30, 2000, the Company had hedged approximately 14,303,000 MMbtu or 92% of its expected remaining 2000 natural gas production from its current portfolio of properties and 14,527,000 MMbtu or 44% of its expected 2001 natural gas production from its current portfolio of properties. The average price of hedged natural gas production is approximately $2.95 per MMbtu for 2000 and $3.03 per MMbtu for 2001. The Company has no natural gas hedges in effect beyond October 2001. At June 30, 2000, the Company had hedged approximately 101,300 barrels of oil or 47% of its expected remaining 2000 oil production from its current portfolio of properties. The average price of hedged oil production is estimated at $23.99 per barrel. The Company has no oil hedges in effect beyond December 2000. Based on prices in effect at June 30, 2000 the above hedge positions would reduce expected future net revenues by 30%, or $21.4 million in the last six months of 2000 and 7%, or $11.3 million in 2001. F-10

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) It is the Company's general policy not to acquire derivative products for the purpose of speculating on price changes, however, occasionally, the Company may find itself in limited speculative positions as a result of actual production being less than projected production when the derivative products were consummated. Any speculative positions are accounted for using the mark- to-market method. Under this methodology, contracts are adjusted to market value, and the gains and losses are recognized in current period income. The Company's derivative commodity instruments currently are comprised of swaps. As of June 30, 2000, the Company recognized a loss in the amount of $749,000 from certain speculative positions. This amount is reflected as other expense in the statement of operations. Stock Options In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the common stock (see note 4). Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements, including the use of estimates for oil and gas reserve information and the valuation allowance for deferred income taxes. Actual results could differ from those estimates. Supplemental Disclosure of Cash Flow Information For the years ended December 31, 1997, 1998, and 1999, the Company made cash payments of interest of $0, $32,000 and $0.6 million, respectively and for the six months ended June 30, 1999 and 2000, the Company made cash payments of interest of $0.4 million and $0.7 million, respectively. The Company made no cash payments for income taxes during the three years ending December 31, 1999 or the six months ended June 30, 1999 and the Company made cash payments for income taxes during the six months ended June 30, 2000 of $0.5 million. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. Management believes that the credit risk posed by this concentration is offset by the creditworthiness of the Company's customer base. Risk Factors The Company's revenue, profitability, cash flow and future rate of growth is substantially dependent upon the price of and demand for oil and natural gas. Prices for natural gas and oil are subject to wide fluctuations in response to relatively minor changes in the supply of and demand for natural gas and crude oil, market uncertainty and a variety of additional factors that are beyond the control of the Company. Other factors that could affect the revenue, profitability, cash flow and future growth of the Company include the Company's F-11

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) incurrence of losses since formation, the inherent uncertainties in reserve estimates, the concentration of production and reserves in a small number of offshore properties, the ability to finance growth, and the ability to replace reserves. The Company had working capital surpluses (deficits) at December 31, 1998 and 1999 and June 30, 2000 totaling ($4.9) million, $13.7 million and $5.3 million, respectively. The Company has historically had significant amounts of net cash used in operating and investing activities funded through short-term borrowings from financial institutions. Management believes its access to cash through additional borrowings under its credit facility and operations are sufficient to satisfy the current cash requirements. (see note 3). New Accounting Policies In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, and in June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133. These statements establish standards of accounting for and disclosures of derivative instruments and hedging activities. These statements are effective for fiscal years beginning after June 15, 2000. While the Company has not yet completed its evaluation of the impact of these statements, the Company does not believe the statements will have a significant impact on its results of operations as it expects its current derivative activities would continue to qualify under hedge accounting. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation: an Interpretation of APB Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock options in a business combination. The provisions of Interpretation No. 44 affecting the Company are to be applied on a prospective basis effective July 1, 2000. (3) Long-term Debt and Non-Recourse Borrowings Credit facility
December 31, --------------- June 30, 1998 1999 2000 ------- ------- ----------(In thousands) (unaudited) Credit facility.................................. $14,500 $20,200 $22,000 Less current portion............................. 2,500 3,750 -------- ------------Long-term debt................................. $12,000 $16,450 $22,000 ======= ======= =======

In September 1998, the Company entered into a revolving credit facility with a national bank. The Company's maximum borrowing amount (its borrowing base) is based on the loan value, as determined by the lender, of certain oil and gas properties pledged to the credit facility. The initial borrowing base was established at $6.5 million. Several amendments from September 1998 through June 2000 adjusted the borrowing base to $39.0 million. Interest is computed either at a base rate or at the Eurodollar loan rate plus a premium (depending upon the percentage of the facility being used). Base rate loans bear interest at the higher of Federal Funds plus a premium or the bank's prime rate plus a premium. At December 31, 1998 and 1999, and June 30, 2000 the average interest rate was 8.1%, 8.9% and 10.1% respectively. The credit facility is collateralized by a first mortgage on certain of the Company's oil and gas properties. Commitment fees and facility fees are paid F-12

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) on the unused portion of the loan. The loan agreement contains various restrictive non-financial covenants including limitations on future debt, guarantees, liens, dividends, mergers, and sale of assets. The loan agreement also contains various restrictive financial covenants including ratio of debt (exclusive of non-recourse debt and other permitted debt) to EBITDA as of the end of any fiscal quarter (calculated on a rolling four quarter basis) shall not be greater than 3.00 to 1.00, current ratio of no less than 1.0 to 1.0 at any time, and interest coverage ratio as of the end of any fiscal quarter to be less than 2.50 to 1.00. At December 31, 1999 and June 30, 2000, the Company was in compliance with all terms of the agreement. At December 31, 1998 and 1999 and June 30, 2000, the amount outstanding under the credit facility was $14.5 million, $20.2 million and $22.0 million, respectively. Non-Recourse Borrowing Agreements In November 1996, the Company entered into a dollar denominated, non- recourse, production payment obligation. This obligation was subsequently supplemented in a series of amendments that occurred between that date and April 1998, in exchange for payments to the Company aggregating approximately $53.7 million. Of this amount, approximately $39.9 million was received in 1997 and $20.1 million in 1998. These proceeds were received in exchange for the monthly obligation to provide the lender with a designated interest in the net revenues attributable to certain properties. This obligation was free of all costs of production and operation prior to the delivery point as specified in the agreement. The payment obligations were based on the lender receiving an agreed upon percentage of the Company's net revenue from the properties until such time that the sum of the net proceeds exceeded the amount advanced plus a designated return. Several amendments during the life of the agreement adjusted the percentage of net revenue allocated to repayment, the implied rate of return, and any continuing interest after payout. At December 31, 1998, there was $50.7 million outstanding under this agreement. In June 1999, the Company and the lender reached an agreement in a negotiated transaction to terminate the obligation. The Company agreed to pay in a lump sum an amount that would have been paid over the time from net revenues from certain properties. The lump sum payment was less than the amount outstanding at the date of payment. As a result, the Company recognized a gain of $29.2 million on the early extinguishments of the debt. In April 1999, the Company entered into a second non-recourse obligation. This obligation was created in exchange for payments to the Company for up to $47.0 million. These proceeds were received in exchange for an obligation to provide the lender with a designated percentage of the monthly net revenue received as reflected in the Company's property operating statement for certain properties as included in the agreement. In addition to the interest rate earned by the lender, it also has a future specified overriding royalty interest in the properties that serve as collateral. This overriding royalty interest applies to each property that serves as collateral and does not become effective until after all of the indebtedness has been paid in full or when a property is removed from the collateral base. Each overriding royalty is only for a specified volume of production from the property and is contingent on the future performance of the related properties. Under the terms of this agreement, the payment obligation from the committed properties commenced during April 1999. The agreement was subsequently amended twice in 1999 to increase the amount of the lender's commitment to $91.2 million. Unless extended or further amended, the loan agreement will terminate in November 2002. At December 31, 1999 and June 30, 2000, there was $75.3 million and $80.0 million, respectively, outstanding under the agreement. F-13

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) (4) Equity Stock Options SFAS No. 123, Accounting for Stock-based Compensation, defines a fair value method of accounting for an employee stock option or similar equity instrument. The Company has elected to account for its stock options using the intrinsic value method, as prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the common stock. Since the Company is a private company whose shares do not trade in any market, there is no established market value for the Company's common stock. The fair value of each option granted was determined as the value using a standard option-pricing model on the date of grant with industry average assumptions for valuations. The fair value does not take into account the expected volatility of the underlying stock if it were traded in an open market. Had the Company determined its compensation cost based on the fair value at the grant date for its stock options under the provisions of SFAS No. 123, the Company's pro forma net loss and profit for the years ended December 31, 1997, 1998, and 1999 would have been unchanged. 1998 Stock Option Plan In December 1998, the Board of Directors approved the 1998 Stock Option Plan (the 1998 SOP) to provide increased incentive for its employees and directors. The 1998 SOP is administered by the Compensation Committee of the Company's Board of Directors and provides for up to 3,750,000 shares of common stock to be granted to eligible participants. Stock options are granted at the fair market value of the Company's stock on the date of grant, determined by Committee. These options expire 5 years from the date the 1998 SOP was adopted if no initial public offering (IPO) of Company Stock, in a minimum amount of $5.0 million, is underwritten before such term or five years after the date of an IPO. Each option under the 1998 SOP may be exercised at any time after the grant, subject to the limitation that these options shall not be exercisable for more than a percentage of the aggregate number of shares offered by such option determined by the occurrence of an IPO in accordance with the following schedule:
% of shares vested and exercisable ----------0 33 1/3 66 2/3 100

Dates involving occurrence of IPO --------------------------------Prior to date of IPO............................................. Sixty days after date of IPO..................................... First anniversary of IPO......................................... Second anniversary of IPO........................................

If there is a Corporate Change in Control as defined by the 1998 SOP prior to an IPO, then, at the discretion of the Committee, the options may become exercisable at a date other than that stated in the option, may be exchanged for cash, or may be exchanged for options in another entity. During the periods ended December 31, 1998 and 1999,and June 30, 2000 the Company granted options exercisable for 617,000, 26,000 and 32,750 shares of common stock at $1.00 each, the grant date fair market value as estimated by management. Upon the occurrence of an IPO, the Company may recognize a material amount of compensation expense depending on the fair market value of the Company's common stock determined by an IPO. Compensation expense will be measured by the Company at the IPO date as the difference between the grant price for certain of its options granted prior to the IPO and the fair market value of the Company's common stock. Any F-14

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) determined compensation expense will be recognized in the Company's future financial statements based on the above vesting schedule. Information regarding the Company's 1998 SOP is summarized as follows:
June 30, June 30, 2000 2000 1999 (unaudited) (unaudited) -------- ----------- ----------Weighted Weighted average average exercise exercise price Shares price -------- ----------- ----------$1.00 1.00 1.00 ----$1.00 ===== $ -===== $1.00 ===== 639,750 32,750 --------672,500 ======= -======= 32,750 ======= $ 1.00 1.00 -------$ 1.00 ====== $ -====== $ 1.00 ======

Outstanding at beginning of year................ Granted................. Expired unexercised..... Exercised............... Outstanding at end of period................. Exercisable at end of period................. Fair value of options granted................

1998 1998 1999 ------- -------- ------Weighted average exercise Shares price Shares ------- -------- -------617,000 --------617,000 ======= -======= 617,000 ======= $ -1.00 ------$1.00 ===== $ -===== $1.00 ===== 617,000 26,000 (3,250) -------639,750 ======= -======= 26,000 =======

1994 Stock Option Plan In May 1994, the Board of Directors approved the 1994 Stock Option Plan (the 1994 SOP) under which it was authorized to issue up to 78,264,102 shares of common stock. The exercise price of the options under the 1994 SOP shall not be less than the greater of par value per share or fair market value, at date of grant. These options have a maximum term of 10 years, subject to vesting requirements in the individual option agreements. During 1994, options to purchase 36,729,342 shares were issued at $0.00256 per share immediately exercisable after grant. As of December 31, 1997, 1998 and 1999 and June 30, 2000, options to purchase 31,872,664 shares, 26,512,356 shares, 26,512,356 shares and 26,512,356 shares, respectively, of the 1994 options remain unexercised and outstanding. In April 2000, the only outstanding option under the 1994 SOP was amended to place a limit on the number of shares that could be purchased pursuant to the option. As a result, the number of shares exercisable as of April 2000 was zero. In conjunction with the Company's planned initial public offering, the 1994 SOP will be terminated and the only outstanding option issued under that plan will be cancelled. F-15

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) Information regarding the Company's 1994 SOP is summarized as follows:
June 30, June 30, 2000 2000 1998 1999 1999 (unaudited) (unaudited) -------- ---------- -------- ----------- ----------Weighted Weighted Weighted average average average exercise exercise exercise price Shares price Shares price -------- ---------- -------- ----------- ----------$0.002 0.002 -----$0.002 ====== $0.002 ====== $ -====== 26,512,356 ------------26,512,356 ========== 26,512,356 ========== -========== $0.002 26,512,356 ------------26,512,356 ========== -========== -========== $0.002 --------$0.002 ====== $ -====== $ -======

1997 ----------

Outstanding at beginning of year................ Granted................. Expired unexercised..... Exercised............... Outstanding at end of period................. Exercisable at end of period................. Fair value of options granted................

Shares ---------31,872,664 --(858,166) ---------31,014,498 ========== 31,014,498 ========== -==========

1997 1998 -------- ---------Weighted average exercise price Shares -------- ---------$0.002 0.002 -----$0.002 ====== $0.002 ====== $ -====== 31,014,498 --(4,502,142) ---------26,512,356 ========== 26,512,356 ========== -==========

-----$0.002 ====== $0.002 ====== $ -======

(5) Earnings Per Share Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the assumption that outstanding stock options have been converted using the average price for the period. For purposes of computing earnings per share in a loss year, common stock equivalents have been excluded from the computation of weighted average common shares outstanding because their effect is antidilutive. F-16

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) Basic and diluted net income (loss) per share is computed based on the following information (in thousands, except share and per share amounts):
For the years ended December 31, ------------------------------------1997 1998 1999 ----------- ----------- ----------Net income (loss) available to common shareholders........... $ (6,018) =========== Basic--weighted average shares................. 14,794,867 =========== Diluted--weighted average shares 14,794,867 =========== Net income (loss) per share: Basic: Net loss before extraordinary item... $ (0.41) Extraordinary gain, net of income taxes.. -----------Net income (loss) per common share........... $ (0.41) =========== Diluted: Net income (loss) before extraordinary item................. $ (0.41) Extraordinary gain, net of income taxes.. -----------Net income (loss) per common share........... $ (0.41) =========== For the six months ended June 30, -----------------------1999 2000 ----------- ----------(unaudited) $ 22,116 =========== 20,000,000 =========== 20,000,000 =========== $ (874) =========== 20,000,000 =========== 20,000,000 ===========

$ (15,710) $ 18,228 =========== =========== 16,696,099 =========== 16,696,099 =========== 20,000,000 =========== 20,000,000 ===========

$

(0.94) $

(0.55) $

(0.35) $

(0.04)

------------

1.46 -----------

1.46 ----------$ 1.11 ===========

-----------$ (0.04) ===========

$ (0.94) $ 0.91 =========== ===========

$

(0.94) $

(0.55) $

(0.35) $

(0.04)

------------

1.46 -----------

1.46 ----------$ 1.11 ===========

-----------$ (0.04) ===========

$ (0.94) $ 0.91 =========== ===========

Major Customers The Company sells a portion of its oil and gas to end users through various gas marketing companies. Three of these gas marketing companies accounted for 52%, 58%, 70%, 67%, and 73% of the Company's oil and gas revenues for the periods ended December 31, 1997, 1998 and 1999, and June 30, 1999 and 2000, respectively. F-17

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) (6) Income Taxes The reconciliation of income tax computed at the U.S. federal statutory tax rates to the provision for income taxes is as follows:
December 31, -----------------------1997 1998 1999 ---------------(unaudited) June 30, -------------1999 2000 ------ ------

Before any valuation allowance: Statutory federal income tax rate............................ (35.00)% (35.00)% 35.00% 35.00% (35.00)% State income taxes, net of federal benefit................. (0.32) (0.32) 0.32 0.33 (0.32) Adjustment to valuation allowance....................... 35.31 35.31 (46.53) (34.07) 0.00 Nondeductible and other.......... 0.01 0.01 0.05 0.00 0.14 --------------------- -----0.00% 0.00% (11.16)% 1.26% (35.18)% ====== ====== ====== ====== ======

At December 31, 1997 and 1998, the Company had determined that it was more likely than not the deferred tax assets would not be realized. During 1997 and 1998, the valuation allowance increased by $2.0 million and $5.5 million, respectively. At December 31, 1999, however, the Company determined that it was more likely than not the deferred tax assets would be realized based on current projections of taxable income due to higher commodity prices at year-end and the valuation allowance was decreased to zero. Significant components of the Company's deferred tax assets (liabilities) as of December 31, 1998 and 1999 and June 30, 2000, are as follows (in thousands):
December 31, --------------1998 1999 ------ ------Deferred tax assets (liabilities): Net operating loss carryforwards.............. $7,804 Minimum tax credit carryforwards.............. -Fixed asset basis differences................. (439) State taxes................................... 71 Other......................................... 195 -----Total deferred tax assets................... 7,631 Valuation allowance for deferred tax assets..... (7,631) -----Net deferred tax assets..................... $ -====== $ 3,800 229 (2,379) 17 391 ------2,058 -------$ 2,058 =======

June 30, 2000 ------------(unaudited) $ 4,787 229 (3,256) 21 751 ------2,532 -------$ 2,532 =======

At December 31, 1997, 1998, and 1999, the Company had net operating loss carryforwards for federal income tax purposes of approximately $1 million, $22 million and $11 million, respectively, which are available to offset future federal taxable income through 2018. (7) Commitments and Contingencies The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of liability, if any, with respect to these actions would not materially affect the financial position, results of operation or cash flows of the Company. F-18

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) The Company has commitments under an operating lease agreement for office space. Total rent expense for the year ended December 31, 1997, 1998 and 1999 was approximately $44,000, $0.1 million and $0.1 million, respectively. At December 31, 1999, the future minimum rental payments due under the lease are as follows (in thousands amounts):
2000.................................................................... $145 2001.................................................................... 179 2002.................................................................... 187 2003.................................................................... 194 2004 and beyond......................................................... 260 ---Total................................................................. $965 ====

(8) ATP Energy Gas Purchase Transaction In December 31, 1998, ATP Energy entered an agreement to purchase gas over a ten-year period from an unrelated third party. The purchase price of the gas is in excess of the current Henry Hub index price, but is offset by amounts due from the unrelated third party. The terms provide for the immediate termination of the agreement upon non-performance by the unrelated third party. Additionally, ATP Energy entered into a contract with another unrelated entity to sell an identical quantity of gas at the current Henry Hub index price less $0.015, until December 2001. In conjunction with these transactions, ATP Energy received $6.0 million of which $2.0 million was recorded as deferred revenue and $4.0 million was recorded as deferred obligations as of December 31, 1998. The deferred revenue balance is recognized into income as earned over the life of the contract. The deferred obligations are utilized to offset the excess of the purchase price of the gas over the current index and are amortized over the expected life of the contract as the gas is purchased and the purchase obligation of ATP Energy is reduced. During 1999, ATP Energy recognized $7.7 million of revenue related to the transaction and recorded expenses of $7.4 million. At December 31, 1999 the deferred revenue amount was $1.7 million and deferred obligations was $0.2 million. (9) Related Party Transactions The Company has granted to certain officers of the Company overriding royalty interests ranging in amounts from 0.2% to 3.0% in four of its oil and gas properties. As a result, the Company has recognized none, $0.5 million, $0.6 million and $0.3 million in general and administrative expense for the periods ended December 31, 1997, 1998 and 1999 and June 30, 2000. Officers of the Company were paid $97,875 and $152,125 for the periods ended December 31, 1999 and June 30, 2000, respectively, for negotiating and monitoring ATP Energy's gas supply contract. The Company has recognized these amounts in general and administrative expense in the respective periods. F-19

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) (10) Supplementary Financial Information on Natural Gas and Oil Exploration, Development and Production Activities (Unaudited): The following tables set forth certain historical costs and operating information related to the Company's natural gas and oil producing activities as of and for the periods ended December 31, 1997, 1998, and 1999. Costs Incurred Costs incurred in natural gas and oil property acquisition, exploration and development activities are summarized below (in thousands):
For the years ended December 31, ----------------------1997 1998 1999 ------- ------- ------$12,070 23,866 ------$35,936 ======= $25,274 30,777 ------$56,051 =======

Property acquisition costs: Proved............................................ $ 1,105 Development costs................................. 38,256 ------Total costs incurred............................ $39,361 =======

Natural Gas and Oil Reserves Proved reserves are estimated quantities of natural gas and oil which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can reasonably be expected to be recovered through existing wells with existing equipment and operating methods. Proved natural gas and oil reserve quantities at December 31, 1997, 1998, and 1999, and the related discounted future net cash flows before income taxes are based on estimates prepared by Ryder Scott Company and Holditch-Reservoir Technologies, independent petroleum engineers. Such estimates have been prepared in accordance with guidelines established by the Securities and Exchange Commission. The Company's net ownership in estimated quantities of proved natural gas and oil reserves and changes in net proved reserves, all of which are located in the Gulf of Mexico, are summarized below:
Millions of cubic feet of natural gas at December 31, ----------------------1997 1998 1999 ------ ------ ------40,526 (8,411) -24,059 (724) (9,026) -----46,424 ====== 39,728 ====== 46,424 3,033 2,257 58,816 -(16,533) ------93,997 ======= 67,314 =======

Proved developed and undeveloped reserves: Beginning of the year................................ Revisions of previous estimates...................... Extensions and discoveries........................... Purchase of properties............................... Disposition of properties............................ Production...........................................

34,411 (7,319) 291 20,491 (4,635) (2,713) -----Proved reserves at the end of the year............. 40,526 ====== Proved developed reserves at the end of the year... 31,080 ======

F-20

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited)
Barrels of oil, condensate, and natural gas liquids at December 31, ----------------1997 1998 1999 ---- ---- ----586 (131) -1,362 -(128) ----1,689 ===== 710 =====

Proved developed and undeveloped reserves (in thousands): Beginning of the year..................................... 730 942 Revisions of previous estimates........................... (444) 29 Extensions and discoveries................................ 2 -Purchase of properties.................................... 689 9 Disposition of properties................................. (19) (243) Production................................................ (16) (151) ---- ---Proved reserves at the end of the year.................. 942 586 ==== ==== Proved developed reserves at the end of the year........ 678 579 ==== ====

Standardized Measure The standardized measure of discounted future net cash flows relating to the Company's ownership interests in proved natural gas and oil reserves as of year-end is shown below (in thousands):
For the years ended at December 31, ----------------------------------------1997 1998 1999 ----------- --------------------$ 121,024 $ 106,772 $ 272,047 (16,158) (18,730) (40,794) (12,973) (18,432) (48,204) ----------- --------------------91,893 69,610 183,049(/2/) (13,708) -(27,611) ----------- --------------------78,185 69,610 (13,487) (8,302) ----------- ----------155,438 (26,732) -----------

Future cash inflows............. Future operating expenses....... Future development costs........ Future net cash flows......... Future income taxes............. Future net cash flows after income taxes................. 10% annual discount per annum...

Standardized measure of discounted future net cash flows........................ $ 64,698 ===========

$ 61,308(/1/) $ 128,706 =========== ===========

(1) Net operating loss carryforwards and basis in natural gas and oil properties have eliminated the requirement for future income taxes. (2) At December 31, 1999, future net cash flows totaling $112.5 million from ten properties, are committed to repayment of the Company's non-recourse borrowings. Future cash flows are computed by applying year-end prices of natural gas and oil to year-end quantities of proved natural gas and oil reserves. Future operating expenses and development costs are computed primarily by the Company's petroleum engineers by estimating the expenditures to be incurred in developing and producing the Company's proved natural gas and oil reserves at the end of the year, based on the year-end costs and assuming continuation of existing economic conditions. Future income taxes are based on year-end statutory rates, adjusted for tax basis and applicable tax credits. A discount factor of 10 percent was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair market value of the Company's natural gas and oil properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not F-21

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and 1999 and June 30, 1999 and 2000 (unaudited) presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates. Changes in Standardized Measure Changes in standardized measure of future net cash flows relating to proved natural gas and oil reserves are summarized below (in thousands):
Years ended at December 31, ------------------------------1997 1998 1999 --------- --------- --------Beginning of year............................ $ 36,460 $ 64,698 $ 61,308 Sales of oil and gas, net of production costs....................................... (5,846) (17,217) (29,394) Net changes in income taxes.................. (13,708) 13,708 (27,611) Net changes in price and production costs.... 7,374 (20,272) 9,931 Revisions of quantity estimates.............. (15,505) (12,318) 4,176 Accretion of discount........................ 3,646 7,841 6,131 Costs incurred which were previously estimated................................... 27,424 19,780 15,550 Changes in estimated future development...... (7,154) (13,129) (15,664) Purchases of minerals-in-place............... 40,604 25,136 105,514 Sales of minerals-in-place................... (7,280) (4,886) -Extensions and discoveries................... 348 -218 Changes in production rates, timing and other....................................... (1,665) (2,033) (1,453) --------- --------- --------28,238 (3,390) 67,398 --------- --------- --------End of year................................ $ 64,698 $ 61,308 $ 128,706 ========= ========= =========

Sales of natural gas and oil, net of natural gas and oil operating expenses, are based on historical pre-tax results. Sales of natural gas and oil properties, extensions and discoveries, purchases of minerals-in-place and the changes due to revisions in standardized variables are reported on a pre-tax discounted basis, while the accretion of discount is presented on an after-tax basis. F-22

INDEPENDENT AUDITORS' REPORT The Board of Directors: ATP Oil & Gas Corporation: We have audited the accompanying statement of revenues and direct operating expenses for the nine months ended September 30, 1999 for the Eugene Island 30 Property (as described in note 1). This statement is the responsibility of ATP Oil & Gas Corporation's management. Our responsibility is to express an opinion on this statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement was prepared as described in note 2 for the purpose of complying with certain rules and regulations of the Securities and Exchange Commission (SEC) for inclusion in certain SEC regulatory reports and filings and is not intended to be a complete financial presentation. In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses of the Eugene Island 30 property for the nine months ended September 30, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP September 11, 2000 Houston, Texas

F-23

EUGENE ISLAND 30 STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES For the nine months ended September 30, 1999 (In thousands)
Revenues: Oil revenues........................................................... $ 493 Gas revenues........................................................... 1,623 Plant liquids revenues................................................. 155 -----2,271 -----Direct operating expenses................................................ 702 -----Revenues in excess of direct operating expenses...................... $1,569 ======

See accompanying notes to statement of revenues and direct operating expenses. F-24

EUGENE ISLAND 30 NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES September 30, 1999 (1) Basis of Presentation The accompanying financial statement presents the revenues and direct operating expenses of the Eugene Island 30 property (EI-30), an oil and gas property acquired by ATP Oil & Gas Corporation from Eugene Offshore Holdings LLC for $16.3 million. The acquisition, which closed on September 24, 1999, resulted in the Company receiving a 100% working interest and a 82% net revenue interest in EI-30. The EI-30 property is located in the offshore area of the Louisiana gulf coast. The accompanying financial statement was derived from the historical accounting records of Eugene Offshore Holdings LLC. Direct operating expenses include lease and well repairs, maintenance and other direct operating expenses. (2) Omitted Historical Financial Information Full historical financial statements, including, depletion, depreciation and amortization expense, general and administrative expense, income tax expense and interest expense have not been presented herein. (3) Commitments and Contingencies Management is not aware of any legal, environmental or other commitments or contingencies that would have a material adverse impact on the operations of the property. (4) Related Party Transactions Magellan Exploration LLC operated EI-30 in exchange for a management fee while Juniper Energy, LP, an affiliate of Eugene Offshore Holdings LLC, handled fund disbursements. Fees incurred related to these services are reflected in direct operating expenses. (5) Capital Expenditures There were no capital expenditures related to EI-30 during the period. (6) Supplemental Oil and Gas Reserve Information (Unaudited) Estimated total proved oil and gas reserves of EI-30 at September 30, 1999 are based on reserve estimates included in the Company's reserve report prepared by Ryder Scott Company, independent petroleum engineers as of December 31, 1999. No comparable estimates were available for prior periods. Therefore, reserves for September 30, 1999 have been calculated by adjusting December 31, 1999 amounts for the year's activities and, consequently, no revisions of previous estimates have been reflected. The future net cash flows from production of these proved reserve quantities were computed by applying September 30, 1999 prices of $24.04 per Bbl for oil and $2.89 per Mcf for gas to estimated future production of proved oil and gas reserves less the estimated future expenditures (based on current costs) as of September 30, 1999. F-25

EUGENE ISLAND 30 NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES--(Continued) September 30, 1999
Nine months ended September 30, 1999 -------------Oil Gas (Mbbl) (MMcf) ------ -----14,629 (775) -----13,854 6,219 -----5,444 ======

Proved reserves: Beginning of year........................................... 1,134 Production.................................................. (31) ----End of period............................................. 1,103 Proved developed reserves: Beginning of year........................................... 228 ----End of period............................................... 197 =====

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves as of September 30, 1999 (in thousands):
Future cash inflows.......................................... $66,517 Future production costs...................................... (9,030) Future development costs..................................... (9,900) ------Future net inflows before income taxes..................... 47,587 Future income taxes.......................................... (10,880)(/1/) ------Future net inflows after income taxes...................... 36,707 10% discount factor.......................................... (6,686) ------Standardized measure of discounted future net cash flows before income taxes....................................... $30,021 =======

Changes to Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves for the nine month period ended September 30, 1999 (in thousands):
Standardized measure, beginning of year............................. $16,727 Sales, net of production costs.................................... (1,569) Net changes in prices............................................. 17,020 Increase in income taxes.......................................... (4,037) Accretion of discount............................................. 1,880 ------Standardized measure, end of period................................. $30,021 =======

(1) Income taxes have been computed assuming estimated future net inflows before income taxes less tax basis equal to the purchase price of EI-30 and the statutory tax rate of 35%. This amount may not be indicative of actual historical or future income taxes. F-26

ATP OIL & GAS CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA FINANCIAL INFORMATION The unaudited pro forma financial information of the Company gives effect to the purchase of Eugene Island 30 (EI-30). The above transaction is reflected in the statement of operations as if it occurred at the beginning of 1999. The following unaudited pro forma financial information is provided for comparative purposes only and does not purport to be indicative of the results which would actually have been obtained had the acquisition been effected on the pro forma date, or of the results which may be obtained in the future. The unaudited pro forma financial information in our opinion reflects all adjustments necessary to present fairly the data for such period. The unaudited pro forma financial information should be read in conjunction with the historical financial statements appearing elsewhere in this prospectus. F-27

ATP OIL & GAS CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Year ended December 31, 1999 (In thousands amounts except share and per share data)
Pro Forma ATP Historical EI-30(A) adjustments -------------- -------- ----------$ 34,981 7,703 ---------42,684 ---------5,587 7,402 3,541 22,521 7,509 ---------46,560 ---------(3,876) ---------287 202 (9,399) ---------(8,910) ---------(12,786) 1,829 ---------(10,957) ========== $ (0.55) ========== $ (0.55) ========== 20,000,000 ========== 20,000,000 ========== 2,271 -----2,271 ----702 --------702 ----1,569 ----------------1,569 -----1,569 ===== ----------------223 (B) ------223 -----(223) -------(1,088)(C) -----(1,088) -----(1,311) (90)(D) -----(1,401) ====== Pro Forma ---------37,252 7,703 ---------44,955 ---------6,289 7,402 3,541 22,744 7,509 ---------47,485 ---------(2,530) ---------287 202 (10,487) ---------(9,998) ---------(12,528) 1,739 ---------(10,789) ========== (0.54) ========== (0.54) ========== 20,000,000 ========== 20,000,000 ==========

Revenues: Oil and gas production...... Gas sold--marketing.........

Costs and operating expenses Lease operating expenses.... Gas purchased--marketing.... General and administrative expenses................... Depreciation, depletion and amortization............... Impairment of oil and gas properties.................

Net income (loss) from operations............... Other income (expense): Gain on sale of oil and gas properties................. Interest income............. Interest expense............

Net (income) loss before extraordinary items...... Income tax benefit (expense) Net (income) loss before extraordinary items...... Basic loss per common share: Loss before extraordinary item....................... Diluted loss per common share: Loss before extraordinary item....................... Weighted average number of common shares: Basic....................... Diluted.....................

See accompanying notes to unaudited pro forma consolidated financial statements. F-28

ATP OIL & GAS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT (A) To reflect the revenues and direct operating expenses related to the EI-30 property acquired on September 24, 1999. (B) To adjust historical depreciation, depletion and amortization to amounts that would have been included in the financial statements effective January 1, 1999 had the acquisition of the EI-30 property been consummated on such date. (C) To adjust historical interest expense to estimated amounts that would have been included in the financial statements effective January 1, 1999 had the acquisition of the EI-30 property been consummated on such date. (D) To reflect income tax expense related to the pro forma adjustments. F-29

Shares ATP OIL & GAS CORPORATION Common Stock

PROSPECTUS , 2000 Lehman Brothers CIBC World Markets Dain Rauscher Wessels Raymond James & Associates, Inc. Fidelity Capital Markets a division of National Financial Services LLC

PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The expenses of this offering, other than underwriting discount, are estimated to be as follows:
Securities and Exchange Commission registration fee.................... $45,540 NASD filing fee........................................................ 17,750 Nasdaq National Market listing fee..................................... * Legal fees and expenses................................................ * Accounting fees and expenses........................................... * Engineering fees and expenses.......................................... * Blue Sky fees and expenses (including legal fees)...................... * Printing expenses...................................................... * Transfer agent fees.................................................... * Miscellaneous.......................................................... * ------TOTAL.............................................................. $ * =======

* To be provided by amendment. Item 14. Indemnification of Directors and Officers Article 2.02.A.(16) and Article 2.02-1 of the Texas Business Corporation Act and Article IX of the Amended and Restated Bylaws of ATP Oil & Gas Corporation (the "Company") provide the Company with broad powers and authority to indemnify its directors and officers and to purchase and maintain insurance for such purposes. Pursuant to such statutory and Bylaw provisions, the Company has purchased insurance against certain costs of indemnification that may be incurred by it and by its officers and directors. Additionally, Article IX of the Company's Restated Articles of Incorporation provides that a director of the Company is not liable to the Company for monetary damages for any act or omission in the director's capacity as director, except that Article IX does not eliminate or limit the liability of a director for (i) breaches of such director's duty of loyalty to the Company and its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) transactions from which a director receives an improper benefit, irrespective of whether the benefit resulted from an action taken within the scope of the director's office, (iv) acts or omissions for which liability is specifically provided by statute and (v) acts relating to unlawful stock repurchases or payments of dividends. Article IX also provides that any subsequent amendments to Texas statutes that further limit the liability of directors will inure to the benefit of the directors, without any further action by shareholders. Any repeal or modification of Article IX shall not adversely affect any right of protection of a director of the Company existing at the time of the repeal or modification. The underwriting agreement to be entered into in connection with this offering will provide that the Underwriters shall indemnify the Company, its directors and certain officers of the Company against liabilities resulting from information furnished by or on behalf of the Underwriters specifically for use in the Registration Statement. See "Item 17. Undertakings" for a description of the Commission's position regarding such indemnification provisions. II-1

Item 15. Recent Sales of Unregistered Securities The Company has sold and issued (without payment of any selling commission to any person) the following securities in the past three years. During the fiscal years ended December 31, 1997 and 1998 the Company issued 858,166 and 4,501,842 shares of common stock, respectively, upon the exercise of options held by its employees for an aggregate price of $2,000 in 1997 and $13,000 in 1998. During the fiscal years ended December 31, 1998 and 1999 and through June 30, 2000, the Company granted options to its employees to purchase at an exercise price of $1.00, 617,000 shares of common stock, 26,000 shares of common stock and 32,750 shares of common stock, respectively. During July, August and September 2000, we issued to our employees, options to purchase a total of 457,000 shares of common stock at an exercise price of $2.75. The sale of the above securities described in Item 15 were exempt from registration under the Securities Act in reliance on Rule 701 under the Securities Act. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits:
--Form of Underwriting Agreement --Amended and Restated Articles of Incorporation --Restated Bylaws --Form of Common Stock Certificate --Opinion of Vinson & Elkins L.L.P. --Amended and Restated Credit Agreement, dated as of September 21, 1999, among ATP Oil & Gas Corporation, Chase Bank of Texas, National Association, as Agent, and the Lenders Signatory thereto 10.2 --First Amendment to Amended and Restated Credit Agreement, dated as of September 21, 1999, among ATP Oil & Gas Corporation, Chase Bank of Texas, National Association, as Agent, and the Lenders Signatory thereto, effective as of June 30, 2000 10.3 --Credit Agreement between ATP Oil & Gas Corporation and Aquila Energy Capital Corporation, dated April 9, 1999, effective as of March 31, 1999 10.4 --First Amendment to Credit Agreement, dated April 9, 1999, by and between ATP Oil & Gas Corporation and Aquila Energy Capital Corporation 10.5 --Second Amendment to Credit Agreement, dated April 9, 1999, by and between ATP Oil & Gas Corporation and Aquila Energy Capital Corporation 10.6 --Gas Service Agreement, dated December 31, 1998, between American Citigas Company and ATP Energy, Inc. 10.7 --Marketing & Natural Gas Purchase Agreement, dated December 1, 1998, between ATP Energy, Inc. and El Paso Energy Marketing Company 10.8 --Purchase and Sale Agreement, effective as of May 1, 1999, between Eugene Offshore Holdings, LLC and ATP Oil & Gas Corporation 10.9 --ATP Oil & Gas Corporation 1998 Stock Option Plan 10.10 --First Amendment to the ATP Oil & Gas Corporation 1998 Stock Option Plan 21.1 --Subsidiaries of ATP Oil & Gas Corporation 23.1 --Consent of KPMG LLP 23.2 --Consent of Ryder Scott Company, L.P. 23.3 --Consent of Schlumberger Holditch-Reservoir Technologies Consulting Services 23.4 --Consent of Arthur H. Dilly, Director Nominee 23.5 --Consent of Robert C. Thomas, Director Nominee 23.6 --Consent of Walter Wendlandt, Director Nominee *23.7 --Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto) 24.1 --Power of Attorney (included on the signature page to this Registration Statement) 27 --Financial Data Schedule *1.1 *3.1 *3.2 *4.1 *5.1 10.1

* To be filed by amendment. (b) Consolidated Financial Statement Schedules: All schedules are omitted because the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes. II-2

Item 17. Undertakings Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names and required by the underwriter to permit prompt delivery to each purchaser. II-3

SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 18th day of September, 2000. ATP OIL & GAS CORPORATION
By: /s/ T. PAUL BULMAHN ---------------------------------T. Paul Bulmahn Chairman and President

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T. Paul Bulmahn and Albert L. Reese, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and any registration statement for the same offering filed pursuant to Rule 462 under the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, to all intents and purposes and as fully as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities indicated on the 18th day of September, 2000.
Signature --------Title -----

/s/ T. Paul Bulmahn Chairman, President and Director ______________________________________ (Principal Executive Officer) T. Paul Bulmahn /s/ Albert L. Reese, Jr. Senior Vice President and Chief Financial Officer ______________________________________ (Principal Financial Officer) Albert L. Reese, Jr. /s/ Keith Godwin Vice President and Controller ______________________________________ (Principal Accounting Officer) Keith Godwin /s/ Carol E. Overbey Director ______________________________________ Carol E. Overbey /s/ Gerard Swonke Director ______________________________________ Gerard Swonke

II-4

INDEX TO EXHIBITS
--Form of Underwriting Agreement --Amended and Restated Articles of Incorporation --Restated Bylaws --Form of Common Stock Certificate --Opinion of Vinson & Elkins L.L.P. --Amended and Restated Credit Agreement, dated as of September 21, 1999, among ATP Oil & Gas Corporation, Chase Bank of Texas, National Association, as Agent, and the Lenders Signatory thereto 10.2 --First Amendment to Amended and Restated Credit Agreement, dated as of September 21, 1999, among ATP Oil & Gas Corporation, Chase Bank of Texas, National Association, as Agent, and the Lenders Signatory thereto, effective as of June 30, 2000 10.3 --Credit Agreement between ATP Oil & Gas Corporation and Aquila Energy Capital Corporation, dated April 9, 1999, effective as of March 31, 1999 10.4 --First Amendment to Credit Agreement, dated April 9, 1999, by and between ATP Oil & Gas Corporation and Aquila Energy Capital Corporation 10.5 --Second Amendment to Credit Agreement, dated April 9, 1999, by and between ATP Oil & Gas Corporation and Aquila Energy Capital Corporation 10.6 --Gas Service Agreement, dated December 31, 1998, between American Citigas Company and ATP Energy, Inc. 10.7 --Marketing & Natural Gas Purchase Agreement, dated December 1, 1998, between ATP Energy, Inc. and El Paso Energy Marketing Company 10.8 --Purchase and Sale Agreement, effective as of May 1, 1999, between Eugene Offshore Holdings, LLC and ATP Oil & Gas Corporation 10.9 --ATP Oil & Gas Corporation 1998 Stock Option Plan 10.10 --First Amendment to the ATP Oil & Gas Corporation 1998 Stock Option Plan 21.1 --Subsidiaries of ATP Oil & Gas Corporation 23.1 --Consent of KPMG LLP 23.2 --Consent of Ryder Scott Company, L.P. 23.3 --Consent of Schlumberger Holditch-Reservoir Technologies Consulting Services 23.4 --Consent of Arthur H. Dilly, Director Nominee 23.5 --Consent of Robert C. Thomas, Director Nominee 23.6 --Consent of Walter Wendlandt, Director Nominee *23.7 --Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto) 24.1 --Power of Attorney (included on the signature page to this Registration Statement) 27 --Financial Data Schedule *1.1 *3.1 *3.2 *4.1 *5.1 10.1

* To be filed by amendment. II-5

EXHIBIT 10.1 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of September 21, 1999 Among ATP OIL & GAS CORPORATION, AS BORROWER, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS AGENT, and THE LENDERS SIGNATORY HERETO

TABLE OF CONTENTS
Page ---1 1 14 14 15 17 17 18 18 19 20 22 22 24 24 24 25 25 26 26 26 27 30 30 32 32 32 33 33 35 36

ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Section 1.01 Terms Defined Above............................................ Section 1.02 Certain Defined Terms.......................................... Section 1.03 Accounting Terms and Determinations............................ ARTICLE II COMMITMENTS Section 2.01 Loans and Letters of Credit.................................... Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit... Section 2.03 Changes of Commitments......................................... Section 2.04 Fees........................................................... Section 2.05 Several Obligations............................................ Section 2.06 Notes.......................................................... Section 2.07 Prepayments.................................................... Section 2.08 Borrowing Base................................................. Section 2.09 Assumption of Risks............................................ Section 2.10 Obligation to Reimburse and to Prepay.......................... Section 2.11 Lending Offices................................................ ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST Section 3.01 Repayment of Loans............................................. Section 3.02 Interest....................................................... ARTICLE IV PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. Section 4.01 Payments....................................................... Section 4.02 Pro Rata Treatment............................................. Section 4.03 Computations................................................... Section 4.04 Non-receipt of Funds by the Agent.............................. Section 4.05 Set-off, Sharing of Payments, Etc.............................. Section 4.06 Taxes.......................................................... Section 4.07 Disposition of Proceeds........................................ ARTICLE V CAPITAL ADEQUACY Section 5.01 Additional Costs............................................... Section 5.02 Limitation on Eurodollar Loans................................. Section 5.03 Illegality..................................................... Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03....... Section 5.05 Compensation................................................... Section 5.06 Replacement Lenders............................................ ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Initial Funding................................................ Section 6.02 Initial and Subsequent Loans and Letters of Credit.............

i

Section 6.03

Conditions Relating to Letters of Credit.......................

36 37 37 37 38 38 38 38 38 39 40 40 41 41 41 41 41 41 42 43 43 43 43 44 44 44 47 47 48 49 49 49 50 51 52 52 53 53 54 54

ARTICLE VII REPRESENTATIONS AND WARRANTIES Section 7.01 Corporate Existence............................................ Section 7.02 Financial Condition............................................ Section 7.03 Litigation..................................................... Section 7.04 No Breach...................................................... Section 7.05 Authority...................................................... Section 7.06 Approvals...................................................... Section 7.07 Use of Loans................................................... Section 7.08 ERISA.......................................................... Section 7.09 Taxes.......................................................... Section 7.10 Titles, etc.................................................... Section 7.11 No Material Misstatements...................................... Section 7.12 Investment Company Act......................................... Section 7.13 Public Utility Holding Company Act............................. Section 7.14 Subsidiaries................................................... Section 7.15 Location of Business and Offices............................... Section 7.16 Defaults....................................................... Section 7.17 Environmental Matters.......................................... Section 7.18 Compliance with the Law........................................ Section 7.19 Insurance...................................................... Section 7.20 Hedging Agreements............................................. Section 7.21 Restriction on Liens........................................... Section 7.22 Material Agreements............................................ Section 7.23 Gas Imbalances................................................. Section 7.24 Year 2000...................................................... ARTICLE VIII Section Section Section Section Section Section Section Section Section Section AFFIRMATIVE COVENANTS 8.01 Financial Statements; Other Reports............................ 8.02 Litigation..................................................... 8.03 Maintenance, Etc............................................... 8.04 Environmental Matters.......................................... 8.05 Further Assurances............................................. 8.06 Performance of Obligations..................................... 8.07 Engineering Reports............................................ 8.08 Title Information.............................................. 8.09 Additional Collateral.......................................... 8.10 ERISA Information and Compliance...............................

ARTICLE IX NEGATIVE COVENANTS Section 9.01 Debt........................................................... Section 9.02 Liens.......................................................... Section 9.03 Investments, Loans and Advances................................ Section 9.04 Dividends, Distributions and Redemptions....................... Section 9.05 Sales and Leasebacks...........................................

ii

Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section

9.06 9.07 9.08 9.09 9.10 9.11 9.12 9.13 9.14 9.15 9.16 9.17 9.18 9.19 9.20

Nature of Business............................................. Limitation on Leases........................................... Mergers, Etc................................................... Proceeds of Notes.............................................. ERISA Compliance............................................... Sale or Discount of Receivables................................ Ratio of Debt to EBITDA........................................ Interest Coverage Ratio........................................ Current Ratio.................................................. Sale of Certain Oil and Gas Properties......................... Environmental Matters.......................................... Transactions with Affiliates................................... Subsidiaries................................................... Negative Pledge Agreements..................................... Gas Imbalances, Take-or-Pay or Other Prepayments...............

55 55 55 55 55 56 56 57 57 57 57 57 57 57 58 58 60 61 61 61 62 62 62 63 63 64 64 64 66 67 67 68 69 69 69 69 69 69 70 71

ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default............................................. Section 10.02 Remedies...................................................... ARTICLE XI THE AGENT Section 11.01 Appointment, Powers and Immunities............................ Section 11.02 Reliance by Agent............................................. Section 11.03 Defaults...................................................... Section 11.04 Rights as a Lender............................................ Section 11.05 INDEMNIFICATION............................................... Section 11.06 Non-Reliance on Agent and other Lenders....................... Section 11.07 Action by Agent............................................... Section 11.08 Resignation or Removal of Agent............................... ARTICLE XII MISCELLANEOUS Section 12.01 Waiver........................................................ Section 12.02 Notices....................................................... Section 12.03 Payment of Expenses, Indemnities, etc......................... Section 12.04 Amendments, Etc............................................... Section 12.05 Successors and Assigns........................................ Section 12.06 Assignments and Participations................................ Section 12.07 Invalidity.................................................... Section 12.08 Counterparts.................................................. Section 12.09 References.................................................... Section 12.10 Survival...................................................... Section 12.11 Captions...................................................... Section 12.12 NO ORAL AGREEMENTS............................................ Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION..................... Section 12.14 Interest...................................................... Section 12.15 Confidentiality...............................................

iii

Section 12.16 Section 12.17

Effectiveness................................................. EXCULPATION PROVISIONS........................................

72 72

iv

Annex I Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule

A B C D E F 7.02 7.03 7.09 7.10 7.14 7.17 7.19 7.20 7.22 7.23 9.01 9.02 9.03

-

List Form Form Form Form List Form

of of of of of of of

Maximum Credit Amounts Note Borrowing, Continuation and Conversion Request Compliance Certificate Legal Opinion of Jackson Walker L.L.P. Security Instruments Assignment Agreement

Liabilities Litigation Taxes Titles, etc. Subsidiaries Environmental Matters Insurance Hedging Agreements Material Agreements Gas Imbalances Debt Liens Investments, Loans and Advances

v

THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 21, 1999 is among: ATP OIL & GAS CORPORATION, a corporation formed under the laws of the State of Texas (the "Borrower"); each of the lenders that is a signatory hereto or which becomes a signatory hereto as provided in Section 12.06 (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association (in its individual capacity, "Chase"), as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). RECITALS A. The Borrower, the Agent and the Lenders entered into that certain Credit Agreement dated as of September 18, 1998 (as heretofore amended, supplemented and/or modified from time to time, the "Prior Credit Agreement", whereby, pursuant to the terms and conditions contained therein, the Lenders agreed to provide certain loans to and extend certain credit on behalf of the Borrower as evidenced, in part, by the "Facility A Notes" and "Facility B Notes" (as defined in the Prior Credit Agreement and herein called the "Prior Notes"). B. The Borrower, the Agent and the Lenders mutually desire to amend and restate the Prior Credit Agreement in its entirety. C. In consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree that the Prior Credit Agreement is hereby amended and restated in its entirety to read herein and as follows: ARTICLE I Definitions and Accounting Matters Section 1.01 Terms Defined Above. As used in this Amended and Restated Credit Agreement, the terms "Agent," "Borrower," "Chase," "Lender," "Lenders," "Prior Credit Agreement," and "Prior Notes" shall have the meanings indicated above. Section 1.02 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Article I or in other provisions of this Amended and Restated Credit Agreement in the singular to have the same meanings when used in the plural and vice versa): "Additional Costs" shall have the meaning assigned such term in Section 5.01(a). "Affected Loans" shall have the meaning assigned such term in Section 5.04. "Affiliate" of any Person shall mean (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an

individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to "control" (including, with its correlative meanings, "controlled by" and "under common control with") such corporation or other Person. "Agreement" shall mean this Amended and Restated Credit Agreement, as the same may from time to time be amended or supplemented. "Aggregate Commitments" at any time shall equal the amount calculated in accordance with Section 2.03 hereof. "Aggregate Maximum Credit Amounts" at any time shall equal the sum of the Maximum Credit Amounts of the Lenders ($40,000,000), as the same may be reduced pursuant to Section 2.03(c). "Applicable Lending Office" shall mean, for each Lender and for each Type of Loan, the lending office of such Lender (or an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other offices of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Borrowing Base Utilization Percentage as in effect from time to time:
Borrowing Base Utilization Percentage ------------------------------------Less than or equal to 33% Greater than 33% but less than or equal to 67% Greater than 67% Eurodollar Rate --------------2.375% 2.625% 3.00% Base Rate --------.625% .875% 1.25%

"Assignment" shall have the meaning assigned such term in Section 12.06(b). "Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. 2

"Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate. "Borrowing Base" shall mean at any time an amount equal to the amount determined in accordance with Section 2.08. "Borrowing Base Deficiency" shall have the meaning assigned such term in Section 2.07(d). "Borrowing Base Utilization Percentage" shall mean, as of any day, the fraction expressed as a percentage, the numerator of which is the aggregate balance of all Loans and the LC Exposure outstanding on such day, and the denominator of which is the Aggregate Commitment as of such day. "Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in Houston, Texas and, where such term is used in the definition of "Quarterly Date" or if such day relates to a borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrower with respect to any such borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "Change of Control" shall mean the occurrence of any of the following: (i) the acquisition by any Person (or group of Persons acting together) of a direct or indirect interest in more than 30% of the voting power of the voting stock of the Borrower, by way of merger or consolidation or otherwise, or (ii) the first day on which a majority of the current members of the board of directors of the Borrower are not continuing directors. For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring voting stock of the Borrower will be deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred, and the acquisition of voting power of the voting stock of the Borrower by any Subsidiary of the Borrower shall be disregarded. "Closing Date" shall mean the date the conditions precedent set forth in Section 6.01 have been delivered or satisfied. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute. "Commitment" shall mean, for any Lender, its obligation to make Loans and to participate in the Letters of Credit as provided in Section 2.01(b) up to the lesser of (i) such Lender's Maximum Credit Amount and (ii) the Lender's Percentage Share of the amount equal to the then effective Borrowing Base. 3

"Consolidated Subsidiaries" shall mean each Subsidiary of the Borrower (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of the Borrower in accordance with GAAP. "Debt" shall mean, for any Person the sum of the following (without duplication): (i) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or other similar instruments (including principal, interest, fees and charges); (ii) all obligations of such Person (whether contingent or otherwise) in respect of bankers' acceptances, letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money); (iv) all obligations under leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable (whether contingent or otherwise); (v) all obligations under leases which require such Person or its Affiliate to make payments over the term of such lease, including payments at termination, which are substantially equal to at least eighty percent (80%) of the purchase price of the Property subject to such lease plus interest at an imputed rate of interest; (vi) all Debt (as described in the other clauses of this definition) and other obligations of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (vii) all Debt (as described in the other clauses of this definition) and other obligations of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the debtor or obligations of others; (viii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (ix) obligations to deliver goods or services including Hydrocarbons in consideration of advance payments except as permitted by Section 9.20 and disclosed by Section 8.07(c); (x) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (xi) any capital stock of such Person in which such Person has a mandatory obligation to redeem such stock; (xii) any Debt of a Special Entity for which such Person is liable either by agreement or because of a Governmental Requirement; (xiii) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment; and (xiv) all obligations of such Person under Hedging Agreements. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "$" shall mean lawful money of the United States of America. "EBITDA" shall mean, for any period, the sum of consolidated net income for such period plus the following expenses or charges to the extent deducted from consolidated net income in such period: interest, taxes, depreciation, depletion and amortization. As used herein, "consolidated net income" shall mean, for any period, the amount which, in conformity with GAAP, would be set forth opposite the caption "net income or loss" (or any like caption) on a consolidated income statement of the Borrower and its Consolidated Subsidiaries, minus the applicable percentage of net income from Properties supporting Non- Recourse Debt which will be used to service such Non-Recourse Debt. "Effective Date" shall have the meaning assigned such term in Section 12.16. 4

"E. I. - 30" shall mean oil and gas lease USA OCS G-9574, covering all of Block 30, Eugene Island Area, as shown on OCS Leasing Map, Louisiana Map 4, containing 5,000 acres, more or less, Offshore Louisiana. "Engineering Reports" shall have the meaning assigned such term in Section 2.08. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to health or the environment in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which any Property of the Borrower or any Subsidiary is located establish a meaning for "oil," "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with the Borrower or any Subsidiary would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. "ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. 5

"Eurodollar Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "Eurodollar Rate". "Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the Agent at approximately 11:00 a.m. London time (or as soon thereafter as practicable) two (2) Business Days prior to the first day of the Interest Period for such Loan for the offering by the Agent to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan to be made by the Lenders for such Interest Period. "Event of Default" shall have the meaning assigned such term in Section 10.01. "Excepted Liens" shall mean: (i) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained; (ii) Liens in connection with workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties or statutory landlord's liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (iv) any Liens reserved in leases or farmout agreements for rent or royalties and for compliance with the terms of the farmout agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (v) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way or other Property of the Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title of any rights of way or other Property which in the aggregate do not materially impair the use of such rights of way or other Property for the purposes of which such rights of way and other Property are held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (vi) deposits of cash or securities to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; (vii) Liens on Properties (other than Properties included in the determination of the Borrowing Base or upon which a Lien has been granted in favor of the Agent) securing Debt permitted by Section 9.01(f); and (viii) Liens permitted by the Security Instruments. 6

"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with a member of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the date for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent. "Fee Letter" shall mean that certain letter agreement from Chase Bank of Texas, National Association to the Borrower dated of even date herewith, concerning certain fees in connection with this Agreement and any agreements or instruments executed in connection herewith, as the same may be amended or replaced from time to time. "Financial Statements" shall mean the financial statement or statements of the Borrower and its Consolidated Subsidiaries described or referred to in Section 7.02. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, the Borrower, the Subsidiaries or any of their Property or the Agent, any Lender or any Applicable Lending Office. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority. "Hedging Agreements" shall mean any commodity, interest rate or currency swap, cap, floor, collar, forward agreement or other exchange or protection agreements or any option with respect to any such transaction. "Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may 7

hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Hydrocarbon Interests" shall mean all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature. "Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom. "Indebtedness" shall mean any and all amounts owing or to be owing by the Borrower or any Subsidiary to the Agent and/or the Lenders in connection with the Loan Documents and the Letter of Credit Agreements, and any Hedging Agreements now or hereafter arising between the Borrower or any Subsidiary and any Lender and permitted by the terms of this Agreement and all renewals, extensions and/or rearrangements of any of the above. "Indemnified Parties" shall have the meaning assigned such term in Section 12.03(b). "Indemnity Matters" shall mean any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands and causes of action made or threatened against a Person and, in connection therewith, all losses, liabilities, damages (including, without limitation, consequential damages) or reasonable costs and expenses of any kind or nature whatsoever incurred by such Person whether caused by the sole or concurrent negligence of such Person seeking indemnification. "Initial Funding" shall mean the funding of the initial Loans or issuance of the initial Letters of Credit pursuant to Section 6.01 hereof. "Initial Reserve Report" shall mean the report of Ryder Scott Company, dated March 31, 1999, with respect to the Oil and Gas Properties of the Borrower as of December 31, 1998, a copy of which has been delivered to the Agent. "Interest Period" shall mean, with respect to any Eurodollar Loan, the period commencing on the date such Eurodollar Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may select as provided in Section 2.02 (or such longer period as may be requested by the Borrower and agreed to by the Majority Lenders), except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period for a Eurodollar Loan may commence before and end after the Termination Date; (ii) each Interest Period which would otherwise end on 8

a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loans would otherwise be for a shorter period, such Loans shall not be available hereunder. "LC Commitment" at any time shall mean $500,000. "LC Exposure" at any time shall mean the aggregate face amount of all undrawn and uncancelled Letters of Credit and the aggregate of all amounts drawn under all Letters of Credit and not yet reimbursed. "Letter of Credit Agreements" shall mean the written agreements with the Agent, as issuing lender for any Letter of Credit, executed or hereafter executed in connection with the issuance by the Agent of the Letters of Credit, such agreements to be on the Agent's customary form for letters of credit of comparable amount and purpose as from time to time in effect or as otherwise agreed to by the Borrower and the Agent. "Letters of Credit" shall mean the letters of credit issued pursuant to Section 2.01(b) and all reimbursement obligations pertaining to any such letters of credit, and "Letter of Credit" shall mean any one of the Letters of Credit and the reimbursement obligations pertaining thereto. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (i) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (ii) production payments and the like payable out of Oil and Gas Properties. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. "Loan Documents" shall mean this Agreement, the Notes and the Security Instruments. "Loans" shall mean the loans as provided for by Section 2.01(a). "Majority Lenders" shall mean, at any time while no Loans are outstanding, Lenders having at least fifty-one percent (51%) of the Aggregate Commitments and, at any time while Loans are outstanding, Lenders holding at least fifty-one percent (51%) of the outstanding aggregate principal amount of the Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)). 9

"Material Adverse Effect" shall mean any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations or affairs of the Borrower and the Subsidiaries taken as a whole or from the facts represented or warranted in any Loan Document, or (ii) the ability of the Borrower and the Subsidiaries taken as a whole to carry out their business as at the Closing Date or as proposed as of the Closing Date to be conducted or meet their obligations under the Loan Documents on a timely basis. "Maximum Credit Amount" shall mean, as to each Lender, the amount set forth opposite such Lender's name on Annex I under the caption "Maximum Credit Amounts" (as the same may be reduced pursuant to Section 2.03(c) hereof pro rata to each Lender based on its Percentage Share) as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Monthly Date" shall mean the first day of each calendar month; provided, however, that if any such day is not a Business Day, such Monthly Date shall be the next succeeding Business Day. "Mortgaged Property" shall mean the Property owned by the Borrower and which is subject to the Liens existing and to exist under the terms of the Security Instruments. "Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) or 4001(a)(3) of ERISA. "Non-Recourse Debt" shall mean Debt as to which neither the Borrower nor any of its Subsidiaries (a) provides any guarantee or credit support (other than Liens against its Property not in violation of any provision of this Agreement) of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Debt), or (b) is directly or indirectly liable (as guarantor or otherwise); provided, however, that, if upon review of the documents and/or instruments evidencing such Non-Recourse Debt provided to the Agent pursuant to Section 8.01(j), the Agent has determined such Debt does not qualify as Non-Recourse Debt and has given written notice of such determination to the Borrower then such Debt shall not be treated as Non-Recourse Debt for purposes of this Agreement. "Notes" shall mean the promissory note or notes (whether one or more) of the Borrower described in Section 2.06 hereof and being in the form of Exhibit A hereto, together with any and all renewals, extensions for any period, increases, rearrangements, substitutions or modifications thereof. To the extent of $3,400,000, the Notes represent a renewal, extension, rearrangement and modification of the outstanding principal balance of the Prior Notes. "Oil and Gas Properties" shall mean Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon 10

Interests, including all oil in tanks, the lands covered thereby and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests; and all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereafter acquired and situated upon, used, held for use or useful in connection with the operation, production or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property which may be on such premises for the purpose of drilling a well or for other temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Other Taxes" shall have the meaning assigned such term in Section 4.06(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions. "Percentage Share" shall mean the percentage of the Aggregate Commitments to be provided by a Lender under this Agreement as indicated on Annex I hereto, as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Plan" shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii) was at any time during the preceding six calendar years sponsored, maintained or contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount payable by the Borrower under this Agreement or any Note, a rate per annum during the period commencing on the date of an Event of Default until such amount is paid in full or all Events of Default are cured or waived equal to 2% per annum above the Base Rate as in effect from time to time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate provided that, for a Eurodollar Loan, the "Post-Default Rate" for such principal shall be, for the period commencing on the date of the Event of Default and ending on the earlier to occur of the last day of the Interest Period therefor or the date all Events of Default are cured or waived, 2% per annum above the interest rate for such Loan as provided in Section 3.02(ii), but in no event to exceed the Highest Lawful Rate. 11

"Prime Rate" shall mean the rate of interest from time to time announced publicly by the Agent at the Principal Office as its prime commercial lending rate. Such rate is set by the Agent as a general reference rate of interest, taking into account such factors as the Agent may deem appropriate, it being understood that many of the Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Agent may make various commercial or other loans at rates of interest having no relationship to such rate. "Principal Office" shall mean the principal office of the Agent, presently located at 600 Travis, Houston, Texas 77002 or such other location as designated by the Agent from time to time. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Quarterly Dates" shall mean the last day of each March, June, September and December, in each year, the first of which shall be September 30, 1999; provided, however, that if any such day is not a Business Day, such Quarterly Date shall be the next succeeding Business Day. "Redetermination Date" shall have the meaning assigned such term in Section 2.08(a). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Lender, any change after the Closing Date in any Governmental Requirement (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders (including such Lender or its Applicable Lending Office) of or under any Governmental Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof. "Release Event" shall have the meaning assigned such term in Section 9.14. "Required Lenders" shall mean, at any time while no Loans are outstanding, Lenders having at least eighty-five percent (85%) of the Aggregate Commitments and, at any time while Loans are outstanding, Lenders holding at least eighty- five percent (85%) of the aggregate principal amount of the Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)). "Required Payment" shall have the meaning assigned such term in Section 4.04. "Reserve Report" shall mean a report, in form and substance satisfactory to the Agent, to be delivered prior to June 1 of each year, setting forth as of prior year-end: (i) the oil and gas reserves attributable to the Mortgaged Properties and any Oil and Gas Property of the Borrower in or proposed to be included in the Borrowing Base, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of 12

such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time, and (ii) such other information as the Agent may reasonably request. The term "Reserve Report" shall also include the information to be provided by the Borrower pursuant to Section 8.07(a) prior to December 1 of each year, setting forth, as of July 1 of such year, the information required in clauses (i) and (ii) of the preceding sentence. "Responsible Officer" shall mean, as to any Person, the Chief Executive Officer, the President or any Vice President of such Person and, with respect to financial matters, the term "Responsible Officer" shall include the Chief Financial Officer of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower. "Scheduled Borrowing Base Reductions" shall have the meaning assigned such term in Section 2.08(f). "Scheduled Redetermination Date" shall have the meaning assigned such term in Section 2.08(d). "SEC" shall mean the Securities and Exchange Commission or any successor Governmental Authority. "Security Instruments" shall mean the Letters of Credit, the Letter of Credit Agreements, the Fee Letter, the agreements or instruments described or referred to in Exhibit E, and any and all other agreements or instruments now or hereafter executed and delivered by the Borrower or any other Person (other than participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, supplemented or restated from time to time. "Special Entity" shall mean any joint venture, limited liability company or partnership, general or limited partnership or any other type of partnership or company other than a corporation in which the Borrower or one or more of its other Subsidiaries is a member, owner, partner or joint venturer and owns, directly or indirectly, at least a majority of the equity of such entity or controls such entity, but excluding any tax partnerships that are not classified as partnerships under state law. For purposes of this definition, any Person which owns directly or indirectly an equity investment in another Person which allows the first Person to manage or elect managers who manage the normal activities of such second Person will be deemed to "control" such second Person (e.g. a sole general partner controls a limited partnership). "Subsidiary" shall mean (i) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (ii) any Special Entity. 13

Unless otherwise indicated herein, each reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower. "Taxes" shall have the meaning assigned such term in Section 4.06(a). "Termination Date" shall mean, unless the Commitments are sooner terminated pursuant to Sections 2.03(b) or 10.02 hereof, September 18, 2001. "Type" shall mean, with respect to any Loan, a Base Rate Loan or a Eurodollar Loan. "Unused Amount of the Aggregate Commitments" shall mean the Aggregate Commitments minus the sum of the outstanding Loans and the LC Exposure. "Wholly-Owned Subsidiary" shall mean, as to the Borrower, any Subsidiary of which all of the outstanding shares of stock having by the terms thereof ordinary voting power to elect the board of directors of such corporation, other than directors' qualifying shares, are owned or controlled by the Borrower or one or more of the Wholly-Owned Subsidiaries or by the Borrower and one or more of the Wholly-Owned Subsidiaries. Section 1.03 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited financial statements of the Borrower referred to in Section 7.02 (except for changes concurred with by the Borrower's independent public accountants). ARTICLE II Commitments Section 2.01 Loans and Letters of Credit. (a) Loans. Each Lender severally agrees, on the terms of this Agreement, to make Loans to the Borrower during the period from and including (i) the Closing Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in Section 12.06(b), to but excluding, the Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of such Lender's Commitment as then in effect; provided, however, that the aggregate principal amount of all such Loans by all Lenders hereunder at any one time outstanding together with the LC Exposure shall not exceed the Aggregate Commitments. Subject to the terms of this Agreement, during the period from the Closing Date to but excluding the Termination Date, the Borrower may borrow, repay and reborrow the amount described in this Section 2.01(a). 14

(b) Letters of Credit. During the period from and including the Closing Date to but excluding the Termination Date, the Agent, as issuing bank for the Lenders, agrees to extend credit for the account of the Borrower at any time and from time to time by issuing, renewing, extending or reissuing Letters of Credit; provided, however, the LC Exposure at any one time outstanding shall not exceed the lesser of (i) the LC Commitment or (ii) the Aggregate Commitments, as then in effect, minus the aggregate principal amount of all Loans then outstanding. The Lenders shall participate in such Letters of Credit according to their respective Percentage Shares. (c) Limitation on Types of Loans. Subject to the other terms and provisions of this Agreement, at the option of the Borrower, the Loans may be Base Rate Loans or Eurodollar Loans; provided that, without the prior written consent of the Majority Lenders, no more than six (6) Eurodollar Loans may be outstanding at any time to any Lender. Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit. (a) Borrowings. The Borrower shall give the Agent (which shall promptly notify the Lenders) advance notice as hereinafter provided of each borrowing hereunder, which shall specify the aggregate amount of such borrowing, the date (which shall be a Business Day) of the Loans to be borrowed, the Type of the Loans to be borrowed and, in the case of Eurodollar Loans, the duration of the Interest Period therefor. (b) Minimum Amounts. All Base Rate Loan borrowings shall be in amounts of at least $500,000 or the remaining balance of the Aggregate Commitments, if less, or any whole multiple of $500,000 in excess thereof, and all Eurodollar Loans shall be in amounts of at least $500,000 or any whole multiple of $500,000 in excess thereof. (c) Notices. The initial borrowing and all borrowings, continuations and conversions shall require advance written notice to the Agent (which shall promptly notify the Lenders) in the form of Exhibit B hereto (or telephonic notice promptly confirmed by such a written notice), which in each case shall be irrevocable, from the Borrower to be received by the Agent not later than 11:00 a.m. Houston, Texas time at least one (1) Business Day prior to the date of each Base Rate Loan borrowing and three (3) Business Days prior to the date of each Eurodollar Loan borrowing, continuation or conversion. Without in any way limiting the Borrower's obligation to confirm in writing any telephonic notice, the Agent may act without liability upon the basis of telephonic notice believed by the Agent in good faith to be from the Borrower prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Agent's record of the terms of such telephonic notice except in the case of gross negligence or willful misconduct by the Agent. (d) Continuation Options. Subject to the provisions made in this Section 2.02(d), the Borrower may elect to continue all or any part of any Eurodollar Loan beyond the expiration of the then current Interest Period relating thereto by giving advance notice as provided in Section 2.02(c) to the Agent (which shall promptly notify the Lenders) of such election, specifying the amount of such Loan to be continued and the Interest Period therefor. 15

In the absence of such a timely and proper election, the Borrower shall be deemed to have elected to convert such Eurodollar Loan to a Base Rate Loan pursuant to Section 2.02(e). All or any part of any Eurodollar Loan may be continued as provided, herein, provided that (i) any continuation of any such Loan shall be (as to each Loan as continued for an applicable Interest Period) in amounts of at least $500,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, each Eurodollar Loan shall be converted to a Base Rate Loan on the last day of the Interest Period applicable thereto. (e) Conversion Options. The Borrower may elect to convert all or any part of any Eurodollar Loan on the last day of the then current Interest Period relating thereto to a Base Rate Loan by giving advance notice to the Agent (which shall promptly notify the Lenders) of such election. Subject to the provisions made in this Section 2.02(e), the Borrower may elect to convert all or any part of any Base Rate Loan at any time and from time to time to a Eurodollar Loan by giving advance notice as provided in Section 2.02(c) to the Agent (which shall promptly notify the Lenders) of such election. All or any part of any outstanding Loan may be converted as provided herein, provided that (i) any conversion of any Base Rate Loan into a Eurodollar Loan shall be (as to each such Loan into which there is a conversion for an applicable Interest Period) in amounts of at least $500,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, no Base Rate Loan may be converted into a Eurodollar Loan. (f) Advances. Not later than 11:00 a.m. Houston, Texas time on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan to be made by it on such date to the Agent, to an account which the Agent shall specify, in immediately available funds, for the account of the Borrower. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by depositing the same, in immediately available funds, in an account of the Borrower, designated by the Borrower and maintained at the Principal Office. (g) Letters of Credit. The Borrower shall give the Agent (which shall promptly notify the Lenders of such request) advance notice to be received by the Agent not later than 11:00 a.m. Houston, Texas time not less than three (3) Business Days prior thereto of each request for the issuance and at least thirty (30) Business Days prior to the date of the renewal or extension of a Letter of Credit hereunder which request shall specify the amount of such Letter of Credit, the date (which shall be a Business Day) such Letter of Credit is to be issued, renewed or extended, the duration thereof, the name and address of the beneficiary thereof, the form of the Letter of Credit and such other information as the Agent may reasonably request all of which shall be reasonably satisfactory to the Agent. Subject to the terms and conditions of this Agreement, on the date specified for the issuance, renewal or extension of a Letter of Credit, the Agent shall issue such Letter of Credit to the beneficiary thereof. In conjunction with the issuance of each Letter of Credit, the Borrower shall execute a Letter of Credit Agreement. In the event of any conflict between any provision of a Letter 16

of Credit Agreement and this Agreement, the Borrower, the Agent and the Lenders hereby agree that the provisions of this Agreement shall govern. The Agent will send to the Borrower and each Lender, upon issuance of any Letter of Credit, or an amendment thereto, a true and complete copy of such Letter of Credit, or such amendment thereto. Section 2.03 Changes of Commitments. (a) The Aggregate Commitments shall at all times be equal to the lesser of (i) the Aggregate Maximum Credit Amounts or (ii) the Borrowing Base as determined from time to time. (b) The Borrower shall have the right to terminate or to reduce the amount of the Aggregate Maximum Credit Amounts at any time or from time to time upon not less than three (3) Business Days' prior notice to the Agent (which shall promptly notify the Lenders) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall not be less than $500,000 or any whole multiple of $500,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Agent. (c) The Aggregate Maximum Credit Amounts once terminated or reduced may be reinstated. Section 2.04 Fees. (a) The Borrower shall pay to the Agent for the account of each Lender a commitment fee on the daily average Unused Amount of the Aggregate Commitments for the period from and including the Closing Date up to but excluding the earlier of the date the Aggregate Commitments are terminated or the Termination Date at a rate per annum equal to one-half of one percent (1/2%). Accrued commitment fees shall be payable quarterly in arrears on each Quarterly Date and on the earlier of the date the Aggregate Commitments are terminated or the Termination Date. (b) The Borrower agrees to pay the Agent, for the account of each Lender, commissions for issuing the Letters of Credit on the daily average outstanding of the maximum liability of the Agent existing from time to time under such Letter of Credit (calculated separately for each Letter of Credit) at the applicable per annum percentage set forth at the appropriate intersection in the table shown below, provided that each Letter of Credit shall bear a minimum commission of $300.00. Each Letter of Credit shall be deemed to be outstanding up to the full face amount of the Letter of Credit until the Agent has received the canceled Letter of Credit or a written cancellation of the Letter of Credit from the beneficiary of such Letter of Credit in form and substance acceptable to the Agent, or for 17

any reductions in the amount of the Letter of Credit (other than from a drawing), written notification from the beneficiary of such Letter of Credit. Such commissions are payable in advance at issuance of the Letter of Credit.
Borrowing Base Utilization Percentage ------------------------------------Less than or equal to 33% Greater than 33% but less than or equal to 66% Greater than 66% Letter of Credit Fee -------------------2.375% 2.625% 3.00%

(c) The Agent, for its own account, shall retain 0.125% of the Letter of Credit fee (as described in subsection (c) above) as an issuing fee and shall pay the balance of such Letter of Credit fee to the Lenders pro rata. (d) The Borrower shall pay to the Agent for its account such other fees as are set forth in the Fee Letter on the dates specified therein to the extent not paid prior to the Closing Date. (e) If the Borrower exercises its option to cause the Lenders to redetermine the Borrowing Base pursuant to Section 2.08(d), then for each exercise of such option, the Borrower shall pay a fee to the Agent in the amount of $1,500 to be shared by the Lenders pro rata in proportion to their Percentage Share. Such fee shall be due and payable at the time the Borrower gives notice of its election to exercise such option. Section 2.05 Several Obligations. The failure of any Lender to make any Loan to be made by it or to provide funds for disbursements or reimbursements under Letters of Credit on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan or provide funds on such date, but no Lender shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender or to provide funds to be provided by such other Lender. Section 2.06 Notes. The Loans made by each Lender shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit A hereto, dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant to Section 12.06(b), payable to the order of such Lender in a principal amount equal to its Maximum Credit Amount as in effect and otherwise duly completed and such substitute Notes as required by Section 12.06(b). The date and amount of each Loan made by each Lender and the Type, interest rate and Interest Period of each Loan made by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Notes, and, prior to any transfer, may be endorsed by such Lender on a schedule attached to such Notes or any continuation thereof or on any separate record maintained by such Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender's or the Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Notes. 18

Section 2.07 Prepayments. (a) The Borrower may prepay Base Rate Loans upon not less than one (1) Business Day's prior notice to the Agent (which shall promptly notify the Lenders), which notice shall specify the prepayment date (which shall be a Business Day) and the amount of the prepayment (which shall be at least $500,000 or the remaining aggregate principal balance outstanding on the relevant Note) and shall be irrevocable and effective only upon receipt by the Agent, provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. The Borrower may prepay Eurodollar Loans on the same condition as for Base Rate Loans (but with three (3) days advance notice) and in addition such prepayments of Eurodollar Loans shall be subject to the terms of Section 5.05 and shall be in an amount equal to all of the Eurodollar Loans for the Interest Period prepaid. (b) If, after giving effect to any termination or reduction of the Aggregate Maximum Credit Amounts pursuant to Section 2.03(c), the outstanding aggregate principal amount of the Loans plus the LC Exposure exceeds the Aggregate Maximum Credit Amounts, the Borrower shall (i) prepay the Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest on the principal amount paid accrued to the date of such prepayment and (ii) if any excess remains after prepaying all of the Loans, pay to the Agent on behalf of the Lenders an amount equal to the excess to be held as cash collateral as provided in Section 2.10(b) hereof. (c) Upon any adjustment or redetermination of the amount of the Borrowing Base (but not Scheduled Borrowing Base Reductions) in accordance with Sections 2.07(d), 2.08, 8.08(c) or 9.14 or otherwise, if the adjusted or redetermined Borrowing Base is less than the sum of the aggregate outstanding principal amount of the Loans and the LC Exposure (a "Borrowing Base Deficiency"), then the Borrower shall within 45 days of receipt of written notice thereof cure such Borrowing Base Deficiency by either prepaying the Loans in an aggregate principal amount equal to such excess, together with interest on the principal amount paid accrued to the date of such prepayment or provide additional Collateral to secure the Indebtedness to the reasonable satisfaction of the Lenders. (d) Following a casualty loss to all or any part of the Oil and Gas Properties constituting the Borrowing Base, all insurance proceeds payable to the Borrower and not used by the Borrower to repair or replace such Properties shall be used by the Borrower to prepay the Loans. The Borrowing Base shall be reduced by an amount reasonably determined at the time by the Agent to reflect the contribution to the Borrowing Base of such Oil and Gas Properties not repaired or replaced. (e) Prepayments permitted or required under this Section 2.07 shall be without premium or penalty, except as required under Section 5.05 for prepayment of Eurodollar Loans. Any prepayments on the Loans may be reborrowed subject to the then effective Aggregate Commitments. 19

Section 2.08 Borrowing Base. (a) The Borrowing Base shall be determined in accordance with Section 2.08(b) by the Agent with the concurrence of the Required Lenders and is subject to redetermination in accordance with Section 2.08(d). Upon any redetermination of the Borrowing Base, such redetermination shall remain in effect until the next successive Redetermination Date. "Redetermination Date" shall mean the date that the redetermined Borrowing Base becomes effective subject to the notice requirements specified in Section 2.08(e) both for scheduled redeterminations and unscheduled redeterminations. During the period from and after the Closing Date until the first redetermination pursuant to Section 2.08(d) or adjustment pursuant to Sections 8.08(c) or 9.15, the amount of the Borrowing Base shall be $24,200,000. (b) Upon receipt of the reports required by Section 8.07 and such other reports, data and supplemental information as may from time to time be reasonably requested by the Agent (the "Engineering Reports"), the Agent will redetermine the Borrowing Base. Such redetermination will be in accordance with its normal and customary procedures for evaluating oil and gas reserves and other related assets as such exist at that particular time. The Agent, in its sole discretion, may make adjustments to the rates, volumes and prices and other assumptions set forth in the Engineering Reports in accordance with its normal and customary procedures for evaluating oil and gas reserves and other related assets as such exist at that particular time. The Agent shall propose to the Lenders a new Borrowing Base within 45 days following receipt by the Agent and the Lenders of the Engineering Reports in a timely and complete manner. (c) The Agent may exclude any Oil and Gas Property or portion of production therefrom or any income from any other Property from the Borrowing Base, at any time, because title information is not reasonably satisfactory, such Property is not Mortgaged Property or such Property is not assignable. (d) So long as any of the Commitments are in effect and until payment in full of all Loans hereunder, on or around the first Business Day of each January and July, commencing January 1, 2000 (each being a "Scheduled Redetermination Date"), the Required Lenders shall redetermine the amount of the Borrowing Base in accordance with Section 2.08(b), and the Scheduled Borrowing Base Reductions pursuant to Section 2.08(f). In addition, the Required Lenders or the Borrower may each initiate a redetermination of the Borrowing Base at any other time as they so elect; provided, however, only one such unscheduled redetermination may be elected between each Scheduled Redetermination Date. If such redetermination is initiated by the Required Lenders, the Agent shall specify in writing to the Borrower the date on which the Borrower is to furnish a Reserve Report in accordance with Section 8.07(b) and the date on which such redetermination is to occur. (e) The Agent shall promptly notify in writing the Borrower and the Lenders of the new Borrowing Base and the Scheduled Borrowing Base Reduction to be in effect. Any redetermination of the Borrowing Base and the Scheduled Borrowing Base Reductions, shall 20

not be in effect until written notice is received by the Borrower; provided, however, the Scheduled Borrowing Base Reductions stated in such written notice shall commence on the first Monthly Date following the Borrower's receipt of such written notice (it is hereby understood and agreed that the provisions of Section 2.07(c) shall not apply to Scheduled Borrowing Base Reductions). (f) In addition to the scheduled and unscheduled redeterminations of the Borrowing Base pursuant to this Section 2.08, the Borrowing Base in effect from time to time is subject to the following: (i) the adjustments made in accordance with Sections 2.07(d) and 9.15; and (ii) automatic Borrowing Base reductions on each Monthly Date by the following amounts ("Scheduled Borrowing Base Reductions"): (A) $1,000,000 for the November 1, 1999 Monthly Date; (B) $1,000,000 for the December 1, 1999 Monthly Date; (C) $2,000,000 for the January 1, 2000 Monthly Date; and (D) $1,000,000 for each Monthly Date thereafter; provided, however, the foregoing Scheduled Borrowing Base Reductions shall be redetermined in conjunction with each redetermination of the Borrowing Base pursuant to this Section 2.08 and notice thereof will be given to the Borrower in accordance with Section 2.08(e). (g) At the time of each scheduled or unscheduled Borrowing Base redetermination, the Required Lenders shall have the right to require the Borrower to grant to the Agent a first-priority Lien (subject only to Excepted Liens) on the Borrower's interest in all or any portion of the Oil and Gas Properties included in the determination of the Borrowing Base not already subject to a Lien of the Security Instruments, which Lien will be created and perfected by and in accordance with the provisions of Security Instruments, all in form and substance satisfactory to the Agent in its sole discretion and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. If the Borrower fails to deliver such Security Instruments on or before 15 days after such request by the Required Lenders, the Required Lenders shall have the right to redetermine the Borrowing Base in accordance with this Section 2.08 excluding the values given to such Oil and Gas Properties for which no Security Instrument has been delivered. Section 2.09 Assumption of Risks. The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit or any transferee thereof with respect to its use of such Letter of Credit. Neither the Agent (except in the case of willful misconduct or bad faith on the part of the Agent or any of its employees), its correspondents nor any Lender shall be responsible for the validity, sufficiency or genuineness of certificates or other documents or any endorsements 21

thereon, even if such certificates or other documents should in fact prove to be invalid, insufficient, fraudulent or forged; for errors, omissions, interruptions or delays in transmissions or delivery of any messages by mail, telex, or otherwise, whether or not they be in code; for errors in translation or for errors in interpretation of technical terms; the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; the failure of any beneficiary or any transferee of any Letter of Credit to comply fully with conditions required in order to draw upon any Letter of Credit; or for any other consequences arising from causes beyond the Agent's control or the control of the Agent's correspondents unless, as to any of the foregoing, constituting gross negligence or willful misconduct on the part of the Agent or any Lender. In addition, neither the Agent nor any Lender shall be responsible for any error, neglect, or default of any of the Agent's correspondents; and none of the above shall affect, impair or prevent the vesting of any of the Agent's or any Lender's rights or powers hereunder or under the Letter of Credit Agreements, all of which rights shall be cumulative unless, as to any of the foregoing, constituting gross negligence or willful misconduct on the part of the Agent or any Lender. The Agent and its correspondents may accept certificates or other documents that appear on their face to be in order, without responsibility for further investigation of any matter contained therein regardless of any notice or information to the contrary. In furtherance and not in limitation of the foregoing provisions, the Borrower agrees that any action, inaction or omission taken or not taken by the Agent or by any correspondent for the Agent in good faith in connection with any Letter of Credit, or any related drafts, certificates, documents or instruments, shall be binding on the Borrower and shall not put the Agent or its correspondents under any resulting liability to the Borrower. 22

Section 2.10 Obligation to Reimburse and to Prepay. (a) If a disbursement by the Agent is made under any Letter of Credit, the Borrower shall pay to the Agent within two (2) Business Days after notice of any such disbursement is received by the Borrower, the amount of each such disbursement made by the Agent under the Letter of Credit (if such payment is not sooner effected as may be required under this Section 2.10 or under other provisions of the Letter of Credit), together with interest on the amount disbursed from and including the date of disbursement until payment in full of such disbursed amount at a varying rate per annum equal to (i) the then applicable interest rate for Base Rate Loans through the second Business Day after notice of such disbursement is received by the Borrower and (ii) thereafter, the Post-Default Rate for Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for the period from and including the third Business Day following the date of such disbursement to and including the date of repayment in full of such disbursed amount. The obligations of the Borrower under this Agreement with respect to each Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid or performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, but only to the fullest extent permitted by applicable law, the following circumstances: (i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the Security Instruments; (ii) any amendment or waiver of (including any default), or any consent to departure from this Agreement (except to the extent permitted by any amendment or waiver), any Letter of Credit or any of the Security Instruments; (iii) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against the beneficiary of any Letter of Credit or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the Security Instruments, the transactions contemplated hereby or any unrelated transaction; (iv) any statement, certificate, draft, notice or any other document presented under any Letter of Credit proves to have been forged, fraudulent, insufficient or invalid in any respect or any statement therein proves to have been untrue or inaccurate in any respect whatsoever; (v) payment by the Agent under any Letter of Credit against presentation of a draft or certificate which appears on its face to comply, but does not comply, with the terms of such Letter of Credit; and (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. Notwithstanding anything in this Agreement to the contrary, the Borrower will not be liable for payment or performance that results from the gross negligence or willful misconduct of the Agent, except (i) where the Borrower or any Subsidiary actually recovers the proceeds for itself or the Agent of any payment made by the Agent in connection with such gross negligence or willful misconduct or (ii) in cases where the Agent makes payment to the named beneficiary of a Letter of Credit. (b) In the event of the occurrence of any Event of Default, a payment or prepayment pursuant to Sections 2.07(b) and (c) hereof or the maturity of the Notes, whether by acceleration or otherwise, an amount equal to the LC Exposure (or the excess in the case of Section 2.07(b)) shall be deemed to be forthwith due and owing by the Borrower to the Agent and the Lenders as of the date of any such occurrence; and the Borrower's obligation to pay such amount shall be absolute and unconditional, without regard to whether any 23

beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower may now or hereafter have against any such beneficiary, the Agent, the Lenders or any other Person for any reason whatsoever. Such payments shall be held by the Agent on behalf of the Lenders as cash collateral securing the LC Exposure in an account or accounts at the Principal Office; and the Borrower hereby grants to and by its deposit with the Agent grants to the Agent a security interest in such cash collateral. In the event of any such payment by the Borrower of amounts contingently owing under outstanding Letters of Credit and in the event that thereafter drafts or other demands for payment complying with the terms of such Letters of Credit are not made prior to the respective expiration dates thereof, the Agent agrees, if no Event of Default has occurred and is continuing or if no other amounts are outstanding under this Agreement, the Notes or the Security Instruments, to remit to the Borrower amounts for which the contingent obligations evidenced by the Letters of Credit have ceased. (c) Each Lender severally and unconditionally agrees that it shall promptly reimburse the Agent an amount equal to such Lender's Percentage Share of any disbursement made by the Agent under any Letter of Credit that is not reimbursed according to this Section 2.10. Section 2.11 Lending Offices. Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. ARTICLE III Payments of Principal and Interest Section 3.01 Repayment of Loans. The Borrower will pay to the Agent, for the account of each Lender, the principal payments required by this Section 3.01. On the Termination Date the Borrower shall repay the outstanding aggregate principal and accrued and unpaid interest under the Notes. Section 3.02 Interest. The Borrower will pay to the Agent, for the account of each Lender, interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date such Loan is made to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) if such a Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate; and (b) if such a Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate. 24

Notwithstanding the foregoing, the Borrower will pay to the Agent, for the account of each Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender, and (to the fullest extent permitted by law) on any other amount payable by the Borrower hereunder, under any Loan Document or under any Note held by such Lender to or for account of such Lender, for the period commencing on the date of an Event of Default until the same is paid in full or all Events of Default are cured or waived. Accrued interest on Base Rate Loans shall be payable on each Quarterly Date commencing on September 30, 1999, and accrued interest on each Eurodollar Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months at three-month intervals following the first day of such Interest Period, except that interest payable at the Post- Default Rate shall be payable from time to time on demand and interest on any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted). Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall notify the Lenders to which such interest is payable and the Borrower thereof. Each determination by the Agent of an interest rate or fee hereunder shall, except in cases of manifest error, be final, conclusive and binding on the parties. ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc. Section 4.01 Payments. Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower under the Loan Documents shall be made in Dollars, in immediately available funds, to the Agent at such account as the Agent shall specify by notice to the Borrower from time to time, not later than 11:00 a.m. Houston, Texas time on the date on which such payments shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Such payments shall be made without (to the fullest extent permitted by applicable law) defense, set-off or counterclaim. Each payment received by the Agent under this Agreement or any Note for account of a Lender shall be paid promptly to such Lender in immediately available funds. Except as provided in clause (iii) of the definition of "Interest Period", if the due date of any payment under this Agreement or any Note would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. At the time of each payment to the Agent of any principal of or interest on any borrowing, the Borrower shall notify the Agent of the Loans to which such payment shall apply. In the absence of such notice the Agent may specify the Loans to which such payment shall apply, but to the extent possible such payment or prepayment will be applied first to the Loans comprised of Base Rate Loans. Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein each Lender agrees that: (i) each borrowing from the Lenders under Section 2.01 and each 25

continuation and conversion under Section 2.02 shall be made from the Lenders pro rata in accordance with their Percentage Share, each payment of commitment fee or other fees under Sections 2.04(a), (b) and (c) shall be made for account of the Lenders pro rata in accordance with their Percentage Share, and each termination or reduction of the amount of the Aggregate Maximum Credit Amounts under Section 2.03(d) shall be applied to the Commitment of each Lender, pro rata according to the amounts of its respective Commitment; (ii) each payment of principal of Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amount of the Loans held by the Lenders; and (iii) each payment of interest on Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of interest due and payable to the respective Lenders; and (iv) each reimbursement by the Borrower of disbursements under Letters of Credit shall be made for account of the Agent or, if funded by the Lenders, pro rata for the account of the Lenders, in accordance with the amounts of reimbursement obligations due and payable to each respective Lender. Section 4.03 Computations. Interest on Eurodollar Loans and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would exceed the Highest Lawful Rate, in which case interest shall be calculated on the per annum basis of a year of 365 or 366 days, as the case may be. Section 4.04 Non-receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower prior to the date on which such notifying party is scheduled to make payment to the Agent (in the case of a Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be made by it hereunder or (in the case of the Borrower) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Lender or the Borrower (as the case may be) has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until but excluding the date the Agent recovers such amount at a rate per annum which, for any Lender as recipient, will be equal to the Federal Funds Rate, and for the Borrower as recipient, will be equal to the Base Rate plus the Applicable Margin. 26

Section 4.05 Set-off, Sharing of Payments, Etc. (a) The Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, each Lender shall have the right and be entitled (after consultation with the Agent), at its option, to offset balances held by it or by any of its Affiliates for account of the Borrower at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, or any other amount payable to such Lender hereunder, which is not paid when due (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain payment of any principal of or interest on any Loan made by it to the Borrower under this Agreement (or reimbursement as to any Letter of Credit) through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Lender shall have received a greater percentage of the principal or interest (or reimbursement) then due hereunder by the Borrower to such Lender than the percentage received by any other Lenders, it shall promptly (i) notify the Agent and each other Lender thereof and (ii) purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans (or participations in Letters of Credit) made by such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Lenders (or reimbursements of Letters of Credit). To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Lender so purchasing a participation (or direct interest) in the Loans made by other Lenders (or in interest due thereon, as the case may be) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans (or Letters of Credit) in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.05 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.05 to share the benefits of any recovery on such secured claim. Section 4.06 Taxes. (a) Payments Free and Clear. Any and all payments by the Borrower hereunder shall be made, in accordance with Section 4.01, free and clear of and without deduction for 27

any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Agent or such Lender, as the case may be, is a citizen or resident or in which such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which the Agent or such Lender is organized, or (iii) any jurisdiction (or political subdivision thereof) in which such Lender or the Agent is presently doing business in which taxes are imposed solely as a result of doing business in such jurisdiction (all such non- excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders or the Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.06) such Lender or the Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) Other Taxes. In addition, to the fullest extent permitted by applicable law, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment or any Security Instrument (hereinafter referred to as "Other Taxes"). (c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR THE AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR THE AGENT HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER 28

WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE REQUEST OF SUCH LENDER OR THE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE AGENT IN THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT. (d) Lender Representations. 29

(i) Each Lender represents that it is either (1) a corporation or banking association organized under the laws of the United States of America or any state thereof or (2) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party or (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Lender that is not a corporation or banking association organized under the laws of the United States of America or any state thereof agrees to provide to the Borrower and the Agent on the Closing Date, or on the date of its delivery of the Assignment pursuant to which it becomes a Lender, and at such other times as required by United States law or as the Borrower or the Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form 4224 (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the "Form 4224 Certification") or (B) Internal Revenue Service Form 1001 (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the "Form 1001 Certification"). In addition, each Lender agrees that if it previously filed a Form 4224 Certification, it will deliver to the Borrower and the Agent a new Form 4224 Certification prior to the first payment date occurring in each of its subsequent taxable years; and if it previously filed a Form 1001 Certification, it will deliver to the Borrower and the Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification. Each Lender also agrees to deliver to the Borrower and the Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States withholding tax on any payments hereunder, provided that the circumstances of such Lender at the relevant time and applicable laws permit it to do so. If a Lender determines, as a result of any change in either (i) a Governmental Requirement or (ii) its circumstances, that it is unable to submit any form or certificate that it is obligated to submit pursuant to this Section 4.06, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify the Borrower and the Agent of such fact. If a Lender is organized under the laws of a jurisdiction outside the United States of America, unless the Borrower and the Agent have received a Form 1001 Certification or Form 4224 Certification satisfactory to them indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax, the Borrower shall withhold taxes from such payments at the applicable statutory rate. Each Lender agrees to indemnify and hold harmless the Borrower or Agent, as applicable, from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by (i) the Agent as a result of such Lender's failure to submit any form or certificate that it is required to provide pursuant to this Section 4.06 or (ii) the Borrower or the 30

Agent as a result of their reliance on any such form or certificate which such Lender has provided to them pursuant to this Section 4.06. (ii) For any period with respect to which a Lender has failed to provide the Borrower with the form required pursuant to this Section 4.06, if any, (other than if such failure is due to a change in a Governmental Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.06 with respect to taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax becomes subject to taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes. (iii) Any Lender claiming any additional amounts payable pursuant to this Section 4.06 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or the Agent or to change the jurisdiction of its Applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. Section 4.07 Disposition of Proceeds. The Security Instruments contain an assignment by the Borrower unto and in favor of the Agent for the benefit of the Lenders of all production and all proceeds attributable thereto which may be produced from or allocated to the Mortgaged Property, and the Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Indebtedness and other obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an Event of Default, the Lenders agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower. 31

ARTICLE V Capital Adequacy Section 5.01 Additional Costs. (a) Eurodollar Regulations, etc. The Borrower shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs which it determines are attributable to its making or maintaining of any Eurodollar Loans or issuing or participating in Letters of Credit hereunder or its obligation to make any Eurodollar Loans or issue or participate in any Letters of Credit hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Eurodollar Loans, Letters of Credit or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or any Note in respect of any of such Eurodollar Loans or Letters of Credit (other than taxes imposed on the overall net income of such Lender or of its Applicable Lending Office for any of such Eurodollar Loans by the jurisdiction in which such Lender has its principal office or Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of such Lender, or the Commitment or Loans of such Lender or the Eurodollar interbank market; or (iii) imposes any other condition affecting this Agreement or any Note (or any of such extensions of credit or liabilities) or such Lender's Commitment or Loans. Each Lender will notify the Agent and the Borrower of any event occurring after the Closing Date which will entitle such Lender to compensation pursuant to this Section 5.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. If any Lender requests compensation from the Borrower under this Section 5.01(a), the Borrower may, by notice to such Lender, suspend the obligation of such Lender to make additional Loans of the Type with respect to which such compensation is requested until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable). (b) Regulatory Change. Without limiting the effect of the provisions of Section 5.01(a), in the event that, by reason of any Regulatory Change or any other circumstances arising after the Closing Date affecting such Lender, the Eurodollar interbank market or such Lender's position in such market, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Lender so elects by notice to the Borrower, the obligation of such Lender to make additional Eurodollar Loans shall be suspended until such Regulatory Change or other circumstances ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable). 32

(c) Capital Adequacy. Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Borrower shall pay directly to any Lender from time to time on request such amounts as such Lender may reasonably determine to be necessary to compensate such Lender or its parent or holding company for any costs which it determines are attributable to the maintenance by such Lender or its parent or holding company (or any Applicable Lending Office), pursuant to any Governmental Requirement following any Regulatory Change, of capital in respect of its Commitment, its Notes, its Loans or any interest held by it in any Letter of Credit, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender or its parent or holding company (or any Applicable Lending Office) to a level below that which such Lender or its parent or holding company (or any Applicable Lending Office) could have achieved but for such Governmental Requirement. Such Lender will notify the Borrower that it is entitled to compensation pursuant to this Section 5.01(c) as promptly as practicable after it determines to request such compensation. (d) Compensation Procedure. Any Lender notifying the Borrower of the incurrence of additional costs under this Section 5.01 shall in such notice to the Borrower and the Agent set forth in reasonable detail the basis and amount of its request for compensation. Determinations and allocations by each Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of the effect of capital maintained pursuant to Section 5.01(c), on its costs or rate of return of maintaining Loans or its obligation to make Loans or issue Letters of Credit, or on amounts receivable by it in respect of Loans or Letters of Credit, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive and binding for all purposes, provided that such determinations and allocations are made on a reasonable basis. Any request for additional compensation under this Section 5.01 shall be paid by the Borrower within thirty (30) days of the receipt by the Borrower of the notice described in this Section 5.01(d). Section 5.02 Limitation on Eurodollar Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Rate for any Interest Period: (i) the Agent determines (which determination shall be conclusive, absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in Section 1.02 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (ii) the Agent determines (which determination shall be conclusive, absent manifest error) that the relevant rates of interest referred to in the definition of "Eurodollar Rate" in Section 1.02 upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not sufficient to adequately cover the cost to the Lenders of making or maintaining Eurodollar Loans; then the Agent shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans. 33

Section 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 shall be applicable). Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03. If the obligation of any Lender to make Eurodollar Loans shall be suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would otherwise be made by such Lender shall be made instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has occurred and such Lender so requests by notice to the Borrower, all Affected Loans of such Lender then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) Base Rate Loans, all payments of principal which would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans. Section 5.05 Compensation. The Borrower shall pay to each Lender within thirty (30) days of receipt of written request of such Lender (which request shall set forth, in reasonable detail, the basis for requesting such amounts and which shall be conclusive and binding for all purposes provided that such determinations are made on a reasonable basis), such amount or amounts as shall compensate it for any loss, cost, expense or liability which such Lender determines are attributable to: (i) any payment, prepayment or conversion of a Eurodollar Loan properly made by such Lender or the Borrower for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.02) on a date other than the last day of the Interest Period for such Loan; or (ii) any failure by the Borrower for any reason (including but not limited to, the failure of any of the conditions precedent specified in Article VI to be satisfied) to borrow, continue or convert a Eurodollar Loan from such Lender on the date for such borrowing, continuation or conversion specified in the relevant notice given pursuant to Section 2.02(c). Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such 34

principal amount and with maturities comparable to such period (as reasonably determined by such Lender). Section 5.06 Replacement Lenders. (a) If any Lender has notified the Borrower and the Agent of its incurring additional costs under Section 5.01 hereof or has required the Borrower to make payments for Taxes under Section 4.06 hereof, then the Borrower may, unless such Lender has notified the Borrower and the Agent that the circumstances giving rise to such notice no longer apply, terminate, in whole but not in part, the Commitment of any Lender (other than the Agent) (the "Terminated Lender") at any time upon five (5) Business Days' prior written notice to the Terminated Lender and the Agent (such notice referred to herein as a "Notice of Termination"). (b) In order to effect the termination of the Commitment of the Terminated Lender, the Borrower shall: (i) obtain an agreement with one or more Lenders to increase their Commitment or Commitments and/or (ii) request any one or more other banking institutions to become parties to this Agreement in place and instead of such Terminated Lender and agree to accept a Commitment or Commitments; provided, however, that such one or more other banking institutions are reasonably acceptable to the Agent and become parties by executing an Assignment (the Lenders or other banking institutions that agree to accept in whole or in part the Commitment of the Terminated Lender being referred to herein as the "Replacement Lenders"), such that the aggregate increased and/or accepted Commitments of the Replacement Lenders under clauses (i) and (ii) above equal the Commitment of the Terminated Lender. (c) The Notice of Termination shall include the name of the Terminated Lender, the date the termination will occur (the "Termination Date"), and the Replacement Lender or Replacement Lenders to which the Terminated Lender will assign its Commitment and, if there will be more than one Replacement Lender, the portion of the Terminated Lender's Commitment to be assigned to each Replacement Lender. (d) On the Termination Date, (i) the Terminated Lender shall by execution and delivery of an Assignment assign its Commitment to the Replacement Lender or Replacement Lenders (pro rata, if there is more than one Replacement Lender, in proportion to the portion of the Terminated Lender's Commitment to be assigned to each Replacement Lender) indicated in the Notice of Termination and shall assign to the Replacement Lender or Replacement Lenders each of its Loans (if any) then outstanding and participation interests in Letters of Credit (if any) then outstanding pro rata as aforesaid), (ii) the Terminated Lender shall endorse its Notes, payable without recourse, representation or warranty to the order of the Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii) the Replacement Lender or Replacement Lenders shall purchase the Notes held by the Terminated Lender (pro rata as aforesaid) at a price equal to the unpaid principal amount thereof plus interest and facility and other fees accrued and unpaid to the Termination Date, and (iv) the Replacement Lender or Replacement Lenders will thereupon (pro rata as aforesaid) succeed to and be 35

substituted in all respects for the Terminated Lender with like effect as if becoming a Lender pursuant to the terms of Section 12.06(b), and the Terminated Lender will have the rights and benefits of an assignor under Section 12.06(b). To the extent not in conflict, the terms of Section 12.06(b) shall supplement the provisions of this Section 5.06(d). For each assignment made under this Section 5.06, the Replacement Lender shall pay to the Agent the processing fee provided for in Section 12.06(b). The Borrower will be responsible for the payment of any breakage costs associated with termination of the Terminated Lender, as set forth in Section 5.05. ARTICLE VI Conditions Precedent Section 6.01 Initial Funding. The obligation of the Lenders to make the Initial Funding is subject to the receipt by the Agent and the Lenders of all fees payable pursuant to Section 2.04 on or before the Closing Date and the receipt by the Agent of the following documents and satisfaction of the other conditions provided in this Section 6.01, each of which shall be satisfactory to the Agent in form and substance: (a) A certificate of the Secretary or an Assistant Secretary of the Borrower setting forth (i) resolutions of its board of directors with respect to the authorization of the Borrower to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Borrower (y) who are authorized to sign the Loan Documents to which the Borrower is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of the Borrower, certified as being true and complete. The Agent and the Lenders may conclusively rely on such certificate until the Agent receives notice in writing from the Borrower to the contrary. (b) Certificates of the appropriate state agencies with respect to the existence, qualification and good standing of the Borrower. (c) A compliance certificate which shall be substantially in the form of Exhibit C, duly and properly executed by a Responsible Officer and dated as of the date of the Initial Funding. (d) The Notes, duly completed and executed. (e) The Security Instruments, including those described on Exhibit E, duly completed and executed in sufficient number of counterparts for recording, if necessary. 36

(f) An opinion of Jackson Walker L.L.P., special counsel to the Borrower, substantially in the form of Exhibit D hereto. (g) A certificate of insurance coverage of the Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.19 hereof. (h) Title information as the Agent may require from attorneys satisfactory to the Agent, setting forth the status of title to at least 100% of the value of the Oil and Gas Properties included in the Initial Reserve Report. (i) The Agent shall have been furnished with appropriate UCC search certificates reflecting no prior liens or security interests. (j) Such other documents as the Agent or any Lender or special counsel to the Agent may reasonably request. Section 6.02 Initial and Subsequent Loans and Letters of Credit. The obligation of the Lenders to make Loans to the Borrower upon the occasion of each borrowing hereunder and to issue, renew, extend or reissue Letters of Credit for the account of the Borrower (including the Initial Funding) is subject to the further conditions precedent that, as of the date of such Loans and after giving effect thereto: (i) no Default shall have occurred and be continuing; (ii) no Material Adverse Effect shall have occurred; and (iii) the representations and warranties made by the Borrower in Article VII and in the Security Instruments shall be true on and as of the date of the making of such Loans or issuance, renewal, extension or reissuance of a Letter of Credit with the same force and effect as if made on and as of such date and following such new borrowing, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders may expressly consent in writing to the contrary. Each request for a borrowing or issuance, renewal, extension or reissuance of a Letter of Credit by the Borrower hereunder shall constitute a certification by the Borrower to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Borrower otherwise notifies the Agent prior to the date of and immediately following such borrowing or issuance, renewal, extension or reissuance of a Letter of Credit as of the date thereof). Section 6.03 Conditions Relating to Letters of Credit. In addition to the satisfaction of all other conditions precedent set forth in this Article VI, the issuance, renewal, extension or reissuance of the Letters of Credit referred to in Section 2.01(b) hereof is subject to the following conditions precedent: (a) At least three (3) Business Days prior to the date of the issuance and at least thirty (30) Business Days prior to the date of the renewal, extension or reissuance of each Letter of Credit, the Agent shall have received a written request for a Letter of Credit. (b) Each of the Letters of Credit shall (i) be issued by the Agent, (ii) contain such terms and provisions as are reasonably required by the Agent, (iii) be for the account of the 37

Borrower and (iv) expire not later than the earlier of one (1) year from the date of issuance, renewal, extension or reissuance or two (2) days before the Termination Date. (c) The Borrower shall have duly and validly executed and delivered to the Agent a Letter of Credit Agreement pertaining to the Letter of Credit. ARTICLE VII Representations and Warranties The Borrower represents and warrants to the Agent and the Lenders that (each representation and warranty herein is given as of the Closing Date and shall be deemed repeated and reaffirmed on the dates of each borrowing and issuance, renewal, extension or reissuance of a Letter of Credit as provided in Section 6.02): Section 7.01 Corporate Existence. Each of the Borrower and each Subsidiary: (i) is a corporation duly organized, legally existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. Section 7.02 Financial Condition. The audited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at December 31, 1998 and the related consolidated statement of income, stockholders' equity and cash flow of the Borrower and its Consolidated Subsidiaries for the fiscal year ended on said date, and the unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at June 30, 1999 and their related consolidated statements of income, stockholders' equity and cash flow of the Borrower and its Consolidated Subsidiaries for the three-month period ended on such date heretofore furnished to the Agent, are complete and correct and fairly present the consolidated financial condition of the Borrower and its Consolidated Subsidiaries as at said dates and the results of its operations for the fiscal year and the three-month period on said dates, all in accordance with GAAP, as applied on a consistent basis (subject, in each case, to normal audit adjustments). Neither the Borrower nor any Subsidiary has on the Closing Date any material Debt, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the Financial Statements or in Schedule 7.02. Since June 30, 1999, there has been no change or event having a Material Adverse Effect. Since the date of the Financial Statements, neither the business nor the Properties of the Borrower or any Subsidiary have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy. 38

Section 7.03 Litigation. Except as disclosed to the Lenders in Schedule 7.03 hereto, at the Closing Date there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of the Borrower threatened against or affecting the Borrower or any Subsidiary which involves the possibility of any judgment or liability against the Borrower or any Subsidiary not fully covered by insurance (except for normal deductibles). Section 7.04 No Breach. Neither the execution and delivery of the Loan Documents, nor compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent which has not been obtained as of the Closing Date under, the respective charter or by-laws of the Borrower or any Subsidiary, or any Governmental Requirement or any agreement or instrument to which the Borrower or any Subsidiary is a party or by which it is bound or to which it or its Properties are subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Borrower or any Subsidiary pursuant to the terms of any such agreement or instrument other than the Liens created by the Loan Documents. Section 7.05 Authority. The Borrower and each Subsidiary have all necessary corporate power and authority to execute, deliver and perform its obligations under the Loan Documents to which it is a party; and the execution, delivery and performance by the Borrower and each Subsidiary of the Loan Documents to which it is a party, have been duly authorized by all necessary corporate action on its part; and the Loan Documents constitute the legal, valid and binding obligations of the Borrower and each Subsidiary, enforceable in accordance with their terms. Section 7.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by the Borrower or any Subsidiary of the Loan Documents or for the validity or enforceability thereof, except for the recording and filing of the Security Instruments as required by this Agreement. Section 7.07 Use of Loans. The proceeds of the Loans shall be used (a) to refinance all amounts outstanding under the Prior Credit Agreement, (b) to finance the acquisition of E. I.-30 for approximately $17,500,000, (c) to finance development costs for E.I.-30 of between $4,500,000 to $4,800,000, (d) to develop the Borrower's proven reserves from its Oil and Gas Properties, and (e) for general corporate purposes. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan hereunder will be used to buy or carry any margin stock. Section 7.08 ERISA. Borrower and/or Subsidiary does not and do not have any Plans. In the event either adopts or assumes any Plan then, as applicable, they shall each represent as follows: 39

(a) The Borrower, each Subsidiary and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. (b) Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code. (c) No act, omission or transaction has occurred which could result in imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. (d) No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No liability to the PBGC (other than for the payment of current premiums which are not past due) by the Borrower, any Subsidiary or any ERISA Affiliate has been or is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. (e) Full payment when due has been made of all amounts which the Borrower, any Subsidiary or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan. (f) The actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrower's most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. (g) None of the Borrower, any Subsidiary or any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at any time without any material liability. (h) None of the Borrower, any Subsidiary or any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan. (i) None of the Borrower, any Subsidiary or any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan. 40

Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the Borrower and the Subsidiaries has filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower and the Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate. No tax lien has been filed and, to the knowledge of the Borrower, no claim is being asserted with respect to any such tax, fee or other charge. Section 7.10 Titles, etc. (a) Except as set out in Schedule 7.10, each of the Borrower and the Subsidiaries has good and defensible title to its material (individually or in the aggregate) Properties, free and clear of all Liens except Liens permitted by Section 9.02. Except as set forth in Schedule 7.10, after giving full effect to the Excepted Liens, the Borrower owns the net interests in production attributable to the Hydrocarbon Interests reflected in the most recently delivered Reserve Report and the ownership of such Properties shall not in any material respect obligate the Borrower to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report. All information contained in the most recently delivered Reserve Report is true and correct in all material respects as of the date thereof. (b) All leases and agreements necessary for the conduct of the business of the Borrower and the Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which would affect in any material respect the conduct of the business of the Borrower and the Subsidiaries. (c) The rights, Properties and other assets presently owned, leased or licensed by the Borrower and the Subsidiaries including, without limitation, all easements and rights of way, include all rights, Properties and other assets necessary to permit the Borrower and the Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the Closing Date. (d) All of the assets and Properties of the Borrower and the Subsidiaries which are reasonably necessary for the operation of its business are in good working condition and are maintained in accordance with prudent business standards. Section 7.11 No Material Misstatements. No written information, statement, exhibit, certificate, document or report furnished to the Agent and the Lenders (or any of them) by the Borrower or any Subsidiary in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading in the light of the circumstances in which made 41

and with respect to the Borrower and the Subsidiaries taken as a whole. There is no fact peculiar to the Borrower or any Subsidiary which has a Material Adverse Effect or in the future is reasonably likely to have (so far as the Borrower can now foresee) a Material Adverse Effect and which has not been set forth in this Agreement or the other documents, certificates and statements furnished to the Agent by or on behalf of the Borrower or any Subsidiary prior to, or on, the Closing Date in connection with the transactions contemplated hereby. Section 7.12 Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 7.13 Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14, the Borrower has no Subsidiaries. Section 7.15 Location of Business and Offices. The Borrower's principal place of business and chief executive offices are located at the address stated on the signature page of this Agreement. The principal place of business and chief executive office of each Subsidiary are located at the addresses stated on Schedule 7.14. Section 7.16 Defaults. Neither the Borrower nor any Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default under any material agreement or instrument to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary is bound which default would have a Material Adverse Effect. No Default hereunder has occurred and is continuing. Section 7.17 Environmental Matters. Except (i) as provided in Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions would not have a Material Adverse Effect): (a) Neither any Property of the Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws; (b) Without limitation of clause (a) above, no Property of the Borrower or any Subsidiary nor the operations currently conducted thereon or, to the best knowledge of the Borrower, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws; 42

(c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Borrower and each Subsidiary, including without limitation past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and the Borrower and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations; (d) All hazardous substances, solid waste, and oil and gas exploration and production wastes, if any, generated at any and all Property of the Borrower or any Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the best knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws; (e) The Borrower has taken all steps reasonably necessary to determine and has determined that no hazardous substances, solid waste, or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Property of the Borrower or any Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment; (f) To the extent applicable, all Property of the Borrower and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of the Closing Date to be imposed by OPA during the term of this Agreement, and the Borrower does not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and (g) Neither the Borrower nor any Subsidiary has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment. Section 7.18 Compliance with the Law. Neither the Borrower nor any Subsidiary has violated any Governmental Requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Properties or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Except for such acts or failures to act as would not have a Material Adverse Effect, the Oil and Gas Properties (and properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in conformity with the provisions of all leases, subleases or other 43

contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties; specifically in this connection, (i) after the Closing Date, no Oil and Gas Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the Closing Date and (ii) none of the wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) are deviated from the vertical more than the maximum permitted by applicable laws, regulations, rules and orders, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on properties unitized therewith, such unitized properties). Section 7.19 Insurance. Schedule 7.19 attached hereto contains an accurate and complete description of all material policies of fire, liability, workmen's compensation and other forms of insurance owned or held by the Borrower and each Subsidiary. All such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the date of the closing have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of law and of all agreements to which the Borrower or any Subsidiary is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage in at least such amounts and against at least such risks (but including in any event public liability) as are usually insured against in the same general area by companies engaged in the same or a similar business for the assets and operations of the Borrower and each Subsidiary; will remain in full force and effect through the respective dates set forth in Schedule 7.19 without the payment of additional premiums; and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. Schedule 7.19 identifies all material risks, if any, which the Borrower and the Subsidiaries and their respective Board of Directors or officers have designated as being self insured. Neither the Borrower nor any Subsidiary has been refused any insurance with respect to its assets or operations, nor has its coverage been limited below usual and customary policy limits, by an insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last three years. Section 7.20 Hedging Agreements. Schedule 7.20 sets forth, as of the Closing Date, a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counterparty to each such agreement. Section 7.21 Restriction on Liens. Neither the Borrower nor any of the Subsidiaries is a party to any agreement or arrangement (other than this Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to other Persons on or in respect of their respective assets of Properties, except for instances where the applicable restriction has been waived in writing by the Person entitled to enforce such restriction. 44

Section 7.22 Material Agreements. Set forth on Schedule 7.22 hereto is a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the Closing Date (other than Hedging Agreements) providing for, evidencing, securing or otherwise relating to any Debt of the Borrower or any of the Subsidiaries, and all obligations of the Borrower or any of the Subsidiaries to issuers of surety or appeal bonds issued for account of the Borrower or any such Subsidiary, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the property subject to any Lien securing such Debt or lease obligation. Also set forth on Schedule 7.22 hereto is a complete and correct list of all material agreements and other instruments of the Borrower and the Subsidiaries relating to the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons, but in any event, any such agreement or other instrument that will account for more than 20% of the sales of the Borrower and the Subsidiaries during the Borrower's current fiscal year. Section 7.23 Gas Imbalances. As of the Closing Date, except as set forth on Schedule 7.23 or on the most recent certificate delivered pursuant to Section 8.07(c), on a net basis there are no gas imbalances, take or pay or other prepayments with respect to the Borrower's Oil and Gas Properties which would require the Borrower to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor exceeding 300,000,000 cubic feet of gas in the aggregate. Section 7.24 Year 2000. Any reprogramming required to permit the proper functioning in and following the year 2000 of (i) the Borrower's and its Subsidiaries' computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or by vendors and suppliers with which Borrower's or its Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, has been completed. The cost to the Borrower and its Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrower and its Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Borrower and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue to be, sufficient to permit the Borrower to conduct its business without Material Adverse Effect. ARTICLE VIII Affirmative Covenants The Borrower covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of all Indebtedness hereunder, all interest thereon and all other amounts payable by the Borrower hereunder: 45

Section 8.01 Financial Statements; Other Reports. The Borrower shall deliver, or shall cause to be delivered, to the Agent with sufficient copies of each for the Lenders: (a) As soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, the audited consolidated and unaudited consolidating statements of income, stockholders' equity, changes in financial position and cash flow of the Borrower and its Consolidated Subsidiaries for each fiscal year (commencing with the 1999 fiscal year), and the related consolidated and consolidating balance sheets of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year and accompanied by the related opinion of independent public accountants of recognized national standing acceptable to the Agent which opinion shall state that said financial statements fairly present the consolidated and consolidating financial condition and results of operations of the Borrower and its Consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default. (b) As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Borrower, consolidated and consolidating statements of income, stockholders' equity, changes in financial position and cash flow of the Borrower and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present the consolidated and consolidating financial condition and results of operations of the Borrower and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year- end audit adjustments). (c) Promptly after the Borrower knows that any Default or any Material Adverse Effect has occurred, a notice of such Default or Material Adverse Effect, describing the same in reasonable detail and the action the Borrower proposes to take with respect thereto. (d) Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower and the Subsidiaries, and a copy of any response by the Borrower or any Subsidiary of the Borrower, or the Board of Directors of the Borrower or any Subsidiary of the Borrower, to such letter or report. 46

(e) Promptly upon its becoming available, each financial statement, report, notice or proxy statement sent by the Borrower to stockholders generally and each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by the Borrower with or received by the Borrower in connection therewith from any securities exchange or the SEC or any successor agency. (f) Promptly after the furnishing thereof, copies of any statement, report or notice furnished by the Borrower to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 8.01. (g) From time to time such other information regarding the business, affairs or financial condition of the Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Agent may reasonably request. (h) As soon as available and in any event within ten (10) Business Days after the last day of each calendar quarter, a report, in form and substance satisfactory to the Agent, setting forth as of the last Business Day of such calendar quarter a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.20, any margin required or supplied under any credit support document, and the counterparty to each such agreement. (i) As soon as available, and in any event within ten (10) Business Days after the last day of each calendar quarter, a report, in form and substance satisfactory to the Agent, setting forth as of the last Business Day of each such calendar quarter a true and complete list of all Properties included in the then current Borrowing Base, setting forth which Properties are subject to a Lien in favor of the Agent and which are subject to the negative pledge pursuant to Section 9.02, and the net revenue interest attributable to each such Property. (j) As soon as available, and in any event within ten (10) Business Days after the last day of each calendar quarter, a report, in form and substance satisfactory to the Agent, setting forth as of the last Business Day of each such calendar quarter a true and complete list of all NonRecourse Debt (including, without limitation, the outstanding amount thereof and payment schedule relating thereto) and the Properties supporting same, together with copies of the non-recourse provisions contained in the documents and/or instruments evidencing such Non-Recourse Debt not previously delivered to the Agent. The Borrower will furnish to the Agent, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate substantially in the form of Exhibit C hereto 47

executed by a Responsible Officer (i) certifying as to the matters set forth therein and stating that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), and (ii) setting forth in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Sections 9.12 and 9.13 as of the end of the respective fiscal quarter or fiscal year. Section 8.02 Litigation. The Borrower shall promptly give to the Agent notice of all legal or arbitral proceedings, and of all proceedings before any Governmental Authority affecting the Borrower or any Subsidiary, except proceedings which, if adversely determined, would not have a Material Adverse Effect. The Borrower will, and will cause each of the Subsidiaries to, promptly notify the Agent and each of the Lenders of any claim, judgment, Lien or other encumbrance (other than an Excepted Lien) affecting any Property of the Borrower or any Subsidiary if the value of the claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $500,000. Section 8.03 Maintenance, Etc. (a) The Borrower shall and shall cause each Subsidiary to: preserve and maintain its corporate existence and all of its material rights, privileges and franchises; keep books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and activities; comply with all Governmental Requirements if failure to comply with such requirements will have a Material Adverse Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; upon reasonable notice, permit representatives of the Agent or any Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Agent (as the case may be); and keep, or cause to be kept, insured by financially sound and reputable insurers all Property of a character usually insured by Persons engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such Persons and carry such other insurance as is usually carried by such Persons including, without limitation, environmental risk insurance to the extent reasonably available. (b) Contemporaneously with the delivery of the financial statements required by Section 8.01(a) to be delivered for each year, the Borrower will furnish or cause to be furnished to the Agent and the Lenders a certificate of insurance coverage from the insurer in form and substance satisfactory to the Agent and, if requested, will furnish the Agent and the Lenders copies of the applicable policies. (c) The Borrower will and will cause each Subsidiary to operate its Properties or cause such Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements. 48

(d) The Borrower will and will cause each Subsidiary to, at its own expense, do or cause to be done all things reasonably necessary to preserve and keep in good repair, working order and efficiency all of its Oil and Gas Properties and other material Properties including, without limitation, all equipment, machinery and facilities, and from time to time will make all the reasonably necessary repairs, renewals and replacements so that at all times the state and condition of its Oil and Gas Properties and other material Properties will be fully preserved and maintained, except to the extent a portion of such Properties is no longer capable of producing Hydrocarbons in economically reasonable amounts and except as would not create a Material Adverse Effect. The Borrower will and will cause each Subsidiary to promptly: (i) pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to the Mortgaged Properties and its Oil and Gas Properties except as would not create a Material Adverse Effect, (ii) perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in the Mortgaged Properties and in its Oil and Gas Properties and other material Properties except as would not create a Material Adverse Effect, (iii) will and will cause each Subsidiary to do all other things necessary to keep unimpaired, except for Liens described in Section 9.02, its rights with respect to its material Oil and Gas Properties and other material Properties and prevent any forfeiture thereof or a default thereunder, except to the extent a portion of such Properties is no longer capable of producing Hydrocarbons in economically reasonable amounts. The Borrower will and will cause each Subsidiary to operate the Mortgaged Properties and its other material Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other material Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements. Section 8.04 Environmental Matters. (a) The Borrower will and will cause each Subsidiary to establish and implement such procedures as may be reasonably necessary to continuously determine and assure that any failure of the following does not have a Material Adverse Effect: (i) all Property of the Borrower and the Subsidiaries and the operations conducted thereon and other activities of the Borrower and the Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws, (ii) no oil, hazardous substances or solid wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas exploration and production wastes or hazardous substance is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment. 49

(b) The Borrower will promptly notify the Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority of which the Borrower has knowledge in connection with any Environmental Laws, excluding routine testing and corrective action. (c) As to any "on shore" acquisitions, the Borrower will and will cause each Subsidiary to provide environmental audits and tests in accordance with American Society for Testing and Materials standards as reasonably requested by the Agent and the Lenders (or as otherwise required to be obtained by the Agent or the Lenders by any Governmental Authority) in connection with any future acquisitions of Oil and Gas Properties or other material Properties. Section 8.05 Further Assurances. The Borrower will and will cause each Subsidiary to cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the Security Instruments and this Agreement. The Borrower at its expense will and will cause each Subsidiary to promptly execute and deliver to the Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Subsidiary, as the case may be, in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith. Section 8.06 Performance of Obligations. The Borrower will pay the Notes according to the reading, tenor and effect thereof; and the Borrower will and will cause each Subsidiary to do and perform every act and discharge all of the obligations to be performed and discharged by them under the Security Instruments and this Agreement, at the time or times and in the manner specified. Section 8.07 Engineering Reports. (a) Not less than 30 days prior to each Scheduled Redetermination Date, commencing with the Scheduled Redetermination Date to occur on January 1, 1999, the Borrower shall furnish to the Agent and the Lenders a Reserve Report. The Reserve Report to be delivered by June 1 of each year shall be prepared by certified independent petroleum engineers or other independent petroleum consultant(s) acceptable to the Agent, and the Reserve Report to be delivered by December 1 of each year shall be prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately proceeding June 1 Reserve Report. (b) In the event of an unscheduled redetermination, the Borrower shall furnish to the Agent and the Lenders a Reserve Report prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and 50

to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report. For any unscheduled redetermination requested by the Required Lenders or the Borrower pursuant to Section 2.08(d), the Borrower shall provide such Reserve Report with an "as of" date as required by the Required Lenders as soon as possible, but in any event no later than 30 days following the receipt of the request by the Agent on behalf of the Required Lenders. (c) With the delivery of each Reserve Report, the Borrower shall provide to the Agent and the Lenders, a certificate from a Responsible Officer certifying that, to the best of his knowledge and in all material respects: (i) the information contained in the Reserve Report and any other information delivered in connection therewith is true and correct, (ii) the Borrower owns good and defensible title to its Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.02, (iii) except as set forth on an exhibit to the certificate, on a net basis there are no material gas imbalances, material take or pay or other material prepayments with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) none of the Oil and Gas Properties subject to the relevant Reserve Report have been sold since the date of the Reserve Report except as set forth on an exhibit to the certificate, which certificate shall list all of any such Oil and Gas Properties sold and in such detail as reasonably required by the Required Lenders, (v) attached to the certificate is a list of its Oil and Gas Properties added to the immediately prior Reserve Report and a list showing any change in working interest or net revenue interest in its Oil and Gas Properties subject to the relevant Reserve Report occurring and the reason for such change, (vi) attached to the certificate is a list of all Persons disbursing proceeds to the Borrower from its Oil and Gas Properties subject to the relevant Reserve Report and (vii) Schedule B attached to such Reserve Report is a listing of its Oil and Gas Properties to be considered in the determination of the Borrowing Base. (d) As soon as available and in any event within 60 days after the end of each month, the Borrower shall provide production reports and lease operating summaries by lease for the Mortgaged Properties and its other material Oil and Gas Properties, which reports shall include quantities or volume of production, revenue, realized product prices, operating expenses, taxes, capital expenditures and lease operating costs which have accrued to the Borrower's accounts in such period, and such other information with respect thereto as the Agent may require. Section 8.08 Title Information. (a) On or before the delivery to the Agent and the Lenders of each Reserve Report required by Section 8.07(a), the Borrower will deliver title information in form and substance acceptable to the Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Agent shall have received, together with title information previously delivered to 51

the Agent, satisfactory title information on 100% of the value of the Oil and Gas Properties evaluated by such Reserve Report. (b) The Borrower shall cure any material title defects or exceptions which are not Excepted Liens raised by such information, or substitute acceptable Mortgaged Properties with no material title defects or exceptions except for Excepted Liens covering Mortgaged Properties of an equivalent value, within 30 days after a request by the Agent or the Lenders to cure such defects or exceptions. (c) If the Borrower is unable to cure any material title defect requested by the Agent or the Lenders to be cured within the 30-day period or the Borrower does not comply with the requirements to provide acceptable title information covering 100% of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default or an Event of Default, but instead the Agent and the Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Agent or the Lenders. To the extent that the Agent or the Lenders are not satisfied with title to any Mortgaged Property after the time period in Section 8.08(b) has elapsed, such unacceptable Mortgaged Property shall not count towards the 100% requirement, and the Agent may send a notice to the Borrower and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by all of the Lenders to cause the Borrower to be in compliance with the requirement to provide acceptable title information on 100% of the value of the Oil and Gas Properties. This new Borrowing Base shall become effective immediately after receipt of such notice. Section 8.09 Additional Collateral. (a) Should the Borrower acquire any additional Oil and Gas Properties which will be part of the Oil and Gas Properties included in the Borrowing Base, the Borrower will grant to the Agent as security for the Indebtedness a first-priority Lien interest (subject only to Excepted Liens) on the Borrower's interest in any such Oil and Gas Properties not already subject to a Lien of the Security Instruments, which Lien will be created and perfected by and in accordance with the provisions of mortgages, deeds of trust, security agreements and financing statements, or other Security Instruments, all in form and substance satisfactory to the Agent in its sole discretion and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. (b) Concurrently with the granting of the Lien or other action referred to in Section 8.07(a) above, the Borrower will provide to the Agent title information in form and substance satisfactory to the Agent in its sole discretion with respect to the Borrower's interests in such Oil and Gas Properties. (c) Also, promptly after the filing of any new Security Instrument in any state, upon the reasonable request of the Agent, the Borrower will provide to the Agent an opinion addressed to the Agent for the benefit of the Lenders in form and substance satisfactory to 52

the Agent in its sole discretion from counsel acceptable to Agent, stating that the Security Instrument is valid, binding and enforceable in accordance with its terms and in legally sufficient form for such jurisdiction. Section 8.10 ERISA Information and Compliance. The Borrower will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the Agent with sufficient copies to the Lenders (i) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or of any "prohibited transaction," as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by a Responsible Officer specifying the nature thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. ARTICLE IX Negative Covenants The Borrower covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of Loans hereunder, all interest thereon and all other amounts payable by the Borrower hereunder, without the prior written consent of the Majority Lenders: Section 9.01 Debt. Neither the Borrower nor any Subsidiary will incur, create, assume or suffer to exist any Debt, except: (a) the Notes or other Indebtedness arising under the Loan Documents or any guaranty of or suretyship arrangement for the Notes or other Indebtedness arising under the Loan Documents; (b) Debt of the Borrower existing on the Closing Date which is reflected in the Financial Statements or is disclosed in Schedule 9.01, and any renewals or extensions (but not increases) thereof; 53

(c) accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which, if greater than 90 days past the invoice or billing date, are being contested in good faith by appropriate proceedings if reserves adequate under GAAP shall have been established therefor; (d) Debt under capital leases (as required to be reported on the financial statements of the Borrower pursuant to GAAP) not to exceed $250,000; (e) Debt associated with guaranties, sureties and bonds issued by the Borrower or any Subsidiary, in the ordinary course of its business, of obligations of others (other than for borrowed money) incurred in Hydrocarbon transportation, Hydrocarbon purchasing or other similar programs or operations, provided that such operations are disclosed to the Agent and the costs of the financing related to such operations are incorporated into the Engineering Reports provided to the Agent; (f) Non-Recourse Debt arrangements on any Property of the Borrower or any Subsidiary which is not included in the determination of the Borrowing Base; and (g) Debt of the Borrower under Hedging Agreements with a Lender or another investment grade counterparty rated A or higher by Standard & Poors Corporation or P2 or higher by Moody's Investors Service, Inc., the notional amounts of which do not exceed 80% of Borrower's anticipated oil and/or gas production from producing wells to be produced for a period of 24 months, entered into as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower's and its Subsidiaries' operations; and (h) Debt consisting of sureties or bonds provided to any Governmental Authority or other Person and assuring payment of contingent liabilities of the Borrower or any of its Subsidiaries with respect to plugging, facility removal and abandonment of its Oil and Gas Properties. Section 9.02 Liens. Neither the Borrower nor any Subsidiary will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except: (a) Liens securing the payment of any Indebtedness; (b) Excepted Liens; (c) Liens securing leases allowed under Section 9.01(d) but only on the Property under lease; (d) Liens disclosed on Schedule 9.02; and (e) Liens on cash or securities of the Borrower securing the Debt described in Section 9.01(e). 54

Section 9.03 Investments, Loans and Advances. Neither the Borrower nor any Subsidiary will make or permit to remain outstanding any loans or advances to or investments in any Person, except that the foregoing restriction shall not apply to: (a) investments, loans or advances reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.03; (b) accounts receivable arising in the ordinary course of business; (c) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof; (d) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by Standard & Poors Corporation or Moody's Investors Service, Inc.; (e) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000.00 (as of the date of such Lender's or bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by Standard & Poors Corporation or Moody's Investors Service, Inc., respectively; (f) deposits in money market funds investing exclusively in investments described in Section 9.03(c), 9.03(d) or 9.03(e); (g) investments, loans or advances made by the Borrower in or to the Subsidiaries, not to exceed at any one time outstanding $100,000 in the aggregate; (h) other investments, loans or advances not to exceed $100,000 in the aggregate at any time; and (i) investments by the Borrower in direct ownership interests in additional Oil and Gas Properties and gas gathering systems related thereto. Section 9.04 Dividends, Distributions and Redemptions. The Borrower will not declare or pay any dividend, purchase, redeem or otherwise acquire for value any of its stock now or hereafter outstanding, return any capital to its stockholders or make any distribution of its assets to its stockholders. Section 9.05 Sales and Leasebacks. Neither the Borrower nor any Subsidiary will enter into any arrangement, directly or indirectly, with any Person whereby the Borrower or any 55

Subsidiary shall sell or transfer any of its material Property, whether now owned or hereafter acquired, and whereby the Borrower or any Subsidiary shall then or thereafter rent or lease as lessee such Property or any part thereof or other Property which the Borrower or any Subsidiary intends to use for substantially the same purpose or purposes as the Property sold or transferred. Section 9.06 Nature of Business. Neither the Borrower nor any Subsidiary will allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. Section 9.07 Limitation on Leases. Neither the Borrower nor any Subsidiary will create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal including capital leases but excluding leases of Hydrocarbon Interests), under leases or lease agreements which would cause the aggregate amount of all payments made by the Borrower and the Subsidiaries pursuant to all such leases or lease agreements to exceed $500,000 in any period of twelve consecutive calendar months during the life of such leases. Section 9.08 Mergers, Etc. Neither the Borrower nor any Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property or assets to any other Person. Section 9.09 Proceeds of Notes. The Borrower will not permit the proceeds of the Notes to be used for any purpose other than those permitted by Section 7.07. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulation G, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Section 9.10 ERISA Compliance. The Borrower will not at any time: (a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction in connection with which the Borrower, any Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) Terminate, or permit any Subsidiary or ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower, any Subsidiary or any ERISA Affiliate to the PBGC; (c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto; 56

(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower, any Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA; (f) Contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) Contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; or (j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, any Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code. Section 9.11 Sale or Discount of Receivables. Neither the Borrower nor any Subsidiary will discount or sell (with or without recourse) any of its notes receivable or accounts receivable. Section 9.12 Ratio of Debt to EBITDA. The Borrower will not permit the ratio of Debt (exclusive of Non-Recourse Debt and Debt permitted under Sections 9.01(c) and 9.01(h)) to 57

EBITDA as of the end of any fiscal quarter of the Borrower (calculated on a rolling four quarter basis) to be greater than 3.00 to 1.00. As used in this Agreement, "rolling four quarter basis" shall mean, as to any fiscal quarter, such quarter and the three preceding fiscal quarters. Section 9.13 Interest Coverage Ratio. The Borrower will not permit its Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower (calculated on a rolling four quarter basis) to be less than 2.50 to 1.00. For the purposes of this Section 9.13, "Interest Coverage Ratio" shall mean the ratio of (i) EBITDA for the four fiscal quarters ending on such date to (ii) cash interest payments made for such four fiscal quarters of the Borrower and its Consolidated Subsidiaries (excluding cash payments made by the Borrower in respect of Non-Recourse Debt and reflected as interest expense on the Financial Statements of the Borrower). Section 9.14 Current Ratio. The Borrower will not permit its ratio of (i) consolidated current assets to (ii) consolidated current liabilities (excluding current maturities of the Notes) to be less than 1.0 to 1.0 at any time. As used in this Section 9.14 "current assets" shall mean all assets of a Person which under GAAP would be classified as current assets, and "current liabilities" shall mean all liabilities of a Person which under GAAP would be classified as current liabilities. Section 9.15 Sale of Certain Oil and Gas Properties. The Borrower will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any Oil and Gas Property included in the Borrowing Base without notice to the Agent and adjustment of the Borrowing Base as required by the Agent to give effect to such sale; provided, however the consent of the Agent and the Lenders shall be necessary for all of the foregoing in excess of $300,000 in the aggregate in any one calendar year. Section 9.16 Environmental Matters. Neither the Borrower nor any Subsidiary will cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would have a Material Adverse Effect. Section 9.17 Transactions with Affiliates. Neither the Borrower nor any Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate unless such transactions are otherwise permitted under this Agreement, are in the ordinary course of its business and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. Section 9.18 Subsidiaries. Except as permitted by Section 9.03(g), the Borrower shall not, and shall not permit any Subsidiary to, create any additional Subsidiaries. The Borrower shall not and shall not permit any Subsidiary to sell or to issue any stock or ownership interest of a Subsidiary except to the Borrower and except in compliance with Section 9.03. 58

Section 9.19 Negative Pledge Agreements. Neither the Borrower nor any Subsidiary will create, incur, assume or suffer to exist any contract, agreement or understanding (other than this Agreement and the Security Instruments) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property or restricts any Subsidiary from paying dividends to the Borrower, or which requires the consent of or notice to other Persons in connection therewith, except for instances where the applicable restriction has been waived in writing by the Person entitled to enforce such restriction. Section 9.20 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower will not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower which would require the Borrower to deliver Hydrocarbons produced on Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor to exceed 300,000,000 cubic feet of gas in the aggregate on a net basis for the Borrower. ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default. One or more of the following events shall constitute an "Event of Default": (a) the Borrower shall default in the payment or prepayment (including, without limitation, prepayments resulting from a Borrowing Base Deficiency) when due of any principal of or interest on any Loan, or any reimbursement obligation for a disbursement made under any Letter of Credit, or any fees or other amount payable by it hereunder or under any Security Instrument and such default, other than a default of a payment or prepayment of principal (which shall have no cure period), shall continue unremedied for a period of 3 Business Days; or (b) the Borrower or any Subsidiary shall default in the payment when due of any principal of or interest on any of its other Debt aggregating $500,000 or more, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity; or (c) any representation, warranty or certification made or deemed made herein or in any Security Instrument by the Borrower or any Subsidiary, or any certificate furnished to any Lender or the Agent pursuant to the provisions hereof or any Security Instrument, shall prove to have been false or misleading as of the time made or furnished in any material respect; or 59

(d) the Borrower shall default in the performance of any of its obligations under Article IX or any other Article of this Agreement other than under Article VIII; or the Borrower shall default in the performance of any of its obligations under Article VIII or any Security Instrument (other than the payment of amounts due which shall be governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof to the Borrower by the Agent or any Lender (through the Agent), or (ii) the Borrower otherwise becoming aware of such default; or (e) the Borrower shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) the Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) a proceeding or case shall be commenced, without the application or consent of the Borrower, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower of all or any substantial part of its assets, or (iii) similar relief in respect of the Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and any such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 days; or (iv) an order for relief against the Borrower shall be entered in an involuntary case under the Federal Bankruptcy Code; or (h) a judgment or judgments for the payment of money in excess of $500,000 in the aggregate and not covered by insurance shall be rendered by a court against the Borrower or any Subsidiary and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within sixty (60) days from the date of entry thereof and the Borrower or such Subsidiary shall not, within said period of sixty (60) days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) the Security Instruments after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms, or cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, 60

except to the extent permitted by the terms of this Agreement, or the Borrower shall so state in writing; or (j) any Letter of Credit becomes the subject matter of any order, judgment, injunction or any other such determination, or if the Borrower or any other Person shall petition or apply for or obtain any order restricting payment by the Agent under any Letter of Credit or extending the Lenders' liability under any Letter of Credit beyond the expiration date stated therein or otherwise agreed to by the Agent; or (k) the Borrower discontinues its usual business or suffers to exist any material change in its management or a Change of Control occurs; or (l) any Subsidiary takes, suffers or permits to exist any of the events or conditions referred to in paragraphs (e), (f), (g) or (h) hereof; or (m) a Borrowing Base Deficiency shall remain after the expiration of the cure period provided for in Section 2.07(d). Section 10.02 Remedies. (a) In the case of an Event of Default other than one referred to in clauses (e), (f) or (g) of Section 10.01 or in clause (l) to the extent it relates to clauses (e), (f) or (g), the Agent, upon request of the Majority Lenders, shall, by notice to the Borrower, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b) hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower. (b) In the case of the occurrence of an Event of Default referred to in clauses (e), (f) or (g) of Section 10.01 or in clause (l) to the extent it relates to clauses (e), (f) or (g), the Commitments shall be automatically cancelled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b) hereof) shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower. (c) All proceeds received after maturity of the Notes, whether by acceleration or otherwise shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments; second to accrued interest on the Notes; third to fees; fourth pro rata to principal outstanding on the Notes and other Indebtedness; fifth to 61

serve as cash collateral to be held by the Agent to secure the LC Exposure; and any excess shall be paid to the Borrower or as otherwise required by any Governmental Requirement. ARTICLE XI The Agent Section 11.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the Security Instruments with such powers as are specifically delegated to the Agent by the terms of this Agreement and the Security Instruments, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 shall include reference to its Affiliates and its and its Affiliates' officers, directors, employees, attorneys, accountants, experts and agents): (i) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (ii) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Borrower or any other Person (other than the Agent) to perform any of its obligations hereunder or thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower, the Subsidiaries or any other obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (iv) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence or willful misconduct. The Agent may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Agent. The Agent is authorized to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. Section 11.02 Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. Section 11.03 Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of fees 62

or failure to reimburse for Letter of Credit drawings) unless the Agent has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default, the Agent shall give each Lender prompt notice of each such payment Default. Section 11.04 Rights as a Lender. With respect to its Commitments and the Loans made by it and its participation in the issuance of Letters of Credit, Chase (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Chase (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent, and Chase and its Affiliates may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE AGENT RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT, ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT. Section 11.06 Non-Reliance on Agent and other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its decision to enter into this Agreement, and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement, the Notes, the Security Instruments or any other document referred to or provided for herein or to 63

inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as special counsel to the Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. Section 11.07 Action by Agent. Except for action or other matters expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (i) receive written instructions from the Majority Lenders (or all of the Lenders as expressly required by Section 12.04) specifying the action to be taken, and (ii) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions of the Majority Lenders (or all of the Lenders as expressly required by Section 12.04) and any action taken or failure to act pursuant thereto by the Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, the Agent shall take such action with respect to such Default as shall be directed by the Majority Lenders (or all of the Lenders as required by Section 12.04) in the written instructions (with indemnities) described in this Section 11.07, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Agent be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement and the Security Instruments or applicable law. Section 11.08 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of such appointment hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article XI and Section 12.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 64

ARTICLE XII Miscellaneous Section 12.01 Waiver. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Section 12.02 Notices. All notices and other communications provided for herein and in the other Loan Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement or the other Loan Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or in the Loan Documents or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement or in the other Loan Documents, all such communications shall be deemed to have been duly given when transmitted, if transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next succeeding Business Day) by telex or telecopier and evidence or confirmation of receipt is obtained, or personally delivered or, in the case of a mailed notice, three (3) Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. Section 12.03 Payment of Expenses, Indemnities, etc. The Borrower agrees: (a) whether or not the transactions hereby contemplated are consummated, to pay all reasonable expenses of the Agent in the administration (both before and after the execution hereof and including advice of counsel as to the rights and duties of the Agent and the Lenders with respect thereto) of, and in connection with the negotiation, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of the Agent, the cost of environmental audits, surveys and appraisals obtained pursuant to authority to do so granted herein, the reasonable fees and disbursements of counsel and other outside consultants for the Agent and, in the case of enforcement, the reasonable fees and disbursements of counsel for the Agent and any of the Lenders); and promptly reimburse the Agent for all amounts expended, advanced or incurred by the Agent or the Lenders to satisfy any obligation of the Borrower under this Agreement or any Security Instrument, including without limitation, all costs and expenses of foreclosure; (b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, 65

HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND THE SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY SECURITY INSTRUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE BORROWER SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, OR (VII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; (c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE 66

AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN- POSSESSION OR OTHERWISE); (d) no Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld; provided, that the indemnitor may not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at that time, including the maximum potential claims against the Indemnified Party to be indemnified pursuant to this Section 12.03; (e) in the case of any indemnification hereunder, the Agent or Lender, as appropriate shall give notice to the Borrower of any such claim or demand being made against the Indemnified Party and the Borrower shall have the non-exclusive right to join in the defense against any such claim or demand provided that if the Borrower provides a defense, the Indemnified Party shall bear its own cost of defense unless there is a conflict between the Borrower and such Indemnified Party; (f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY; (g) the Borrower's obligations under this Section 12.03 shall survive any termination of this Agreement and the payment of the Notes and shall continue thereafter in full force and effect; and (h) the Borrower shall pay any amounts due under this Section 12.03 within thirty (30) days of the receipt by the Borrower of notice of the amount due. Section 12.04 Amendments, Etc. Any provision of this Agreement or any Security Instrument may be amended, modified or waived with the Borrower's and the Majority Lenders' prior written consent; provided that (i) no amendment, modification or waiver which extends the final maturity of the Loans, modifies the Borrowing Base, forgives the principal amount of any Indebtedness outstanding under this Agreement, releases any guarantor of the Indebtedness or releases all or substantially all of the collateral, reduces the interest rate applicable to the Loans or 67

the fees payable to the Lenders generally, affects Sections 2.03(a) or (b), this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority Lenders" or "Required Lenders" shall be effective without consent of all Lenders; (ii) no amendment, modification or waiver which increases the Maximum Credit Amount of any Lender shall be effective without the consent of such Lender; and (iii) no amendment, modification or waiver which modifies the rights, duties or obligations of the Agent shall be effective without the consent of the Agent. Section 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 12.06 Assignments and Participations. (a) The Borrower may not assign its rights or obligations hereunder or under the Notes or any Letters of Credit without the prior consent of all of the Lenders and the Agent. (b) Any Lender may, upon the written consent of the Agent and the Borrower (which consent will not be unreasonably withheld), assign to one or more assignees all or a portion of its rights and obligations under this Agreement pursuant to an Assignment Agreement substantially in the form of Exhibit F (an "Assignment") provided, however, that (i) any such assignment shall be in the amount of at least $5,000,000 or such lesser amount to which the Borrower has consented and (ii) the assignee or assignor shall pay to the Agent a processing and recordation fee of $2,500 for each assignment. Any such assignment will become effective upon the execution and delivery to the Agent of the Assignment and the consent of the Agent. Promptly after receipt of an executed Assignment, the Agent shall send to the Borrower a copy of such executed Assignment. Upon receipt of such executed Assignment, the Borrower, will, at its own expense, execute and deliver new Notes to the assignor and/or assignee, as appropriate, in accordance with their respective interests as they appear. Upon the effectiveness of any assignment pursuant to this Section 12.06(b), the assignee will become a "Lender," if not already a "Lender," for all purposes of this Agreement and the Security Instruments. The assignor shall be relieved of its obligations hereunder to the extent of such assignment (and if the assigning Lender no longer holds any rights or obligations under this Agreement, such assigning Lender shall cease to be a "Lender" hereunder except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Agent will prepare on the last Business Day of each month during which an assignment has become effective pursuant to this Section 12.06(b), a new Annex I giving effect to all such assignments effected during such month, and will promptly provide the same to the Borrower and each of the Lenders. (c) Each Lender may transfer, grant or assign participations in all or any part of such Lender's interests hereunder pursuant to this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain a "Lender" for all purposes of this Agreement and the transferee of such participation shall not constitute a "Lender" hereunder; and (ii) no participant under any such participation shall have rights to approve any amendment to or waiver of any of the Loan Documents except to the extent such amendment or waiver would (x) forgive any principal owing on any Indebtedness or extend the final maturity of the Loans, 68

(y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or fees applicable to any of the Commitments or Loans or Letters of Credit in which such participant is participating, or postpone the payment of any thereof, or (z) release any guarantor of the Indebtedness or release all or substantially all of the collateral (except as provided in the Loan Documents) supporting any of the Commitments or Loans or Letters of Credit in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the Security Instruments (the participant's rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation), and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Article V on the same basis as if it were a Lender (and subject to the right of the Borrower pursuant to Section 5.06 to replace any Lender or participant seeking additional compensation from the Borrower) and be indemnified under Section 12.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of Section 12.15. (d) The Lenders may furnish any information concerning the Borrower in the possession of the Lenders from time to time to assignees and participants (including prospective assignees and participants); provided that, such Persons agree to be bound by the provisions of Section 12.15 hereof. (e) Notwithstanding anything in this Section 12.06 to the contrary, any Lender may assign and pledge all or any of its Notes to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder. (f) Notwithstanding any other provisions of this Section 12.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state. Section 12.07 Invalidity. In the event that any one or more of the provisions contained in any of the Loan Documents or the Letters of Credit, the Letter of Credit Agreements shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Notes, this Agreement or any Security Instrument. Section 12.08 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 69

Section 12.09 References. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a Section shall be deemed to refer to the applicable Section of this Agreement unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. Section 12.10 Survival. The obligations of the parties under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and the termination of the Commitments. To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Agent's and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement and each Security Instrument shall continue in full force and effect. In such event, each Security Instrument shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Agent and the Lenders to effect such reinstatement. Section 12.11 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. CHAPTER 346, TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS DOMICILED IN HOUSTON, HARRIS COUNTY, TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION AND, BY EXECUTION AND DELIVERY OF 70

THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER THE BORROWER IN ANY COURT OTHERWISE HAVING JURISDICTION. (c) EACH OF THE BORROWER AND EACH LENDER HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY SECURITY INSTRUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE SECURITY INSTRUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.13. Section 12.14 Interest. It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal 71

amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.14. To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate, such Lender elects to determine the applicable rate ceiling under such Article by the "weekly" rate ceiling from time to time in effect. Section 12.15 Confidentiality. In the event that the Borrower provides to the Agent or the Lenders written confidential information belonging to the Borrower, if the Borrower shall denominate such information in writing as "confidential", the Agent and the Lenders shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information; provided, however, Engineering Reports and Financial Reports do not need to be so marked and shall be kept confidential. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain, (ii) hereafter become part of the public domain without the Agent or the Lenders breaching their obligation of confidence to the Borrower, (iii) are previously known by the Agent or the Lenders from some source other than the Borrower, (iv) are hereafter developed by the Agent or the Lenders without using the Borrower's information, (v) are hereafter obtained by or available to the Agent or the Lenders from a third party who owes no obligation of confidence to the Borrower with respect to such information or through any other means other than through disclosure by the Borrower, (vi) are disclosed with the Borrower's consent, (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Agent or the Lenders, or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, the Agent or a Lender may disclose any such information to any other Lender, any independent petroleum engineers or consultants, any independent certified public accountants, any legal counsel employed by such Person in connection with this Agreement or any Security Instrument, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loans; provided, however, that the Agent or the Lenders shall receive a confidentiality agreement from the Person to whom such information is disclosed such that said Person shall have the same obligation to maintain the confidentiality of such information as is imposed upon the Agent or the Lenders hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease three (3) years from the date the information 72

was furnished, unless the Borrower requests in writing at least thirty (30) days prior to the expiration of such three year period, to maintain the confidentiality of such information for an additional three (3) year period. The Borrower waives any and all other rights it may have to confidentiality as against the Agent and the Lenders arising by contract, agreement, statute or law except as expressly stated in this Section 12.15. Section 12.16 Effectiveness. This Agreement shall be effective on the Closing Date (the "Effective Date"). Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE SECURITY INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS." 73

The parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
BORROWER: ATP OIL & GAS CORPORATION By:_____________________________ Name: T. Paul Bulmahn Title: President Address for Notices: Attention: T. Paul Bulmahn, President 4600 Post Oak Place Suite 230 Houston, Texas 77027-9726 Telecopier No.: (713) 622-5101 Telephone No.: (713) 622-3311 With copy to: Jackson Walker L.L.P. Attention: David G. Dunlap, Esq. 1100 Louisiana, Suite 4200 Houston, Texas 77002 Telecopier No.: (713) 752-4221 Telephone No.: (713) 752-4401 74

LENDER AND AGENT:

CHASE BANK OF TEXAS, NATIONAL ASSOCIATION

By:_____________________________ Name: Robert C. Mertensotto Title: Managing Director Lending Office for Base Rate Loans and Eurodollar Loans and Address for Notice: Chase Bank of Texas, N.A. 600 Travis, 20th Floor Houston, Texas 77002 Telecopier No. 713/216-4117 Telephone No. 713/216-8869 Attn: Peter Licalzi with copies to: Chase Bank of Texas, N.A. P. O. Box 2558 Houston, Texas 77252 Attn: Manager, Loan Agreements Division and Chase Bank of Texas, N.A. 712 Main Street Houston, Texas 77002 Attn: Manager, Syndications 75

ANNEX 1 LIST OF MAXIMUM CREDIT AMOUNTS
Name of Lender Chase Bank of Texas, National Association Percentage Share 100% Maximum Credit Amount $40,000,000

EXHIBIT A FORM OF NOTE $_____________________________ ___________________, 199__ FOR VALUE RECEIVED, ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower") hereby promises to pay to the order of ______________________________ (the "Lender"), at the Principal Office of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent (in such capacity, the "Agent"), at ____________________________________________, the principal sum of _____________ Dollars ($____________) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate, Interest Period and maturity of each Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, may be endorsed by the Lender on the schedules attached hereto or any continuation thereof or on any separate record maintained by the Lender. This Note is one of the Notes referred to in the Amended and Restated Credit Agreement dated as of September 21, 1999 among the Borrower, the Lenders which are or become parties thereto (including the Lender) and the Agent, and evidences Loans made by the Lender thereunder (such Credit Agreement as the same may be amended or supplemented from time to time, the "Credit Agreement"). Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. This Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the Security Instruments. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Loans upon the terms and conditions specified therein and other provisions relevant to this Note. A-1-1

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. ATP OIL & GAS CORPORATION By: T. Paul Bulmahn President A-1-2

EXHIBIT B FORM OF BORROWING, CONTINUATION AND CONVERSION REQUEST _____________________, 199__ ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower"), pursuant to the Amended and Restated Credit Agreement dated as of September 21, 1999 (together with all amendments or supplements thereto, the "Credit Agreement") among the Borrower, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent and the lenders (the "Lenders") which are or become parties thereto, and such Lenders, hereby makes the requests indicated below (unless otherwise defined herein, capitalized terms are defined in the Credit Agreement): 1. Loans: (a) Aggregate amount of new Loans to be $______________________; (b) Requested funding date is _________________, 199__; (c) $_____________________ of such borrowings are to be Eurodollar Loans; $_____________________ of such borrowings are to be Base Rate Loans; and (d) Length of Interest Period for Eurodollar Loans is: _________________________. 2. Eurodollar Loan Continuation for Eurodollar Loans maturing on _____________________: (a) Aggregate amount to be continued as Eurodollar Loans is $____________________; (b) Aggregate amount to be converted to Base Rate Loans is $____________________; (c) Length of Interest Period for continued Eurodollar Loans is ________________________. 3. Conversion of Outstanding Base Rate Loans to Eurodollar Loans: Convert $__________________ of the outstanding Base Rate Loans to Eurodollar Loans on ____________________ with an Interest Period of ______________________. 4. Conversion of outstanding Eurodollar Loans to Base Rate Loans: B-1

Convert $__________________ of the outstanding Eurodollar Loans with Interest Period maturing on ______________________, 199_, to Base Rate Loans. The undersigned certifies that he is the _____________________ of the Borrower, and that as such he is authorized to execute this certificate on behalf of the Borrower. The undersigned further certifies, represents and warrants on behalf of the Borrower that the Borrower is entitled to receive the requested borrowing, continuation or conversion under the terms and conditions of the Credit Agreement. ATP OIL & GAS CORPORATION By:_________________________________ T. Paul Bulmahn President B-2

EXHIBIT C FORM OF COMPLIANCE CERTIFICATE The undersigned hereby certifies that he is the ________________ of ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower") and that as such he is authorized to execute this certificate on behalf of the Borrower. With reference to the Amended and Restated Credit Agreement dated as of September 21, 1999 (together with all amendments or supplements thereto being the "Agreement") among the Borrower, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent for the lenders (the "Lenders") which are or become a party thereto, and such Lenders, the undersigned represents and warrants as follows (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified): (a) The representations and warranties of the Borrower contained in Article VII of the Agreement and in the Security Instruments and otherwise made in writing by or on behalf of the Borrower pursuant to the Agreement and the Security Instruments were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct at and as of the time of delivery hereof, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders have expressly consented in writing to the contrary. (b) The Borrower has performed and complied with all agreements and conditions contained in the Agreement and in the Security Instruments required to be performed or complied with by it prior to or at the time of delivery hereof. (c) Since __________________, no change has occurred, either in any case or in the aggregate, in the condition, financial or otherwise, of the Borrower or any Subsidiary which would have a Material Adverse Effect. (d) There exists, and, after giving effect to the loan or loans with respect to which this certificate is being delivered, will exist, no Default under the Agreement or any event or circumstance which constitutes, or with notice or lapse of time (or both) would constitute, an event of default under any loan or credit agreement, indenture, deed of trust, security agreement or other agreement or instrument evidencing or pertaining to any Debt of the Borrower or any Subsidiary, or under any material agreement or instrument to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary is bound. (e) Attached hereto are the detailed computations necessary to determine whether the Borrower is in compliance with Sections 9.12, 9.13 and 9.14 as of the end of the [fiscal quarter][fiscal year] ending____________. C-1

EXECUTED AND DELIVERED this ____ day of ______________. ATP OIL & GAS CORPORATION By: T. Paul Bulmahn President C-2

EXHIBIT D to Amended and Restated Credit Agreement [JACKSON WALKER L.L.P. LETTERHEAD] September 21, 1999 Chase Bank of Texas, National Association, as Agent and as a Lender 600 Travis Street, 20th Floor Houston, Texas 77002 Ladies and Gentlemen: As special counsel for ATP Oil & Gas Corporation, a Texas corporation (the "Borrower"), we furnish this opinion in connection with that certain Amended and Restated Credit Agreement dated September 21, 1999, by and among the Borrower, Chase Bank of Texas, National Association ("Chase"), as a Lender and as Agent, and the other Lenders which are parties thereto (the "Agreement"). For convenience, unless otherwise defined herein, capitalized terms used herein have the meanings assigned to such terms in the Agreement. In connection with issuing this opinion, we have examined counterparts of the following documents (the "Transaction Documents") executed and delivered by the Borrower, all of which are dated September 21, 1999: (i) the Agreement; (ii) the Note payable to Chase; (iii) First Supplement to Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement; and (iv) Act of Supplement and Amendment to Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement. In addition, we have examined unexecuted execution counterparts of the following documents (the "E.I. 30 Security Documents"), the first of which is to be dated and executed on the date of the closing of the acquisition by the Borrower of E.I. 30, which acquisition is to be financed with funds advanced under the Agreement: (i) Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement; and (ii) UCC-1 Financing Statements executed pursuant to the document listed above as (i) immediately above.

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 2 We have also examined (a) originals or copies, certified by the Secretary of the Borrower as being true and correct, of the Articles of Incorporation and Bylaws of the Borrower and resolutions adopted by the Board of Directors of the Borrower in connection with the transactions contemplated in the Agreement and (b) such certificates of public officials and other documents and records as we have deemed necessary as the basis for the opinions expressed herein. As to various questions of fact material to our opinions, we have relied, to the extent we have deemed appropriate and to the extent that we do not have knowledge of contrary facts, upon representations in the Transaction Documents and the E.I. 30 Security Documents made by the parties thereto, certificates of officers of the Borrower delivered to the Agent in connection with the execution of the Transaction Documents and certificates of officers of the Borrower delivered to us in the connection with the issuance of this opinion. In our examinations, we have, with your permission, assumed that: (a) all signatures, other than the signatures of the officers of the Borrower, on all executed documents submitted to us are genuine; (b) all executed documents submitted to us as originals are authentic and complete; (c) all documents submitted to us as copies are true, correct, and complete copies of the originals thereof; (d) each of the Agent and Lenders has the corporate power, authority, and legal right to execute and deliver those of the Transaction Documents and the E.I. 30 Security Documents to which it is a party and to perform its obligations thereunder; (e) all requisite corporate action on the part of each of the Agent and the Lenders in connection with the execution and delivery of those of the Transaction Documents and the E.I. 30 Security Documents to which any of them is a party has been accomplished; (f) those of the Transaction Documents to which the Agent or any of the Lenders is a party represent legal, valid and binding obligations of such party enforceable in accordance with their respective terms; 2

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 3 (g) counterparts of the E.I. 30 Security Documents will be executed and exchanged by the parties thereto in the forms reviewed by us; (h) those of the E.I. Security Documents to which the Agent or any of the Lenders is a party will, when executed and delivered, represent legal, valid and binding obligations of such party enforceable in accordance with their respective terms; (i) the Lenders have advanced and/or will advance loan proceeds in conformity with and as contemplated by the Agreement; and (j) the Agent and the Lenders will, in each and every instance, strictly observe and comply with the terms and provisions of the various usury clauses contained in the Transaction Documents; there have been no fees, charges, points or other forms of payment to or for the benefit of the Agent and the Lenders other than those referred to in the Transaction Documents which have been paid or are payable by or on behalf of the Borrower; each and every usury savings clause contained in the Transaction Documents will be held to be valid, binding and enforceable in accordance with its terms by the applicable judicial authority; no interest will be charged, received or contracted for by the Agent and the Lenders except as expressly provided in the Transaction Documents; each relevant provision of the Texas Finance Code (the "Texas Act") is constitutional and applicable to the transactions evidenced by the Agreement; the Texas Act and the Depository Institutions Deregulation and Monetary Control Act of 1980, as amended (the "Federal Act") will be enforced as written by the courts of the State of Texas and the courts of the United States of America; and each provision of Title V of the Federal Act is constitutional, although we note that there are, to our knowledge, presently no Texas or federal cases which have rendered an opinion that either the Texas Act or the Federal Act is unconstitutional. Based solely upon examination of the documents described above and the assumptions set forth above and having regard for such legal considerations as we have deemed relevant, we are of the opinion, subject to the qualifications and limitations set forth below, that; 1. The Borrower is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Texas and is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction wherein it owns or leases property or conducts business and wherein the failure so to qualify would have a Material Adverse Effect. 3

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 4 2. The Borrower has all necessary corporate power and authority to enter into and perform its obligations under those of the Transaction Documents and the E. I. 30 Security Documents to which it is or is to be a party and to own its properties and to transact its business as currently conducted. 3. The execution, delivery and performance by the Borrower of those of the Transaction Documents and the E. I. 30 Security Documents to which it is or is to be a party have been duly authorized by all necessary corporate action on the part of the Borrower and the Borrower has duly executed and delivered each of the Transaction Documents to which it is a party. 4. The execution, delivery and performance by the Borrower of those of the Transaction Documents and the E. I. 30 Security Documents to which it is or is to be a party do not, to our knowledge, require the consent of any regulatory authority or governmental body, and do not (a) contravene, conflict with or violate, or necessitate any filing (other than routine filings of certain of the Security Instruments) or registration under, (i) any provision of applicable law (including, without limitation, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System) or any order, writ, judgment, injunction, decree, determination or award known to us, as to each case above, to be applicable to the Borrower or its property, or (ii) any provision of the Articles of Incorporation or Bylaws of the Borrower, (b) contravene or conflict with any indenture, instrument or other agreement known to us to which the Borrower is a party or by which its property may be bound or affected, or (c) result in or require the creation or imposition of any mortgage, lien, pledge, security interest, charge or other encumbrance in or upon any of the properties of the Borrower under any such indenture, instrument or other agreement known to us, other than as created by certain of the Transaction Documents and the E. I. 30 Security Documents. 5. No authorization, consent, approval, exemption, franchise, permit or license of or filing (other than routine filings of certain of the Security Instruments) with any governmental or public authority or, to our knowledge, any third party is required to authorized or is otherwise required in connection with the valid execution, delivery or performance by the Borrower of or under the Transaction Documents or the E. I. 30 Security Documents. 4

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 5 6. Each of the Transaction Documents to which the Borrower is a party constitutes the legal, valid and binding agreement and obligation of the Borrower enforceable against the Borrower in accordance with the terms of the relevant Transaction Document and each of the E. I. 30 Security Documents will, when executed and delivered, constitute the legal, valid and binding agreement and obligation of the Borrower enforceable against the Borrower in accordance with the terms of the relevant E. I. 30 Security Documents. 7. The Borrower is not a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate of a "holding company" as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 8. The Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The opinions expressed herein are subject to the following qualifications and limitations: A. As to questions of fact material to this opinion, we have made no independent investigation with regard to such matters, including, without limitation, the truthfulness of the warranties and representations made by the Borrower in the Transaction Documents and the E. I. 30 Security Documents. Further in this regard, we have made no examination or investigation to verify the accuracy or completeness of any financial, accounting or statistical information furnished to the Agent or any of the Lenders in connection with the transactions which are the subject of the Transaction Documents and the E. I. 30 Security Documents, nor have we reviewed the basis on which the Lenders have elected to extend credit to the Borrower. B. We have not made any examination of title or investigation of the location or physical condition of any of the property or collateral described in the Security Instruments (including, but not limited to, the E. I. 30 Security Documents), or of the rank or priority of any assignments, pledges, liens or security interests purported to be created under the Security Instruments (including, but not limited to, the E. I. 30 Security Documents), and, accordingly, we express no opinion herein on such matters. 5

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 6 C. The enforceability of the Transaction Document is, and the enforceability of the E. I. 30 Security Documents will be, limited by (i) applicable bankruptcy, insolvency, fraudulent or preferential conveyance or transfer, moratorium, reorganization and other similar laws affecting generally the enforcement of rights of creditors, (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law), (iii) redemption rights and other rights of the United States of America under the Federal Tax Lien Act of 1966, as amended, (iv) limitations resulting from the application of a standard of good faith or commercial reasonableness, such as established under Section 1.203 of the Uniform Commercial Code as adopted and in effect in the State of Texas, and (v) public policy. We note, however, that the foregoing limitations are generally applicable to documents similar in character to the Transaction Documents and the E. I. 30 Security Documents and do not result from particular provisions or deficiencies of any of the Transaction Documents or the E. I. 30 Security Documents. D. We express no opinion herein as to whether a court would grant specific performance or any other equitable remedy with respect to enforcement of any provision of any of the Transaction Documents or the E. I. 30 Security Documents or whether a court would grant a particular remedy as opposed to another remedy provided therein or available at law or in equity. E. We express no opinion herein as to the effect on certain of the remedial or procedural provisions of the Transaction Documents and the E. I. 30 Security Documents of present federal or state constitutional and statutory limitations and court decisions relating to due process or otherwise limiting or rendering unenforceable such provisions, although we note that the limitations and other effects of such statutes or rules of law upon the validity and binding effect of the Transaction Documents and the E. I. 30 Security Documents should not differ materially from the limitations and other effects of such statutes or rules of law generally upon the validity and binding effect of documents similar in character to the Transaction Documents and the E. I. 30 Security Documents, and that such limitations and other effects would not, in our opinion, render the remedies and procedures that are afforded to the Agent and the Lenders inadequate for the practical realization of the substantive benefits purported to be provided to the Agent and the Lenders by the Transaction Documents and the E. I. 30 Security Documents, except for the consequences of procedural delay . 6

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 7 F. Except as expressly stated in the opinion numbered 5 hereinabove, we express no opinion herein with respect to the need for licenses, permits, authorizations or approvals required in the operation of the business of the Borrower; provided that, to our knowledge, the Borrower does not lack any such license, permit, authorization or approval the absence of which would have a Material Adverse Effect. G. To the extent any opinion expressed herein relates to the issue of usury, such opinion is expressly limited to an analysis of whether the Transaction Documents and the E. I. 30 Security Documents, as written, will be subject to a defense, claim or setoff as a result of the contracting by the Agent or the Lenders for a usurious rate of interest. Furthermore, any opinion given herein on such issue is expressly limited to the contracting for, as opposed to the charging or receiving of, usurious amounts of interest. H. Our representation of the Borrower has been limited to specific matters referred to us for substantive legal attention. Factual matters or agreements pertaining to the Borrower or the transactions contemplated by the Transaction Documents or the E. I. 30 Security Documents may exist of which we have no knowledge or information. We have no current actual knowledge of any facts or circumstances which would make any opinion expressed herein incorrect or subject to question or require further investigation of any laws, facts, or circumstances. In this regard, in rendering the opinions with respect to matters that are qualified by the use of the words "to our knowledge" or "known to us", we have made no independent investigation and have relied solely upon a review of our files with respect to matters of the Borrower referred to us by the Borrower for substantive legal attention and on certificates of officers of the Borrower. I. Members of our firm are licensed to practice law only in the States of Texas and Louisiana and in other jurisdictions the laws of which are not applicable to the opinions expressed herein. Accordingly, the opinions expressed herein are limited to the extent that the relevant issues are governed by applicable federal law of the United States of America and the laws of the States of Texas and Louisiana. The opinions expressed herein are as of the date hereof. We assume no, and expressly disclaim any, obligation to update or supplement such opinions to reflect any facts or circumstances which may hereafter come to our attention or any changes in laws which may hereafter occur. 7

Chase Bank of Texas, National Association, as Agent and as a Lender September 21, 1999 Page 8 The scope of this opinion is limited to those issues specifically considered herein, and no further or more expansive opinion is to be implied from any opinion expressed herein. Any variation or difference in the facts upon which this opinion is based might affect our conclusions in an adverse manner and make them inaccurate. The opinions expressed herein are solely for the benefit of the Agent and the Lenders in connection with the transactions contemplated by the Transaction Documents and the E. I. 30 Security Documents and may not be relied upon in any manner by any other person or entity or by the Agent or any Lender for any other purpose; provided that the Agent and any Lender may provide this opinion (i) to bank examiners and other regulatory authorities, should they so request or in connection with their normal examinations, (ii) to their independent auditors and attorneys, (iii) pursuant to order or legal process of any court or governmental agency, (iv) in connection with any legal action to which the Agent or any Lender is a party arising out of the transactions which are the subject of the Transaction Documents or the E. I. 30 Security Documents, or (v) to any permitted prospective transferee of rights or obligations of the Agent or any Lender under the Agreement, any of the other Transaction Documents or the E. I. 30 Security Documents. Very truly yours, 8

EXHIBIT E LIST OF SECURITY INSTRUMENTS 1. Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement from the Borrower for the benefit of the Agent, covering E. I. - 30. 2. UCC-1 Financing Statement naming the Borrower, as Debtor, and the Agent, as Secured Party, relating to Document No. 1 above. 3. Supplement and Amendment to Mortgage, Deed of Trust , Assignment of Production, Security Agreement and Financing Statement. 4. Supplement and Amendment to Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement. E-1

EXHIBIT F FORM OF ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT ("Agreement") dated as of ________________, 199___ is between: _________________________________ (the "Assignor") and __________________________ (the "Assignee"). RECITALS A. The Assignor is a party to the Amended and Restated Credit Agreement dated as of September 21, 1999 (as amended and supplemented and in effect from time to time, the "Credit Agreement") among ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower"), each of the lenders that is or becomes a party thereto as provided in Section 12.06 of the Credit Agreement (individually, together with its successors and assigns, a "Lender", and collectively, together with their successors and assigns, the "Lenders"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, in its individual capacity, "Chase") and as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). B. The Assignor proposes to sell, assign and transfer to the Assignee, and the Assignee proposes to purchase and assume from the Assignor, [all][a portion] of the Assignor's Maximum Credit Amount outstanding Loans and its Percentage Share of the outstanding LC Exposure, all on the terms and conditions of this Agreement. C. In consideration of the foregoing and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions. Section 1.01 Definitions. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. Section 1.02 Other Definitions. As used herein, the following terms have the following respective meanings: "Assigned Interest" shall mean all of Assignor's (in its capacity as a "Lender") rights and obligations (i) under the Credit Agreement and the other Security Instruments in respect of the Maximum Credit Amount of the Assignor in the principal amount equal to $____________________, including, without limitation, any obligation to participate pro rata in any LC Exposure, and (ii) to make Loans under the Maximum Credit Amount and any right to receive payments for the Loans outstanding under the Maximum Credit Amount assigned hereby of $____________________. F-1

(the "Loan Balance"), plus the interest and fees which will accrue from and after the Assignment Date. "Assignment Date" shall mean _____________________, 199___. ARTICLE II Sale and Assignment. Section 2.01 Sale and Assignment. On the terms and conditions set forth herein, effective on and as of the Assignment Date, the Assignor hereby sells, assigns and transfers to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, all of the right, title and interest of the Assignor in and to, and all of the obligations of the Assignor in respect of, the Assigned Interest. Such sale, assignment and transfer is without recourse and, except as expressly provided in this Agreement, without representation or warranty. Section 2.02 Assumption of Obligations. The Assignee agrees with the Assignor (for the express benefit of the Assignor and the Borrower) that the Assignee will, from and after the Assignment Date, perform all of the obligations of the Assignor in respect of the Assigned Interest. From and after the Assignment Date: (a) the Assignor shall be released from the Assignor's obligations in respect of the Assigned Interest, and (b) the Assignee shall be entitled to all of the Assignor's rights, powers and privileges under the Credit Agreement and the other Security Instruments in respect of the Assigned Interest. Section 2.03 Consent by Agent. By executing this Agreement as provided below, in accordance with Section 12.06(b) of the Credit Agreement, the Agent hereby acknowledges notice of the transactions contemplated by this Agreement and consents to such transactions. ARTICLE III Payments. Section 3.01 Payments. As consideration for the sale, assignment and transfer contemplated by Section 2.01 hereof, the Assignee shall, on the Assignment Date, assume Assignor's obligations in respect of the Assigned Interest and pay to the Assignor an amount equal to the Loan Balance, if any. An amount equal to all accrued and unpaid interest and fees shall be paid to the Assignor as provided in Section 3.02 (iii) below. Except as otherwise provided in this Agreement, all payments hereunder shall be made in Dollars and in immediately available funds, without setoff, deduction or counterclaim. Section 3.02 Allocation of Payments. The Assignor and the Assignee agree that (i) the Assignor shall be entitled to any payments of principal with respect to the Assigned Interest made prior to the Assignment Date, together with any interest and fees with respect to the Assigned F-2

Interest accrued prior to the Assignment Date, (ii) the Assignee shall be entitled to any payments of principal with respect to the Assigned Interest made from and after the Assignment Date, together with any and all interest and fees with respect to the Assigned Interest accruing from and after the Assignment Date, and (iii) the Agent is authorized and instructed to allocate payments received by it for account of the Assignor and the Assignee as provided in the foregoing clauses. Each party hereto agrees that it will hold any interest, fees or other amounts that it may receive to which the other party hereto shall be entitled pursuant to the preceding sentence for account of such other party and pay, in like money and funds, any such amounts that it may receive to such other party promptly upon receipt. Section 3.03 Delivery of Notes. Promptly following the receipt by the Assignor of the consideration required to be paid under Section 3.01 hereof, the Assignor shall, in the manner contemplated by Section 12.06(b) of the Credit Agreement, (i) deliver to the Agent (or its counsel) the Notes held by the Assignor and (ii) notify the Agent to request that the Borrower execute and deliver new Notes to the Assignor, if Assignor continues to be a Lender, and the Assignee, dated the date of this Agreement in respective principal amounts equal to the respective Maximum Credit Amount of the Assignor (if appropriate) and the Assignee after giving effect to the sale, assignment and transfer contemplated hereby. Section 3.04 Further Assurances. The Assignor and the Assignee hereby agree to execute and deliver such other instruments, and take such other actions, as either party may reasonably request in connection with the transactions contemplated by this Agreement. ARTICLE IV Conditions Precedent. Section 4.01 Conditions Precedent. The effectiveness of the sale, assignment and transfer contemplated hereby is subject to the satisfaction of each of the following conditions precedent: (a) the execution and delivery of this Agreement by the Assignor and the Assignee; (b) the receipt by the Assignor of the payment required to be made by the Assignee under Section 3.01 hereof; and (c) the acknowledgment and consent by the Agent contemplated by Section 2.03 hereof. F-3

ARTICLE V Representations and Warranties. Section 5.01 Representations and Warranties of the Assignor. The Assignor represents and warrants to the Assignee as follows: (a) it has all requisite power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill its obligations under, and consummate the transactions contemplated by, this Agreement; (b) the execution, delivery and compliance with the terms hereof by Assignor and the delivery of all instruments required to be delivered by it hereunder do not and will not violate any Governmental Requirement applicable to it; (c) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against it in accordance with its terms; (d) all approvals and authorizations of, all filings with and all actions by any Governmental Authority necessary for the validity or enforceability of its obligations under this Agreement have been obtained; (e) the Assignor has good title to, and is the sole legal and beneficial owner of, the Assigned Interest, free and clear of all Liens, claims, participations or other charges of any nature whatsoever; and (f) the transactions contemplated by this Agreement are commercial banking transactions entered into in the ordinary course of the banking business of the Assignor. Section 5.02 Disclaimer. Except as expressly provided in Section 5.01 hereof, the Assignor does not make any representation or warranty, nor shall it have any responsibility to the Assignee, with respect to the accuracy of any recitals, statements, representations or warranties contained in the Credit Agreement or in any certificate or other document referred to or provided for in, or received by any Lender under, the Credit Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of the Credit Agreement, the Notes or any other document referred to or provided for therein or for any failure by the Borrower or any other Person (other than Assignor) to perform any of its obligations thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower or the Subsidiaries [or any other obligor or guarantor], or any other matter relating to the Credit Agreement or any other Security Instrument or any extension of credit thereunder. Section 5.03 Representations and Warranties of the Assignee. The Assignee represents and warrants to the Assignor as follows: (a) it has all requisite power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill its obligations under, and consummate the transactions contemplated by, this Agreement; F-4

(b) the execution, delivery and compliance with the terms hereof by Assignee and the delivery of all instruments required to be delivered by it hereunder do not and will not violate any Governmental Requirement applicable to it; (c) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against it in accordance with its terms; (d) all approvals and authorizations of, all filings with and all actions by any Governmental Authority necessary for the validity or enforceability of its obligations under this Agreement have been obtained; (e) the Assignee has fully reviewed the terms of the Credit Agreement and the other Security Instruments and has independently and without reliance upon the Assignor, and based on such information as the Assignee has deemed appropriate, made its own credit analysis and decision to enter into this Agreement; (f) the Assignee hereby affirms that the representations contained in Section 4.06(d)(i)(1) of the Credit Agreement are true and accurate as to Assignee. If Section 4.06(d)(i)(2) is applicable to the Assignee, Assignee shall promptly deliver to the Agent and the Borrower such certifications as are required thereby to avoid the withholding taxes referred to in Section 4.06; and (g) the transactions contemplated by this Agreement are commercial banking transactions entered into in the ordinary course of the banking business of the Assignee. ARTICLE VI Miscellaneous. Section 6.01 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) to the intended recipient at its "Address for Notices" specified below its name on the signature pages hereof or, as to either party, at such other address as shall be designated by such party in a notice to the other party. Section 6.02 Amendment, Modification or Waiver. No provision of this Agreement may be amended, modified or waived except by an instrument in writing signed by the Assignor and the Assignee, and consented to by the Agent. Section 6.03 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The representations and warranties made herein by the Assignee are also made for the benefit of the Agent and the Borrower, and the Assignee agrees that the Agent and the Borrower are entitled to rely upon such representations and warranties. F-5

Section 6.04 Assignments. Neither party hereto may assign any of its rights or obligations hereunder except in accordance with the terms of the Credit Agreement. Section 6.05 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 6.06 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be identical and all of which, taken together, shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. Section 6.07 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of ________________. Section 6.08 Expenses. To the extent not paid by the Borrower pursuant to the terms of the Credit Agreement, each party hereto shall bear its own expenses in connection with the execution, delivery and performance of this Agreement. Section 6.09 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed and delivered as of the date first above written. ASSIGNOR By: Name:

Title: Address for Notices:

Telecopier No.: Telephone No.: Attention: F-6

ASSIGNEE By: Name:

Title: Address for Notices:

Telecopier No.: Telephone No.: Attention: ACKNOWLEDGED AND CONSENTED TO: ______________________________________, as Agent By: Name: Title:

EXHIBIT 10.2 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT BY AND AMONG ATP OIL & GAS CORPORATION, AS BORROWER, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS AGENT, AND THE LENDERS SIGNATORY HERETO EFFECTIVE AS OF JUNE 30, 2000

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") executed effective as of the 30th day of June, 2000 (the "Effective Date"), is by and among ATP OIL & GAS CORPORATION, a corporation formed under the laws of the State of Texas (the "Borrower"); each of the lenders that is a signatory hereto or which becomes a signatory hereto and to the hereinafter described Credit Agreement as provided in Section 12.06 of the Credit Agreement (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association (in its individual capacity, "Chase"), and as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, Agent and Lenders are parties to that certain Amended and Restated Credit Agreement dated as of September 21, 1999 (the "Credit Agreement"), pursuant to which the Lenders agreed to make loans to and extensions of credit on behalf of the Borrower; WHEREAS, the Borrower, and the Lenders desire to amend the Credit Agreement in the particulars hereinafter provided; and WHEREAS, Bank United has joined as a Lender; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.01 Terms Defined Above. As used in this First Amendment, each of the terms "Borrower", "Credit Agreement", "Effective Date", "First Amendment", and "Lenders" shall have the meaning assigned to such term hereinabove. Section 1.02 Terms Defined in Credit Agreement. Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary. Section 1.03 Other Definitional Provisions. (a) The words "hereby", "herein", "hereinafter", "hereof", "hereto" and "hereunder" when used in this First Amendment shall refer to this First Amendment as a whole and not to any particular Article, Section, subsection or provision of this First Amendment.

(b) Section, subsection and Exhibit references herein are to such Sections, subsections and Exhibits to this First Amendment unless otherwise specified. ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT The Borrower, the Agent, and the Lenders agree that the Credit Agreement is hereby amended, effective as of the Effective Date, in the following particulars. Section 2.01 Amendments and Supplements to Definitions. (a) The following terms, which are defined in Section 1.02 of the Credit Agreement, are hereby amended in their entirety to read as follows: "Agreement" shall mean this Credit Agreement, as amended and supplemented by the First Amendment and as the same may from time to time be further amended or supplemented. "Assignment" shall mean that certain Assignment between Chase Bank of Texas, National Association, and Bank United, dated as of June 30, 2000. "Monthly Date" shall mean the last day of each calendar month; provided, however, if any such is not a Business Day, such Monthly Date shall be the next succeeding Business Day. (b) Section 1.02 of the Credit Agreement is hereby further amended and supplemented by adding the following new definitions where alphabetically appropriate, which read in their entirety as follows: "Aquila Financing" shall mean the Borrower's Non-Recourse Debt financing by Aquila Energy Capital Corporation dated April 9, 1999, as supplemented on June 23, 1999 and November 3, 1999, in the approximate amount of $91,213,300.00. "Aquila Financing Event" shall mean the occurrence of any Oil and Gas Property being added or subtracted as collateral security for the Aquila Financing or any increase in the principal amount of the Aquila Financing. "First Amendment" shall mean that certain First Amendment to Amended and Restated Credit Agreement dated as of June 30, 2000, by and among the Borrower, the Agent and the Lenders. Section 2.02 Amendments to Article II. (a) Section 2.08(a) of the Credit Agreement is hereby amended by deleting the last sentence thereof and by adding thereto a new last sentence to read in its entirety as follows: 2

"During the period from and after June 30, 2000 until the next redetermination pursuant to Section 2.08(d) or adjustment pursuant to Sections 8.08(c) or 9.15, the amount of the Borrowing Base shall be $39,000,000."; (b) Section 2.08(d) of the Credit Agreement is hereby supplemented by the addition of a new paragraph to be added at the end of Section 2.08(d) to read in its entirety as follows: "In addition, after the occurrence of any Aquila Financing Event, the Required Lenders shall have the right to redetermine the amount of the Borrowing Base as it relates to the Aquila Financing Event." (c) Section 2.08(e) of the Credit Agreement is hereby supplemented by adding to the end of the first sentence in Section 2.08(e) the following: "by letter or by the use of the form attached hereto as Schedule 2.08." (d) Section 2.08(f)(ii) of the Credit Agreement is hereby amended by deleting Section 2.08(f)(ii) and substituting therefor the following:
"(ii) automatic Borrowing Base reductions on each Monthly Date by the following amounts ("Scheduled Borrowing Base Reductions"):

(A) $2,250,000 on July, August, September and October, 2000 Monthly Date; and (B) $1,000,000 on the November, 2000 Monthly Date and each Monthly Date thereafter;

provided, however, the foregoing Scheduled Borrowing Base Reductions shall be redetermined in conjunction with each redetermination of the Borrowing Base pursuant to this Section 2.08 and notice thereof will be given to the Borrower in accordance with Section 2.08(e). Section 2.03 Amendment to Article VII. Schedule 7.14 is hereby amended by deleting Schedule 7.14 and replacing it with Schedule 7.14 attached to the First Amendment. Section 2.04 Amendments to Article VIII. (a) Section 8.08(a) of the Credit Agreement is hereby supplemented in the first sentence thereof by the addition of the following language to be added at the end of such first sentence which reads in its entirety as follows: "; provided, however, the Agent may designate certain lower value Oil and Gas Properties as to which updated title information is not required." 3

(b) Article VIII of the Credit Agreement is hereby supplemented by the addition of a new Section 8.11 which reads in its entirety as follows: "Section 8.11 Notice Regarding Aquila Financing. The Borrower shall forthwith give the Agent written notice of the occurrence of any Aquila Financing Event." Section 2.05 Amendments to Article IX. (a) Section 9.01(g) is hereby supplemented by the addition of the following language after the words "Hedging Agreements with" in line 1 of Section 9.01(g): "Aquila Risk Management Corporation, Ashland Chemical Company Energy Services, Enron North America Corp. or" (b) Section 9.15 is amended in part by the deletion of the proviso contained at the end of Section 9.15. Section 2.06 Amendments to Article XII. Article XII is supplemented by the addition of a new Section 12.18 which reads in its entirety as follows: "Section 12.18 Release of Collateral. The release of any collateral upon which a Lien has been granted pursuant to the Security Instruments shall require the approval of all of the Lenders." Section 2.07 Amendment to Annex I. Annex I to the Credit Agreement is hereby replaced with Annex I attached hereto. Accordingly, all references in the Credit Agreement, to Annex I shall be deemed to be references to Annex I attached to this First Amendment. ARTICLE III. CONDITIONS The enforceability of this First Amendment against the Agent and the Lenders is subject to the satisfaction of the following conditions precedent: Section 3.01 Loan Documents. The Agent shall have received multiple original counterparts, as requested by the Agent, of this First Amendment executed and delivered by a duly authorized officer of the Borrower, the Agent, and each Lender; Section 3.02 Corporate Proceedings of Loan Parties. The Agent shall have received multiple copies, as requested by the Agent, of the resolutions, in form and substance reasonably satisfactory to the Agent, of the Board of Directors of the Borrower, authorizing the execution, delivery and performance of this First Amendment, the Notes and any other Security Instrument to which they are respectively a party, each such copy being attached to an original certificate of the 4

Secretary or an Assistant Secretary of the Borrower, dated as of the Effective Date, certifying (i) that the resolutions attached thereto are true, correct and complete copies of resolutions duly adopted by written consent[s] or at a meeting of the Board of Directors, (ii) that such resolutions constitute all resolutions adopted with respect to the transactions contemplated hereby, (iii) that such resolutions have not been amended, modified, revoked or rescinded as of the Effective Date, (iv) that the [respective] articles of incorporation and bylaws of the Borrower have not been amended or otherwise modified since the effective date of the Credit Agreement, except pursuant to any amendments attached thereto, and (v) as to the incumbency and signature of the officers of the Borrower executing this First Amendment, the Notes and/or any Security Instrument executed pursuant hereto. Section 3.03 Representations and Warranties. Except as affected by the transactions contemplated in the Credit Agreement and this First Amendment, each of the representations and warranties made by the Borrower in or pursuant to the Security Instruments, including the Credit Agreement, shall be true and correct in all material respects as of the Effective Date, as if made on and as of such date. Section 3.04 No Default. No Default or Event of Default shall have occurred and be continuing as of the Effective Date. Section 3.05 No Change. As of the Effective Date, no event shall have occurred since September 21, 1999, which, in the reasonable opinion of the Lenders, could have a material adverse effect on the condition (financial or otherwise), business, operations or prospects of the Borrower. Section 3.06 Security Instruments. All of the Security Instruments shall be in full force and effect and provide to the Agent the security intended thereby to secure the Indebtedness, as amended and supplemented hereby. The Agent shall have received all additional Security Instruments (or supplements thereto) requested by the Agent in connection with the increase in the Borrowing Base set forth in Section 2.08(a). Section 3.07 Other Instruments or Documents. The Agent or any Lender or counsel to the Agent shall receive such other instruments or documents as they may reasonably request. ARTICLE IV. MISCELLANEOUS Section 4.01 Adoption, Ratification and Confirmation of Credit Agreement. Each of the Borrower, the Agent, and the Lenders does hereby adopt, ratify and confirm the Credit Agreement, as amended hereby, and acknowledges and agrees that the Credit Agreement, as amended hereby, is and remains in full force and effect. Section 4.02 Successors and Assigns. This First Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Credit Agreement. 5

Section 4.03 Counterparts. This First Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument and shall be enforceable as of the Effective Date upon the execution of one or more counterparts hereof by the Borrower, the Agent and the Lenders. In this regard, each of the parties hereto acknowledges that a counterpart of this First Amendment containing a set of counterpart execution pages reflecting the execution of each party hereto shall be sufficient to reflect the execution of this First Amendment by each necessary party hereto and shall constitute one instrument. Section 4.04 Number and Gender. Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular. Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative. Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise indicated. Section 4.05 Entire Agreement. This First Amendment constitutes the entire agreement among the parties hereto with respect to the subject hereof. All prior understandings, statements and agreements, whether written or oral, relating to the subject hereof are superseded by this First Amendment. Section 4.06 Invalidity. In the event that any one or more of the provisions contained in this First Amendment shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this First Amendment. Section 4.07 Titles of Articles, Sections and Subsections. All titles or headings to Articles, Sections, subsections or other divisions of this First Amendment or the exhibits hereto, if any, are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such Articles, Sections, subsections, other divisions or exhibits, such other content being controlling as the agreement among the parties hereto. Section 4.08 Governing Law. This First Amendment shall be deemed to be a contract made under and shall be governed by and construed in accordance with the internal laws of the State of Texas. THIS FIRST AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED HEREBY, THE NOTES, AND THE OTHER SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 6

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
BORROWER: ATP OIL & GAS CORPORATION By:

-------------------------------Name: T. Paul Bulmahn

Title: President 7

LENDER AND AGENT: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: Name: Robert C. Mertensotto Title: Managing Director Address for Notices: Chase Bank of Texas, National Association 600 Travis, 20th Floor Houston, Texas 77002 Telecopier No.: 713/216-4117 Telephone No.: 713/216-8869 Attention: Peter Licalzi 8

LENDERS:

BANK UNITED By:

-------------------------------Name: Gardner W. Cannon Title: Senior Vice President

Address for Notices: Bank United 3200 Southwest Freeway, Suite 2906 Houston, TX 77027 Telecopier No.: 713/543-6986 Telephone No.: 713/543-5528 Attention: David W. Phillips 9

SCHEDULE 2.08 FORM OF NOTICE BORROWING BASE AND SCHEDULED BORROWING BASE REDUCTIONS ATP Oil & Gas Corporation Amended and Restated Credit Agreement dated as of September 21,1999 ("Credit Agreement") From and after , the Borrowing Base shall be $ , subject to adjustments and redeterminations pursuant to the Credit Agreement. Scheduled Borrowing Base Reductions shall automatically occur on each Monthly Date by the following amounts:

AGENT: 10

SCHEDULE 7.14 ATP Energy, Inc. 4600 Post Oak Place Houston, TX 77027 ATP Oil & Gas (UK) Limited 4600 Post Oak Place Houston, TX 77027 11

ANNEX I LIST OF MAXIMUM CREDIT AMOUNTS MAXIMUM CREDIT AMOUNT -------------$25,000,000.00 $15,000,000.00

NAME OF LENDER -------------Chase Bank of Texas, National Association Bank United

PERCENTAGE SHARE ----------------62.5% 37.5%

12

EXHIBIT 10.3 CREDIT AGREEMENT BETWEEN ATP OIL & GAS CORPORATION a Texas corporation AND AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation DATED APRIL __, 1999, EFFECTIVE AS OF MARCH 31, 1999

TABLE OF CONTENTS
PAGE ARTICLE I: Section Section Section Section Section ARTICLE II: Section Section Section Section Section Section Section Section Section Section ARTICLE III: Section Section Section Section 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3.1 3.2 3.3 3.4 DEFINITIONS AND REFERENCES............................... Defined Terms............................................ Exhibits and Schedules................................... Amendment of Defined Instruments......................... References and Titles.................................... Calculations and Determinations.......................... THE LOANS................................................ The Loans................................................ Use of Proceeds.......................................... Repayment of the Loans................................... Prepayment of the Loans.................................. Commencement of ORRI Payments............................ Application of Receipts.................................. Borrower Sub-Account..................................... Purchasers of Production................................. Mandatory Prepayment of the Loans........................ Initial Swap Agreement................................... SECURITY................................................. Security................................................. Perfection and Protection of Security Interests and Liens Release of Collateral.................................... Account Debtors.......................................... REPRESENTATIONS AND WARRANTIES........................... Representations and Warranties of Borrower............... Employees................................................ NOTICE OF CERTAIN EVENTS................................. Notice of Certain Matters................................ Other Information........................................ SPECIAL PROVISIONS RELATING TO EQUIPMENT................. Location: Records........................................ Maintenance.............................................. Dispositions............................................. 1 1 10 10 10 10 11 11 12 12 13 13 13 14 15 15 15 15 15 15 16 16 16 16 19 20 20 21 21 21 21 21

ARTICLE IV: Section 4.1 Section 4.2 ARTICLE V: Section 5.1 Section 5.2 ARTICLE VI: Section 6.1 Section 6.2 Section 6.3

i

ARTICLE VII: Section 7.1 Section 7.2 ARTICLE VIII: Section 8.1 Section 8.2 Section 8.3 Section 8.4 Section 8.5 Section 8.6 Section 8.7 ARTICLE IX: CLOSING; Section 9.1 Section 9.2 Section 9.3 ARTICLE X: Section Section Section Section ARTICLE XI: Section Section Section Section Section Section Section Section Section Section Section Section 10.1 10.2 10.3 10.4 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12

COVENANTS OF BORROWER................................. Affirmative Covenants................................. Negative Covenants.................................... FURTHER RIGHTS OF LENDER AND BORROWER................. Maintenance of Security Interests..................... Performance of Obligations............................ Overriding Royalty Interest........................... ORRI Option........................................... Non-Recourse.......................................... Removal and Appointment of Operator................... Set-Off Rights........................................ CONDITIONS TO CLOSING................................... Closing............................................... Conditions to Closing................................. Conditions Precedent to Funding....................... EVENTS OF DEFAULT AND REMEDIES........................ Events of Default..................................... Acceleration.......................................... Remedies.............................................. Indemnity............................................. MISCELLANEOUS......................................... Waivers and Amendments; Acknowledgments and Admissions Survival of Agreements: Cumulative Nature............. Notices............................................... Parties in Interest; Transfers........................ Governing Law; Submission to Process.................. Limitation on Interest................................ Termination; Limited Survival......................... Severability.......................................... Counterparts.......................................... Further Assurances.................................... Waiver of Punitive Damages, Etc...................... Representations and Warranties of Lender.............. ARBITRATION........................................... Arbitration...........................................

21 21 28 29 29 30 30 30 31 32 32 32 32 32 34 35 35 37 38 39 39 39 40 41 42 42 42 43 43 43 43 43 44 45 45

ARTICLE XII: Section 12.1

ii

EXHIBITS
Exhibit Exhibit Exhibit Exhibit Exhibit A B C D E Properties Advancing Note Property Operating Statement Request for Commitment Cost Certificate

SCHEDULES
Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule Schedule 2.1(a) 2.1(b) 2.8 4.1(c) 4.1(h) 4.1(k) 4.1(l) 4.1(m) 4.1(o) 7.1(b) 7.1(f)(i) 7.1(s) Existing Debt and Existing Liens Development Operations Purchasers of Production Stockholders of Borrower and Stock Obligations Other Obligations and Restrictions ERISA Plans Places of Business Unpaid Bills Affiliates Existing Hydrocarbon Sales Agreement Hydrocarbon Pricing Parameters Compliance with Environmental and Other Laws

iii

CREDIT AGREEMENT THIS CREDIT AGREEMENT is made and entered into the _____ day of April, 1999, effective on the 31st day of March, 1999, by and among ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower"), and AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation (the "Lender"). WHEREAS, Borrower has requested that Lender make available, and Lender is willing to make available to Borrower on the terms and conditions hereinafter set forth, loans for refinancing of existing debt and the development of certain oil and gas properties located in the United States Gulf of Mexico Outer Continental Shelf. NOW, THEREFORE, the parties hereto in consideration of the foregoing and the terms, covenants, provisions and conditions hereinafter set forth hereby agree as follows: ARTICLE I: DEFINITIONS AND REFERENCES Section I.1 Defined Terms. As used in this Agreement, each of the following terms has the meaning given it in this Section 1.1 or in the sections and subsections referred to below "AAA" has the meaning given to such term in Section 12.1(a). "Advancing Note" has the meaning given to such term in Section 2.1(a). "Adverse Effect" means (i) any changes or effects that individually or in the aggregate impact the business, operations, prospects or condition (financial or other) of the Borrower adversely and in an amount exceeding $1,000,000.00 or impact the Collateral adversely and in an amount exceeding $1,000,000.00, (ii) the impairment of the ability of the Borrower in any respect to perform its obligations under any of the Loan Documents to which it is a party, or (iii) the impairment of the Lender's ability to realize the practical benefits of the Security Documents or the Overriding Royalty Interest Conveyance. "AFE" means Authorization for Expenditures. "Affiliate(s)" means, as to any Person (as hereinafter defined), any other Person who directly or indirectly controls, is under common control with, or is controlled by such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event (i) any Person who owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of 1

directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person will be deemed to control such other Person, (ii) any Subsidiary of the Borrower shall be deemed to be an Affiliate of the Borrower, and (iii) the parent and any sister corporation of the Borrower shall be deemed to be an Affiliate of the Borrower. "Agreement" means this Credit Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time in compliance with applicable provisions hereof. "Arbitration Notice" has the meaning given to such term in Section 12(c). "Assignees" has the meaning given to such term in Section 8.4. "Borrower Sub-Account" has the meaning given such term in Section 2.7(a). "Business Day" means a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Houston, Texas. "Cash Collateral Account" has the meaning given to such term in Section 2.7(a). "Cash Collateral Account Agreement" means the agreement in the form mutually satisfactory to the Lender and the Borrower, duly executed by the Borrower, the Lender and the financial institution at which the Cash Collateral Account is to be maintained. "Closing" has the meaning given such term in Section 9.1. "Closing Date" has the meaning given such term in Section 9.1. "Collateral" means all property of any kind which, pursuant to any Loan Document, is subject to a Lien in favor or for the benefit of the Lender or is purported to be subject to such a Lien, including without limitation, the Equipment and the Properties. "Cost Certificate" has the meaning given such term in Section 2.1(b), each such certificate to be in the form attached hereto as Exhibit E. "Debt" means, as to the Borrower, all indebtedness, liabilities and obligations of Borrower, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent, and whether or not required to be considered debt pursuant to GAAP, excluding contingent abandonment liabilities not yet accrued. "Debt Service" means the principal and interest due pursuant to the Note for any Interest Period. "Dedication Rate" has the meaning given such term in Section 2.6(b). 2

"Defensible Title" means (i) with respect to the Properties, such title that: (A) with respect to each well or Unit located on the Leases entitles Borrower to receive, free and clear of all royalties, overriding royalties and net profits interests (except the ORRI), or other burdens on or measured by production of Hydrocarbons, not less than the Net Revenue Interests of Borrower reflected in Exhibit A for such wells or Units for the productive life of such well or Unit (subject only to the Permitted Encumbrances); and (B) with respect to each well or Unit located on the Leases obligates Borrower to bear costs and expenses relating to the maintenance, development and operation of such well or Unit in an amount not greater than the Working Interests of Borrower reflected in Exhibit A for the productive life of such well or Unit (subject only to the Permitted Encumbrances); free and clear of any security interest, lien, encumbrance, mortgage, claim, security agreement or other charge, other than the Permitted Encumbrances and any liens, mortgages, and security interests in favor of Lender and its Affiliates or which are permitted hereunder. "Development Loan" means the loan or loans made or to be made by the Lender to the Borrower, as evidenced by the Note, for development operations as described on Schedule 2.1(b) attached to this Agreement. "Development Operations" means those operations described on Schedule 2.1(b) attached hereto. "Direct Taxes" means (a) Property Taxes, (b) Severance Taxes, (c) ad valorem taxes, (d) conservation taxes, and (e) any other taxes of any kind, excluding only income taxes and franchise taxes, imposed on the Borrower in connection with or as a result of its ownership of the Properties or Hydrocarbon production allocable to the Properties. "Drawdown Termination Date" means April 1, 2000. "Engineers" means, unless specifically provided otherwise, the following petroleum engineering firms: Ryder Scott Company and S.A. Holditch & Associates, Inc. or such other petroleum engineering firms mutually agreeable to the Borrower and the Lender. "Environmental Laws" means any and all federal, state or local statutes, laws (including common law), regulations, ordinances, rules, judgments, orders, decrees, permits, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes. For purposes of this definition, "chemicals" includes all substances referred to in the second sentence of the definition herein of "Hazardous Materials". 3

"Equipment" means Borrower's undivided interest in all equipment of every kind and nature used for or in the operation of the Properties, equivalent to the undivided interest of the Borrower constituting the Property on which such Equipment is used, including but not limited to, pipelines, well and lease equipment and surface equipment, casing, tubing, connections, rods, pipe, machines, compressors, gathering systems, meters, motors, pumps, tankage, fixtures, storage and handling equipment and all other equipment or movable property of any kind and nature and wherever situated now or hereafter owned by Borrower or in which Borrower may now or hereafter have any interest (to the extent of such interest), together with all additions and accessions thereto, all replacements and all accessories and parts therefor, all logs and records in connection therewith, all rights against suppliers, warrantors, manufacturers, sellers or others in connection therewith, and together with all substitutes for any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Plan" means any employee pension benefit plan which is maintained by any Person subject to Title IV of ERISA. "Event of Default" has the meaning given such term in Section 10.1; "Existing Debt" has the meaning given such term in Section 2.1(a). "Existing Liens" has the meaning given such term in Section 2.1(a). "Facility Fee" means the expenses owed by Borrower to Lender as consideration, in part, for entering into the transactions contemplated under this Agreement and the other Loan Documents. "Fiscal Quarter" means a three-month period ending on March 31, June 30, September 30 or December 31 of any calendar year. "Fiscal Year" means a twelve-month period ending on December 31 of any calendar year. "GAAP" means those generally accepted accounting principles and practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor). "Gas Purchase and Sale Agreement" has the meaning given such term in Section 7.1(b). "Gross Receipts" means all sums received by Borrower in connection with production of Hydrocarbons from or allocable to the Properties from March 1, 1999 to March 31, 1999 and during each calendar month thereafter and consisting of Swap Settlement Proceeds and proceeds under gas purchase agreements, oil purchase agreements, natural gas liquids purchase agreements, and any 4

other receipts relating to or arising from the sale or other disposition of Hydrocarbons allocable to the Properties or the sale or other disposition of any Equipment. "Hazardous Materials" means any substances regulated under any Environmental Law, whether as pollutants, contaminants or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise. "Hazardous Materials" also includes (a) any petroleum, any fraction of petroleum, natural gas, natural gas liquids, liquefied natural gas and synthetic gas usable for fuel (including any mixtures of the foregoing) that has been or may be emitted, discharged or released into the environment, and (b) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal reserves. "Hydrocarbons" means crude oil, condensate, natural gas, natural gas liquids and other hydrocarbons. "Indebtedness" means and includes (i) all obligations for borrowed money of any kind or nature, including funded and unfunded debt or guarantees thereof and contingent obligations in respect of any of the foregoing including, without limitation, reimbursement obligations in respect of letters of credit, and (ii) all obligations for the acquisition or use of any fixed asset or improvements thereto, including capitalized leases but excluding operating leases, which are payable over a period longer than one year or guarantees thereof, regardless of the term thereof or the Person or Persons (each as hereinafter defined) to whom the same is payable; provided, however, that Indebtedness shall not include trade payables incurred in the ordinary course of business so long as the same are being paid within thirty (30) days after becoming due (or, with respect to any vendor, within such longer period as is acceptable to such vendor) or are being contested in good faith. "Initial Loan" means the loan made by Lender to Borrower, as evidenced by the Note, for the refinancing of certain Existing Debt and to pay other amounts due by Borrower as described in Section 2.1(a) and Section 2.2 of this Agreement. "Initial Reserve Report" means that certain reserve report dated March 31, 1999 prepared by Ryder Scott Company and dated March 31, 1999 prepared by S.A. Holditch & Associates, Inc., with respect to the Properties. "Interest Period" means each period beginning on (and including) the Repayment Date in one calendar month and ending on (but not including) the Repayment Date in the next following calendar month, provided that the first Interest Period for the Note and Loans shall begin on the Closing Date and end on the day before the first Repayment Date. "Interest Rate" means that interest rate stated in the Note. "Lease" or "Leases" means, whether one or more, (i) those certain oil and gas leases set forth in the description of each Property on Exhibit A attached hereto, and any extension, renewal, correction, modification, election or amendment (such as those relating to unitization) of any such Lease, or (ii) other oil, gas and/or mineral leases or other interests pertaining to the Properties which 5

may now and hereafter be made subject to the Lien of any of the Security Documents and any extension, renewal, correction, modification, election or amendment (such as those relating to unitization) of any such lease or leases. "Lender" shall have the meaning given to such term in the first paragraph of this Agreement, and its successors and assigns as holders of the Note. "Letters in Lieu" means those certain letters in lieu of transfer orders, duly executed by Borrower, in the form satisfactory to Lender. "Lien" means, with respect to the Properties or other Collateral, any right or interest therein of a creditor to secure Debt owed to it or any other arrangement with such creditor which provides for the payment of such Debt out of such property or assets or which allows it to have such Debt satisfied out of such property or assets prior to the satisfaction of general creditors of the owner of such property or assets, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's or materialman's lien, or any other charge or encumbrance for security purposes, whether arising by law or agreement or otherwise, but excluding any right of offset which arises without agreement in the ordinary course of business. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of unregistered securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists. "Loans" means, collectively, the Initial Loan and the Development Loans and "Loan" means, individually, the Initial Loan or any Development Loan as described in Section 2.1. "Loan Documents" means this Agreement, the Mortgage, the Security Agreement, the Note, the Overriding Royalty Interest Conveyance, the Gas Purchase and Sale Agreement, the Swap Agreement, the Lockbox Agreement, the Cash Collateral Account Agreement and other Security Documents, and all other agreements or instruments now, heretofore or hereafter delivered by Borrower to Lender in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations. "Loan Termination Date" means the earlier of (a) April 25, 2002, (b) the date of payment and performance in full of all the Obligations of Borrower under the Loan Documents (other than the Overriding Royalty Interest Conveyance), and (c) the date on which Lender notifies Borrower, as provided in Section 10.2, of the acceleration of payment of all Obligations because of the occurrence of an Event of Default. "Lockbox Agreement" means the agreement in form mutually satisfactory to Lender and the Borrower duly executed by Borrower and the other parties designated therein. 6

"Maximum Rate" means the maximum non-usurious rate of interest that Lender is permitted under applicable law to contract for, take, charge, or receive from Borrower. "Mortgage" has the meaning given such term in Section 3.1. "Net Revenue" means, for any Interest Period, Gross Receipts received during such Interest Period minus the sum of (a) the share of Operating Expenses, Direct Taxes, royalties, overriding royalty interests and other interests payable out of or measured by the production of Hydrocarbons allocable to the undivided Working Interest of the Borrower constituting each Property and payable during such Interest Period, plus (b) any Swap Settlement Payables for the preceding calendar month. "Net Revenue Interest" or "NRI" has the meaning given the respective term in the Mortgage. "Net Revenue Reimbursement Amount" means the amounts released to Borrower pursuant to Section 2.7(b) hereof. "Note" means the Advancing Note in the form attached hereto as Exhibit B. "Notice of Assignment of Proceeds" has the meaning given such term in Section 3.4. "Obligations" means all Debt from time to time owing from Borrower to Lender or any of Lender's Affiliates under or pursuant to any of the Loan Documents in connection with this Agreement or any transaction contemplated hereby, including without limitation, all principal, interest, fees, expenses, costs and indemnities. "Operating Agreements" means operating agreements relating to the Properties, including, without limitation, all those certain operating agreements which relate to or arise from the Properties pursuant to which Borrower is or hereafter becomes the operator, any of which that are entered into or amended after the date of this Agreement that would result in an Adverse Effect being subject to the Lender's prior written approval. "Operating Expenses" means (a) direct lease operating, compression, transportation and processing expenses and well maintenance expenses (such well maintenance expenses shall be limited to $100,000.00 per event, net to Borrower's Working Interest constituting the relevant Property, without Lender's prior consent), which arise from Borrower's Working Interests constituting the Properties in the wells that are subject to the Mortgage, that are billed to Borrower by the Operator or incurred by the Borrower, as Operator, of the Properties, (b) such Working Interest share of expenses incurred in the repair, maintenance and replacement of damaged or obsolete Equipment, (c) such Working Interest share of overhead charges payable to a third party Operator pursuant to an applicable Operating Agreement in effect on the Closing Date with respect to any of the Properties (or such new Operating Agreements or amendments to existing Operating 7

Agreements that are approved in writing by Lender), excluding contract Operators employed by Borrower who own no interest in the Properties. "Operator" means any operators, including contract operators, of the Properties (as such terms are generally understood in the oil and gas industry) and as approved by Lender pursuant to Section 8.7 hereof. "ORRI" means that overriding royalty interest in Hydrocarbons produced, saved and sold or used off the premises of the relevant Lease, attributable to the undivided interest of the Borrower constituting each Property conveyed by Borrower to Lender pursuant to the Overriding Royalty Interest Conveyance dated the Closing Date. "ORRI Option" means Borrower's option to purchase the ORRI from Lender after such interest has been valued by mutually agreeable Engineers. "ORRI Sale Date" has the meaning given such term in Section 8.4. "Overriding Royalty Interest Conveyance" means an assignment, in form and substance acceptable to Lender, pursuant to which Borrower grants in favor of Lender an overriding royalty interest equal to six and one-fourth percent (6.25%) of Hydrocarbons produced, saved and sold or used off the premises of the relevant Lease, attributable to the undivided interest of the Borrower constituting each Property, calculated and paid on the same basis as royalty payable to the United States Department of Interior, Minerals Management Service pursuant to applicable rules and regulations, such grant to be made on the Closing Date but applicable only as to production on and after the first day of the first calendar month following the Loan Termination Date. "Permitted Encumbrances" has the meaning given such term in the Mortgage. "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity. "Properties" means those certain properties described in Exhibit A attached hereto and incorporated herein, to the extent of the specific undivided interest of the Borrower in any such Property stated therein. "Property Operating Statement" means the monthly statement, in the form attached hereto as Exhibit C, to be prepared and delivered by Borrower to Lender, pursuant to Section 2.6 hereof. "Property Taxes" means taxes imposed annually on Borrower which are based on or measured by the estimated value (at the time such taxes are assessed) of any Hydrocarbons 8

underlying the lands covered by or pooled with the Leases attributable to the undivided interests of the Borrower in the various Leases constituting the Properties. "Proved Reserves" means the current estimated quantity of Hydrocarbons which analysis of geologic and engineering data demonstrate with reasonable certainty to be recoverable in the future from known oil and gas reservoirs under existing economic and operating conditions based on either actual production or conclusive formation tests. "Purchasers of Hydrocarbons" shall mean the Persons listed on Schedule 2.8 attached hereto, and all other Persons who, now or in the future, purchase Hydrocarbons attributable or allocable to Borrower's Net Revenue Interests constituting the Properties and are approved by Lender and Borrower in writing. "Purchase Price" has the meaning given such term in Section 8.4. "Repayment Date" means, prior to the satisfaction of all Obligations (other than with respect to the Overriding Royalty Interest Conveyance), the later of: (i) the twenty-fifth (25th) day of each calendar month, or (ii) the first Business Day after the twenty-fifth (25th) day of such month following the deposit into the Cash Collateral Account of Gross Proceeds attributable to the sale of Hydrocarbons produced during the preceding calendar month attributable to the Working Interest of Borrower constituting each of the Properties; but in no event later than the last Business Day of the relevant calendar month; the first such Repayment Date to occur during April 1999. "Request for Commitment" means a written request from Borrower to Lender for an advance of funds as a Development Loan, in the form attached hereto as Exhibit D. "Reserve Report" means, unless specifically denoted otherwise, the petroleum engineering report defined in Section 7.1(f) hereof. "Rules" has the meaning given such term in Section 12.1(c). "Security Agreement" means a security agreement (Accounts, Equipment, General Intangibles and Inventory) executed by Borrower as debtor in favor of Lender as secured party dated as of the date hereof, in form and substance mutually satisfactory to Lender and the Borrower, as the same may be modified, amended or supplemented pursuant to the terms of this Agreement. "Security Documents" means the Mortgage and all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now, heretofore, or hereafter delivered by Borrower to Lender in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations. 9

"Severance Taxes" means taxes imposed on the Borrower or such production at the time Hydrocarbons are produced from a well situated on any of the Leases or on lands pooled therewith which are based on or measured by the amount or value of such Hydrocarbon production allocable to the Properties. "Subsidiary" means for any Person any corporation of which more than fifty percent (50%) of the issued and outstanding securities having ordinary voting power for the election of directors is owned, directly or indirectly, by such Person and/or one or more of its subsidiaries. "Swap Agreement" means any swap agreement, cap, collar, floor, exchange transaction, forward agreement or exchange or protection agreement related to Hydrocarbons or any option with respect to such transaction, as more specifically provided in those certain master swap agreements on International Swap Dealers Association forms and the schedules thereto and any confirmations thereunder which Borrower enters into with or through Lender of even date herewith and any other confirmations which Borrower may hereafter enter into with or through Lender. "Swap Settlement Payables" means any settlement amounts payable by Borrower under the terms of any executed Swap Agreement. "Swap Settlement Proceeds" means any settlement amounts paid to Borrower under the terms of any executed Swap Agreement. "Tax Claim" means any claim by a taxing authority that Borrower owes any amount of taxes of any kind other than claims for Severance Taxes and Property Taxes. "Title Opinions" means those certain title opinions addressed to Borrower and Lender and dated on or prior to the Closing Date, as the same may be or are required to be updated under this Agreement, covering all of the Properties. "Unit" means a pooled unit or proration unit as designated by an effective designation of unit, proration unit plan, or other instrument of similar impact properly filed with the appropriate governmental authority. "Unmatured Event of Default" means any event or condition which would, with the giving of any requisite notices and/or the passage of any requisite periods of time, constitute an Event of Default. "Working Interest" or "WI" have the meaning given such terms in the Mortgage. Section I.2 Exhibits and Schedules. All exhibits and schedules attached to this Agreement are incorporated herein by reference and made a part hereof for all purposes. 10

Section I.3 Amendment of Defined Instruments. Unless the context otherwise requires or unless otherwise provided herein, the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document; provided, that nothing contained in this section shall be construed to authorize any such renewal, extension, modification, amendment or restatement. Section I.4 References and Titles. All references in this Agreement to exhibits, schedules, articles, sections, subsections and other subdivisions refer to the exhibits, schedules, articles, sections, subsections and other subdivisions of this Agreement unless otherwise expressly provided. Section and subdivision headings are for convenience only, do not constitute any part of such sections or subdivisions and shall be disregarded in construing the language contained in such sections or subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular sections or subdivisions unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation". Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Section I.5 Calculations and Determinations. All calculations pursuant to the Loan Documents of fees and of interest shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 365 or 366 days, as the case may be. Unless otherwise expressly provided herein or Lender otherwise consents in writing, all financial statements and reports to be furnished to Lender under the Loan Documents shall be prepared and all financial computations and determinations made pursuant to the Loan Documents, and with respect to the financial statements, shall be made in accordance with GAAP. ARTICLE II: THE LOANS Section II.1 The Loans (a) The Initial Loan. Borrower intends to refinance certain existing debt (the "Existing Debt") secured by Liens encumbering Borrower's right, title and interest in certain of the Properties. The Existing Debt, as set forth on Schedule 2.1(a), is secured by those security instruments executed by Borrower listed on Schedule 2.1(a) attached hereto (the "Existing Liens"). To facilitate such refinancing and to pay other amounts due by Borrower as provided in Sections 2.2 and 7.1(z), Lender shall, subject to the terms and conditions set forth below, make available to Borrower a loan in the amount of Nineteen Million, One Hundred Sixty-Five Thousand Dollars ($19,165,000), to be paid in U.S. Dollars by wire transfer, and such Loan shall be evidenced (inclusive of the Development Loans, if any, 11

described in Section 2.1(b) below) by a promissory note (the "Advancing Note") issued by Borrower to Lender in the form of Exhibit B, appropriately completed. The Interest Rate on such Advancing Note shall be as specified therein and the final maturity date of such Advancing Note shall be the Loan Termination Date. The Note shall be secured by the Mortgage and the other Security Documents issued by Borrower to or for the benefit of the Lender. (b) The Development Loans. Subject to satisfaction of all terms and conditions hereof and provided either that: (i) no Unmatured Event of Default or Event of Default shall have occurred and be continuing, or (ii) with respect solely to advances of the Development Loan to made by Lender pursuant to a properly prepared and submitted Request for Commitment covering a Development Operation that Borrower has commenced and has provided written notice to Lender of such commencement, Lender shall make additional advances to Borrower of the Development Loan(s), up to an aggregate of $27,800,000.00 to be used exclusively for those certain Development Operations described on Schedule 2.1(b) attached hereto. The Development Loan(s) (inclusive of the Initial Loan) shall be evidenced by the Advancing Note and fully secured by the Mortgage and other Security Documents. Unless specifically provided otherwise, within ten (10) days after the receipt from Borrower, prior to the Drawdown Termination Date, of a Request for Commitment (and any applicable AFEs) listing all applicable expenditures that Borrower desires to make to conduct development operations described in Schedule 2.1(b), Lender shall reconfirm its obligation to advance the funds necessary to pay the Borrower's share of the costs and expenses attributable to such proposed operations (not to exceed the amount requested in the Request for Commitment). Such advances shall be made by Lender within five (5) business days after receipt from Borrower of a certificate, duly executed by an officer of Borrower, certifying the amount of costs and expenses that either: (a) have been paid or incurred by Borrower and are payable in connection with such proposed development operations, or (b) are required to be incurred and paid by Borrower on or before the last day of the calendar month following the calendar month in which such certificate is submitted to Lender (each a "Cost Certificate"), together with the supporting documentation referred to in the form of Cost Certificate attached hereto as Exhibit E. Any Request for Commitment shall be made by Borrower for business opportunities, projects, and/or uses that are described on Schedule 2.1(b) or otherwise approved by Lender subject, without limitation, to the following: (i) All statements of costs and estimates provided to Lender shall be rendered in sufficient detail to give Lender complete and accurate information as to the purpose for and amount of all items included therein, and Lender shall be entitled to such additional information regarding such expenditures as Lender may reasonably request. All such data shall be subject to audit by Lender's representatives at any 12

time mutually agreeable to the parties, provided, however, that Lender's audit of such data shall not be a basis to delay the funding addressed in any Request for Commitment unless the Request for Commitment does not apply to a Development Operation described on Schedule 2.1(b), or the information presented in the Request for Commitment is patently inadequate with respect to the level of detail required to be set forth therein pursuant to this Section 2.1. (ii) The parties acknowledge that the amounts and scope of the Development Loan(s) identified in this Section 2.1 are based upon estimated costs of the planned development activities described on Schedule 2.1(b) and may not accurately reflect the ultimate cost of the contemplated activities. Notwithstanding the foregoing or anything herein to the contrary, in no event shall Lender be obligated to make any Development Loans pursuant to this Section 2.1 in excess of $27,800,000.00. Section II.2 Use of Proceeds. Initial Loan proceeds shall be used by Borrower for the purposes of: (a) refinancing the Existing Debt or such portion thereof as necessary to obtain releases of the Existing Liens insofar as they encumber the Properties, (b) paying within ten (10) days after the Closing Date the accounts payable relating to the Properties that were disclosed in writing to Lender prior to the Closing Date, (c) paying the Facility Fee pursuant to Section 7.1(z) hereof, and (d) other corporate purposes approved in writing by Lender. Development Loan proceeds may be used by Borrower for the purposes of funding Borrower's share of costs and expenses relating to the conduct of the Development Operations described on Schedule 2.1(b) hereof, or such other development operations as may be subsequently approved by Lender. Borrower shall also be allowed to pay with Development Loan proceeds to the extent permissible under applicable law, any mortgage filing fees which may be required to properly file any and all Security Documents. Section II.3 Repayment of the Loans. Borrower shall repay the Loans plus all interest accrued thereon by the Loan Termination Date. Section II.4 Prepayment of the Loans. Borrower, from time to time after the Closing Date and without premium or penalty, may prepay the Note, in whole or in part. Any principal prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of such prepayment; provided, however, that Borrower will bear responsibility for the resulting Swap Settlement Payables associated with any Swap Agreements that must be terminated as a result of such prepayment. With respect to any Swap Agreements that need not be terminated as the result of such prepayment and which Borrower elects to maintain in effect, notwithstanding the prepayment of the Note, so long as any Swap Agreements remain outstanding, the Security Documents shall remain in force and effect (and shall be promptly amended by Borrower and Lender to the extent necessary) to secure Borrower's obligation to pay any Swap Settlement Payables associated with such Swap Agreements. Similarly, in the event of any such prepayment after which any Swap Agreement remains outstanding, Borrower shall be entitled to receive and retain any Swap Settlement Proceeds associated with the relevant Swap Agreement, subject to the terms of any applicable Security Documents. 13

Section II.5 Commencement of ORRI Payments. The ORRI will be applicable with respect to all oil, gas and other minerals produced, saved and sold or used off the premises of the relevant Lease or Unit from or attributable to the Properties from the first day of the calendar month following the Loan Termination Date (which, as defined herein, includes the date of satisfaction of Borrower's Obligations due to Borrower's prepayment or refinancing of its Indebtedness to Lender under the Note) for a period of 120 consecutive months thereafter. Borrower may purchase the ORRI from Lender in accordance with Section 8.5 hereof. Section II.6 Application of Receipts. Net Revenue shall be calculated by Lender based on each Property Operating Statement. Borrower shall prepare and deliver a Property Operating Statement to Lender no later than the 20th day of each calendar month. Such Property Operating Statement shall detail Borrower's Gross Receipts that have been received or are receivable during such calendar month relating to the production of Hydrocarbons for the immediately preceding month, and shall detail Borrower's Operating Expenses, Direct Taxes, royalties, overriding royalty interests and other payments out of or measured by production with respect to each Property paid or payable during or prior to such calendar month relating to production and operations for the second preceding calendar month, together with such other detailed information as is prescribed in the form of Property Operating Statement attached hereto as Exhibit C. The first Property Operating Statement shall be delivered on April 20, 1999, and will detail Gross Receipts attributable to the production of Hydrocarbons from the Properties during the month of March 1999, and Operating Expenses, Direct Taxes, royalties, overriding royalty interests and other payments out of or measured by production relating to production and operations for February 1999. On each Repayment Date Gross Receipts reflected in the relevant Property Operating Statement shall be applied as follows: (a) First, to the amount necessary to pay the Operating Expenses, Direct Taxes, royalties, overriding royalties and other payments out of or measured by production, if any, associated with the Properties, and Swap Settlement Payables for the second prior calendar month as reflected in the relevant Property Operating Statement. (b) Second, eighty-five percent (85%) of the Net Revenue, as reflected in the relevant Property Operating Statement, to Lender for payment of amounts which are included within Debt Service and other Obligations to Lender for the relevant Interest Period. The percentage stated in this section shall be known as the "Dedication Rate". During the occurrence and continuation of an Event of Default the Dedication Rate shall be ninety- five percent (95%). The amount paid to Lender pursuant to this subpart (b) shall be applied first to any interest due on the Advancing Note until all accrued interest is paid in full, and any remaining amounts paid to Lender pursuant to this subpart (b) shall be applied to remaining principal of the Advancing Note. (c) Third, any remaining amount of Gross Receipts properly reflected in the relevant Property Operating Statement shall be paid to Borrower in accordance with Section 2.7(b). 14

Section II.7 Borrower Sub-Account. (a) Until the Loan Termination Date, Borrower shall direct and cause all Purchasers of Hydrocarbons, to deposit all payments of any nature whatsoever due and owing by such Persons with respect to the Properties or Hydrocarbons produced therefrom to Borrower directly into a cash collateral account maintained pursuant to the Lockbox Agreement (the "Cash Collateral Account"); provided, however, that Purchasers of Hydrocarbons may make distributions to royalty interest owners and third-party working interest owners and may withhold severance taxes. The Cash Collateral Account shall be administered in accordance with the terms of the Lockbox Agreement and the Cash Collateral Account Agreement. Lender shall establish a sub- account (the "Borrower Sub-Account") on its internal books and records and shall credit to such Borrower Sub-Account all collected funds which constitute payments referred to in the preceding Section 2.6. Borrower authorizes Lender to debit the Borrower Sub-Account for the payment of all Obligations hereunder when due and payable, including all amounts paid by Lender pursuant to Section 8.2, and including any such debit that would cause the Borrower Sub-Account to be in a negative status. (b) On each Repayment Date, and after satisfying all distributions to Lender pursuant to Section 2.6, Lender will release or cause to be released to Borrower from the Cash Collateral Account an amount of funds from amounts credited to the Borrower Sub-Account in order to pay the expenses provided for in Section 2.6(a) incurred for the second preceding calendar month, plus an amount equal to the difference between one hundred percent (100%) of Net Revenue and the Dedication Rate of Net Revenue to be applied to repayment of the Debt Service pursuant to Section 2.6 hereof ("Net Revenue Reimbursement Amount"). Borrower will have one hundred eighty (180) days after each receipt of such funds to contest the amounts of funds released, after which time the amounts released will be deemed conclusively correct. Notwithstanding anything to the contrary contained herein and regardless of whether any Event of Default exists hereunder, any amounts deposited into the Cash Collateral Account owing to third party working interest and royalty interest holders or to taxing authorities for Severance Taxes and Property Taxes shall be released by Lender to Borrower within ten (10) Business Days after receipt of a certificate from Borrower detailing such amounts and the party to be paid so that Borrower may return such amounts to such third party working interest and royalty interest holders and taxing authorities. Lender shall have the right to undertake audit procedures during normal business hours and upon prior written notice to confirm periodically that Borrower has paid all obligations for which funds were released to Borrower as Net Revenue Reimbursement Amounts. Lender shall have the right at its option, but not the obligation, to make such payments directly from the Cash Collateral Account to the third party working interest and royalty interest holders and taxing authorities upon the occurrence of and during the continuance of an Event of Default hereunder; 15

provided that if Lender elects not to make such payments, Lender shall release such funds to Borrower to make payments to third party working interest and royalty interest holders and taxing authorities. Section II.8 Purchasers of Production. Borrower shall notify Lender promptly of any changes to the list of Persons who purchase Hydrocarbons produced from or allocated to the Properties, as set forth on Schedule 2.8 attached hereto, if, as and when there is any change in the Persons who purchase such Hydrocarbons. Section II.9 Mandatory Prepayment of the Loans. Borrower shall pay promptly to Lender the Dedication Rate multiplied by all proceeds of sale of any assets of Borrower that comprise any part of the Collateral and not otherwise constituting Gross Receipts and paid into the Cash Collateral Account (provided, however, that this provision is subject to Section 7.2 (a) and shall not be deemed to be a consent by Lender to any such sale). All proceeds of any such sale shall be immediately applied to repayment of the Loans and accrued interest thereon in accordance with Section 2.6(b) hereof. Section II.10 Initial Swap Agreement. At Closing, Borrower and Lender shall enter into a Swap Agreement in form and substance mutually satisfactory to Lender and the Borrower. ARTICLE III: SECURITY Section III.1 Security. The Obligations will be secured by the Collateral as set forth in the various Security Documents concurrently or hereafter delivered by Borrower, including an Act of Mortgage, Assignment of Production, Security Agreement, Fixture Filing and Financing Statement (the "Mortgage") executed by Borrower in favor of Lender covering the Properties in form and substance mutually satisfactory to Lender and the Borrower. Pursuant to certain of the Loan Documents, Borrower will grant to Lender a first mortgage lien on and a first priority perfected security interest in the Collateral, subject to Permitted Encumbrances. Section III.2 Perfection and Protection of Security Interests and Liens. Borrower will from time to time deliver to Lender any security agreements, financing statements, continuation statements, extension agreements, amendments, confirmations and other documents, properly completed and executed (and acknowledged when required) by Borrower in form and substance mutually satisfactory to Lender and the Borrower, which Lender reasonably requests for the purpose of perfecting, confirming, protecting or establishing the priority of any Liens or other rights in the Collateral securing any Obligations. Section III.3 Release of Collateral. Upon the payment and performance in full by Borrower of all Obligations under the Loan Documents, other than the Overriding Royalty Interest Conveyance, Lender shall deliver or cause to be delivered to Borrower, at Borrower's expense, releases and satisfactions of all financing statements, mortgages and other registrations of security 16

with respect to the Collateral and Borrower shall deliver to Lender a general release of all of Lender's liabilities and obligations under the Loan Documents, other than the Overriding Royalty Interest Conveyance, and an acknowledgment that the same have been terminated. Section III.4 Account Debtors. All Purchasers of Hydrocarbons relating to Borrower's Working Interests and/or Net Revenue Interests constituting the Properties will receive notification from Lender (as assignee) and Borrower, in form and substance mutually satisfactory to Lender and the Borrower, of the assignment into the Cash Collateral Account of all proceeds (the "Notice of Assignment of Proceeds") from sales of all production from or allocable to Borrower's respective Net Revenue Interests constituting the Properties. Borrower shall use commercially reasonable efforts to assist Lender in obtaining, within sixty (60) days after the Closing Date, from all Purchasers of Hydrocarbons, an executed Notice of Assignment of Proceeds which will instruct the Purchasers of Hydrocarbons to remit all proceeds from sales of all production from or allocable to Borrower's respective Net Revenue Interests constituting the respective Properties to the Cash Collateral Account. ARTICLE IV: REPRESENTATIONS AND WARRANTIES Section IV.1 Representations and Warranties of Borrower. To confirm Lender's understanding concerning Borrower and Borrower's businesses, properties and obligations, and to induce Lender to enter into this Agreement and to make the Loans, Borrower represents and warrants to Lender that: (a) No Default. No event has occurred and is continuing which would constitute an Event of Default or an Unmatured Event of Default. (b) Organization and Good Standing. Borrower is a corporation duly organized, validly existing and in good standing under the laws of Texas, having all powers necessary to carry on its businesses and to enter into and consummate the transactions contemplated by the Loan Documents. Borrower is duly qualified, in good standing, and authorized to do business in all other jurisdictions wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary or desirable and the failure to be so qualified could reasonably be expected to have an Adverse Effect. Borrower is qualified under applicable Minerals Management Service regulations to act as Operator of the Leases. (c) Capitalization: Compliance with Security Laws. The stockholders of Borrower consist exclusively of those Persons listed on Schedule 4.1(c) attached hereto. Borrower is not subject to any agreement under which there may become outstanding, nor are there currently outstanding, any rights to purchase, or securities convertible into or exchangeable for, any stock of Borrower including, but not limited to, options, warrants or rights that are not terminable at Borrower's will, other than in favor of a party listed in Schedule 4.1(c). Except as disclosed on Schedule 4.1(c), Borrower is under no obligation 17

(contingent or otherwise) to purchase or otherwise acquire or retire any of its stock. Except as contemplated by this Agreement or as disclosed on Schedule 4.1(c), there are no agreements, understandings, plans or arrangements in existence which require Borrower to elect any person on its board of directors or otherwise pertain to the distribution rights, voting, sale or transfer of any stock of Borrower. Borrower has complied with all applicable federal and state securities laws and has obtained enforceable releases from any Persons who may have had federal or state securities law claims against Borrower. (d) Authorization. Borrower has taken all actions necessary to authorize the execution and delivery of the Loan Documents and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder. Borrower is duly authorized to borrow funds hereunder. (e) No Conflicts or Consents. The execution and delivery by Borrower of the Loan Documents, the performance of its obligations under the Loan Documents, and the consummation of the transactions contemplated by the various Loan Documents does not and will not (i) conflict with any provision of (A) any domestic or foreign law, statute, rule or regulation, (B) the Articles of Incorporation or Bylaws of Borrower, or (C) any agreement, judgment, license, order or permit applicable to or binding upon Borrower, (ii) result in the acceleration of any Debt owed by Borrower, or (iii) result in or require the creation of any Lien upon any assets or properties of Borrower except as expressly contemplated in the Loan Documents. Except as expressly contemplated in the Loan Documents, no consent, approval, authorization or order of, and no notice to or filing with (other than routine filings of certain of the Security Documents), any court or governmental authority or third party is required in connection with the execution, delivery or performance by Borrower of any Loan Document or to consummate any transactions contemplated by the Loan Documents. (f) Enforceable Obligations. This Agreement is, and the other Loan Documents when executed and delivered by Borrower will be, legal, valid and binding obligations of Borrower, enforceable in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights or by principles of equity applicable to the enforcement of creditors' rights generally. (g) Transactions Subsequent to Date of Financial Statements. Borrower has engaged in no material transactions other than in the ordinary course of business since the effective date of the most recent financial statements of Borrower provided to the Lender. (h) Other Obligations and Restrictions. Except as reflected in the financial statements of Borrower most recently provided to Lender or as disclosed on Schedule 4.1(h), Borrower has no outstanding Debt of any kind (including contingent obligations, tax assessments, and forward or long- term commitments), other than Debt under the Loan Documents and unaccrued plugging and abandonment Obligations, which is material to the 18

Borrower. No Tax Claim or other claim for past due Property Taxes or Severance Taxes exists. Borrower is not subject to or restricted by any franchise, contract, deed, charter restriction or other instrument or restriction which could reasonably be expected to have an Adverse Effect. (i) Full Disclosure. No certificate, statement or other information delivered herewith or heretofore by Borrower to Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact known to Borrower necessary to make the statements contained herein or therein not misleading as of the date made or deemed made. No facts are known to Borrower that have not been disclosed to Lender in writing which could reasonably be expected to have an Adverse Effect. (j) Litigation. There are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the knowledge of Borrower threatened, against Borrower before any federal, state, municipal or other court, department, commission, body, board, bureau, agency or instrumentality, domestic or foreign which could reasonably be expected to have an Adverse Effect, and there are no outstanding judgments, injunctions, writs, rulings or orders by any such governmental entity against Borrower which could reasonably be expected to have an Adverse Effect. (k) ERISA Liabilities. Except as disclosed in Schedule 4.1(k), there are no ERISA Plans with respect to which Borrower has any fixed or contingent liability, and Borrower is in compliance with ERISA in all material respects. (l) Names and Places of Business. Borrower has not during the preceding three (3) years had, been known by or used any other corporate, trade or fictitious name. The principal office and principal place of business of Borrower is set forth in Section 11.3 hereof. Except as disclosed on Schedule 4.1(l), Borrower does not now have and has not had during the preceding three (3) years any other office or place of business. Borrower is not and has not engaged in any business or activity other than the acquisition, ownership, operation and development of oil and gas leases and interests therein. (m) Unpaid Bills. Except: (i) as disclosed to Lender in Schedule 4.1(m), (ii) bills which will be paid with a portion of the Initial Loan Proceeds and (iii) for bills incurred in the ordinary course of business which are not more than thirty (30) days beyond the date due (or, with respect to any particular vendor, such longer period that is acceptable to such vendor), Borrower has no knowledge of any unpaid bills with respect to improvements to any of the Collateral which may give rise to mechanic's, materialman's or other similar liens arising by operation of applicable law should such bills remain unpaid. (n) Title. Subject to Permitted Encumbrances, (i) except as set forth in the Title Opinions, Borrower will have all beneficial rights, title and interest in and to all production from or allocable to Borrower's interest in the Properties and have the exclusive right to sell 19

the same subject to any right in the owners of royalty interests, overriding royalty interests and other interests payable out of or measured by production of Hydrocarbons to take their interests in kind, and (ii) Borrower will have good and marketable title to the Properties, the Equipment and to any other Collateral. The Collateral will be owned by Borrower free and clear of any security interest, lien, encumbrance, mortgage, security agreement or other charge (other than Permitted Encumbrances). (o) Affiliates. Except as disclosed in Schedule 4.1(o), Borrower does not have, as of the Closing Date, any Affiliate or own any stock in any other corporation or association, nor is Borrower a member of any joint venture or association of any type whatsoever. (p) Omissions and Misstatements. To Borrower's knowledge after due inquiry, all written data, reports and information which Borrower has supplied to Lender or caused to be supplied by a third party on its behalf in connection with the obtaining of the credit facility provided for in this Agreement or in connection with the business transactions giving rise to Borrower's seeking such credit are, taken as a whole, complete and accurate in all material respects and contain no material omission or misstatement. The Initial Reserve Report furnished to Lender prior to the execution of this Agreement, to the best of Borrower's knowledge, was prepared in accordance with customary oil and gas engineering practices and in accordance with the standards promulgated by the Society of Petroleum Engineers. The Initial Reserve Report is based on historical information which, to the best of Borrower's knowledge, is complete and accurate in all material respects and contains no material omission or misstatement; provided, however, that Borrower makes no representation or warranty regarding the accuracy of the forecasts, projections or quantity of reserves or producibility thereof reflected by such Initial Reserve Report. (q) Holding Company. The Borrower is not a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (r) Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section IV.2 Employees. Borrower is not a party to any existing employment agreements, deferred compensation, stock option, bonus, consulting or retirement agreements or plans, or other employee benefit plans of any kind, including without limitation any pension or welfare benefit plans with any employee of Borrower whose employment is not terminable at-will. Except as disclosed on Schedule 4.1(k), Borrower does not maintain nor has it ever maintained an Employee Pension Benefit Plan as defined in Section 3(a) of ERISA, or a multi employer plan as defined in Section 3(37) of ERISA. No employees of Borrower are represented by any labor union or 20

collective bargaining agreement, nor is any union organization effort pending or threatened against Borrower. ARTICLE V: NOTICE OF CERTAIN EVENTS So long as any Obligations are owing to Lender under this Agreement or any other Loan Documents, Borrower shall deliver to Lender or notify Lender, as the case may be, of the following items: Section V.1 Notice of Certain Matters. Borrower shall notify Lender within five (5) Business Days after becoming aware of the existence of any Unmatured Event of Default or Event of Default under this Agreement or after becoming aware of any developments or other information which may have an Adverse Effect, including, without limitation, the following: (a) any dispute (including tax liability disputes) that may arise between Borrower and any governmental regulatory body or law enforcement authority; (b) the commencement of any litigation or proceeding affecting Borrower (whether by the filing of a complaint, service of process or by attachment or arrest of any asset); (c) any labor dispute or controversy resulting in or threatening to result in a strike or work stoppage against the Borrower; (d) any proposal by any public authority to acquire any assets or business of Borrower; (e) the location of Collateral other than at the places indicated in or as permitted under the Loan Documents and not in accordance with reasonable and ordinary practice of Borrower; (f) any proposed or actual change of the name, identity or structure of Borrower; (g) any material loss or damage to any of Borrower's business or operations or to any of the Collateral; (h) any environmental situation, circumstance or condition that causes or may cause Section 7.l(s) to be false; or (i) any other matter which has resulted or may result in an Adverse Effect. 21

Borrower shall provide Lender with telephonic and written notice specifying and describing the nature of such Unmatured Event of Default, Event of Default, development or information, and anticipated effect thereof, which notice shall be given as soon as reasonably possible. Section V.2 Other Information. Borrower shall provide such other information respecting the respective financial condition of Borrower or any Property or other Collateral as Lender reasonably may request in writing from time to time. ARTICLE VI: SPECIAL PROVISIONS RELATING TO EQUIPMENT Section VI.1 Location: Records. Except in the ordinary course of business or as otherwise permitted by this Agreement or another Loan Document or by the prior written consent of the Lender, all Equipment owned by or on behalf of Borrower will be kept at the Properties, and except that, so long as no Unmatured Event of Default or Event or Default shall have occurred and be continuing, Borrower may dispose of Equipment in accordance with the terms of the applicable Operating Agreements and may dispose of obsolete, broken or worn Equipment, in either case without Lender's consent but upon prior written notice to Lender; provided that either (i) the proceeds of any such disposition shall be used to purchase substantially similar Equipment or (ii) the amount of the proceeds multiplied by the applicable Dedication Rate shall be delivered to Lender to be applied to the Obligations in accordance with Section 2.6 on the next Repayment Date. Following the occurrence and during the continuance of an Event of Default or an Unmatured Event of Default, Borrower may dispose of Equipment in accordance with the terms of the applicable Operating Agreements only with Lender's prior written consent upon ten (10) days prior written notice to Lender, which consent shall not be unreasonably withheld. All of the records of Borrower regarding the Equipment shall be available during Borrower's usual business hours to any officer, employee, agent or representative of Lender following reasonable advance written notice from the Lender. Section VI.2 Maintenance. Borrower, acting in accordance with the prudent operator standard, will keep its Equipment in a good state of repair and good operating condition, will make repairs and replacements when and where necessary, will not waste or destroy it or any part thereof, and will not be negligent in the care or use thereof. Borrower shall repair and maintain its Equipment in a manner sufficient to continue the operation of the Properties. Borrower shall use its Equipment in accordance with law and the manufacturer's instructions. Section VI.3 Dispositions. Where Borrower is permitted to dispose of any Equipment under this Agreement or by consent thereto hereafter given by Lender, Borrower shall do so in an arm's length transaction, in good faith and by obtaining the maximum amount of recovery practicable therefor and without impairing the operating integrity of its remaining Equipment or the Properties. 22

ARTICLE VII: COVENANTS OF BORROWER Section VII.1 Affirmative Covenants. Borrower warrants, covenants and agrees that until full and final repayment of the Obligations and the termination of each of the Loan Documents, it will comply with the following covenants: (a) Payment and Performance. Borrower will pay all amounts due to Lender under the Loan Documents in accordance with the terms thereof and will observe, perform and comply with every covenant, term and condition expressed or implied in the Loan Documents. (b) Preferential Right To Purchase Hydrocarbons. Subject to those agreements (if any) for the sale of Hydrocarbons which are in effect as of the date hereof and which are identified on Schedule 7.1(b), Borrower grants to Lender the right, exercisable at any time and from time to time and in accordance with the further provisions of this Section and no less than thirty (30) days prior to the first day of each month, to purchase, in accordance with a form of gas purchase and sale agreement or other agreement mutually satisfactory to Lender and the Borrower (the "Gas Purchase and Sale Agreement"), all or any part of the Hydrocarbons produced from or allocable to the Properties proposed by Borrower to be committed to an agreement with a term of more than ninety (90) days; provided, however, that Lender shall not be obligated to exercise any such right. Borrower shall notify Lender in writing of each proposed sale of oil or gas for a term of more than ninety (90) days to a party other than Lender, including all pertinent terms and conditions thereto, as far in advance as reasonably possible. Lender shall then have twenty-four (24) hours after receiving written notice of the pertinent terms and conditions of each such proposed sale in which to notify Borrower of Lender's election either to exercise or waive its preferential right to purchase under the same terms and conditions. The rights granted to Lender in this Section 7.1(b) may be assigned, in whole or in part, to one or more Affiliates of Lender and shall continue in full force and effect until the later of the full and final payment and performance of all of Borrower's Obligations or two (2) years from the Closing Date. (c) Compliance with Tax Laws. Borrower shall comply with all federal, state or local laws and regulations regarding the collection, payment and deposit of employee' income, employment, and social security and sales and use taxes and taxes related to royalty payments. (d) Books, Financial Statements and Reports. Borrower will at all times maintain full and accurate books of account and records and a standard system of accounting and will furnish the following statements and reports to Lender at Borrower's expense: (i) As soon as available, and in any event within one hundred twenty (120) days after the end of each Fiscal Year, complete audited financial statements of Borrower, prepared in reasonable detail in accordance with GAAP. These 23

financial statements shall contain a balance sheet as of the end of such Fiscal Year and statements of earnings, of cash flows, and of changes in the capital accounts for such Fiscal Year, each setting forth in comparative form the corresponding figures for the preceding Fiscal Year. Lender recognizes that the financial statements of Borrower for the year ending December 31, 1998, may not include audited comparable corresponding figures for 1997 and prior years. (ii) As soon as available, and in any event within sixty (60) days after the end of each Fiscal Quarter, Borrower's balance sheet as of the end of such Fiscal Quarter and statements of Borrower's earnings and cash flows for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and prepared in accordance with GAAP, subject to changes resulting from normal year-end adjustments. (iii) As and when furnished, copies of all reports and other information provided by any Person (other than Lender) to Borrower in connection with the Loan Documents, except such as are subject to attorney-client privilege, attorney work product privilege or any other privilege. Borrower may arrange for such reports and information to be provided directly to Lender by the Person providing the same to Borrower. (e) Other Information and Inspections. Borrower will furnish to Lender any information which Lender may from time to time reasonably request in writing concerning any covenant, provision or condition of the Loan Documents or any matter in connection with the Borrower's assets, business and/or operations (other than geological, geophysical and other technical data relating to assets other than the Properties). Borrower will permit representatives appointed by Lender (including independent accountants, agents, attorneys, appraisers and any other Persons), at the risk and expense of the Lender or such representatives, to visit and inspect, during reasonable business hours and upon reasonable prior written notice, its books of account and other books and records relating to the Properties and other Collateral, and any facilities or other business assets relating to the Collateral, and to make photocopies and/or photographs thereof, and to write down and record any information such representatives obtain, and Borrower shall permit Lender or its representatives to investigate and verify the accuracy of the information furnished to Lender in connection with the Loan Documents and to discuss all such matters with its officers, employees and representatives. In addition, Borrower will permit any such representatives appointed by Lender, at the risk and expense of Lender or such representatives, to visit and inspect, during reasonable hours and upon similar advance written notice, the Properties and other Collateral. Lender agrees that it will take all reasonable steps to keep confidential any proprietary information given to it by Borrower; provided, however, that this restriction shall not apply to information which (i) is at the time in question publicly available, (ii) is required to be disclosed by law or by any order, rule or regulation (whether valid or invalid) of any court or governmental agency, or authority, (iii) is disclosed to Lender's Affiliates, auditors, 24

attorneys, lenders or agents, or (iv) is disclosed in the course of the defense or enforcement of the Loan Documents or the defense or enforcement of Lender's exercise of its rights thereunder, provided that with respect to information furnished to Persons identified in clause (iii) (except when furnished pursuant to clause (iv)) such Person shall be subject to the foregoing confidentiality obligations applicable to Lender. (f) Reserve Reports. On or before each March 30 after the Closing Date until the Loan Termination Date, Borrower shall cause the preparation and delivery to Lender of petroleum engineering reports, in a form satisfactory to Lender, relating to the Properties and prepared as of the preceding December 31 (collectively, the "Reserve Reports" and individually, a "Reserve Report"). Lender may request one additional Reserve Report per Fiscal Year. Each annual Reserve Report required hereby shall be prepared by Engineers and shall be prepared at Borrower's sole expense. Any additional Reserve Reports shall be prepared by Engineers but at the expense of the requesting party. Each Reserve Report shall set forth updated estimates of proved developed producing reserves, proved developed non-producing reserves, proved undeveloped reserves, projected production profiles and overall economics of the Properties. Each Reserve Report will be based on the following assumptions: (i) Hydrocarbon pricing used will be determined by Lender using the parameters set forth on Schedule 7.1(f)(i) attached hereto. (ii) Average lease operating expenses and production taxes will be derived by the Engineers who prepare such report from the Operator's best estimate and historical operating expenses. (g) Notice of Investigations or Proceedings. Borrower shall give Lender prompt written notice of any proceeding at law or in equity against Borrower, or any investigation or proceeding before or by any administrative or governmental agency relating to the Borrower or any of the Collateral if, in any case, such could reasonably be expected to have an Adverse Effect. (h) Notice of Damage to Collateral. Borrower shall give Lender prompt written notice of any destruction or substantial damage to any material portion of the Collateral and of the occurrence of any condition or event which has caused, or may cause, material loss or depreciation in the value of any property subject to Lender's Liens or the Mortgage. (i) Maintenance of Licenses. Borrower shall maintain all licenses, permits, charters and registrations which are required for the conduct of its business and where the failure to have such could reasonably be expected to have an Adverse Effect. (j) Maintenance of Rights. Borrower will maintain, preserve, protect and keep all of its contractual and property rights with respect to the Collateral, other than those 25

released to the Lender in connection with the Loan Documents, and will not waive, amend or release any such rights, except when to do so could not reasonably be expected to have an Adverse Effect. (k) Maintenance of Existence and Qualifications. Borrower will maintain and preserve its corporate existence and its rights and franchises in full force and effect and will qualify and/or remain qualified to do business as a foreign corporation in all states or jurisdictions where required by applicable law and the failure to do so could reasonably be expected to have an Adverse Effect. (l) Payment of Taxes and Trade Debt. Except to the extent being contested in good faith, Borrower will (i) timely pay all taxes, assessments and other governmental charges or levies imposed upon it or upon its income, profits or property; (ii) within thirty (30) days after the same becomes due (or, with respect to any Vendor within such longer period as is acceptable to such Vendor) pay all Debt (other than the Obligations) owed by it; and (iii) maintain appropriate accruals and reserves for all of the foregoing Debt in accordance with GAAP. (m) Creditors. Borrower shall notify Lender promptly if Borrower fails to make any payment to lessors, suppliers, vendors, owners of royalty interest, tax authorities or other Persons, where such nonpayment could reasonably be expected to result in any Lien, other than a Permitted Encumbrance, against any item of Collateral or otherwise have an Adverse Effect. At any time such notification is due, Borrower shall also provide Lender with a statement showing the identity of such creditors, the amount due to each and the date each payment was due. (n) Interest. Borrower hereby promises to pay interest to Lender pursuant to the terms and at the rate stated in the Note on all Obligations (including Obligations to pay fees or to reimburse or indemnify Lender) after such Obligations become due. Borrower further agrees that any interest which has accrued and is not paid when due shall be added to and become part of the Loans. (o) Compliance with Agreements and Law. Borrower will perform all material obligations it is required to perform under the terms of the Loan Documents. Borrower will conduct its business and affairs in compliance with all laws, regulations and orders applicable thereto, including Environmental Laws, except where the failure to do so would not have an Adverse Effect. (p) Insurance. Borrower shall keep or cause to be kept all of the Mortgaged Properties (as that term is defined in the Mortgage) that are fixtures or personal property insured by insurance companies having a rating no lower than AAA by A.M. Best Company or otherwise acceptable to the Lender against loss or damage by fire or other risk usually insured against by owners or users of similar properties in similar businesses under extended 26

coverage endorsement and against theft, burglary and pilferage, in amounts in accordance with industry standards. Borrower shall deliver to Lender certificates of insurance at the time of execution hereof, and on or before the renewal date of each such policy of insurance. If and when Lender so requests in writing, Borrower shall also deliver to Lender copies of the policy or policies of such insurance. All such insurance shall contain endorsements in form satisfactory to Lender showing Lender as an additional party insured as its interest may appear. In furtherance of the foregoing, the following types of insurance covering the Collateral and the interest and liabilities incident to the ownership, possession and operation thereof shall be secured by Borrower: (i) Worker's compensation insurance and employer's liability insurance covering the employees of Borrower engaged in operations contemplated hereunder in compliance with all applicable state and federal law and endorsed to provide all states coverage and occupational disease coverage, as follows:
Workers Compensation Employers Liability Statutory $500,000 Each Accident $500,000 Disease Each Employee

(ii) Comprehensive general liability insurance with combined single limit of not less than $20,000,000 per occurrence and endorsed to provide coverage for explosion, collapse and underground damage hazards to property of others, contractual liability, products and completed operations, and for damage to underground resources, and accidental pollution, bodily injury and property damage coverage in sufficient amounts to meet umbrella underlying requirements; (iii) Excess umbrella liability insurance with a combined single limit of not less than $40,000,000 per occurrence and policy aggregate; (iv) Property insurance fully covering the personal property and fixtures subject to this Agreement. During the period of the drilling of wells and the construction of any other improvements comprising a part of the Collateral, Borrower shall, or as applicable, shall cause its contractors or subcontractors to, obtain and maintain well control insurance (including coverage for costs of redrilling) and builder's risk insurance, as applicable, in such form and amounts as Lender may from time to time reasonably request in writing and worker's compensation insurance covering all persons employed by Borrower or its agents or subcontractors of any tier in connection with any construction affecting the Collateral, including, without limitation, all agents and employees of Borrower and Borrower's subcontractors with respect to whom death or bodily injury claims could be asserted against Borrower. 27

(q) Certificates of Insurance. Borrower shall deliver to Lender valid certificates of all insurance policies and all endorsements thereto which are required hereunder to be obtained and maintained by Borrower. (r) Prudent Operations. Borrower shall prudently develop, and cause the Properties to be prudently operated and maintained to produce the output from or allocable to such property in a good and workmanlike manner consistent with prudent operator practices to maximize production from or allocable over the productive life thereof. (s) Environmental and Other Laws. Except as disclosed in Schedule 7.1(s) and except where non-compliance would not reasonably be expected to have an Adverse Effect, (i) Borrower is conducting its business in compliance with all applicable federal, state or local laws, including Environmental Laws, and has been and is in compliance with any licenses and permits required under any such laws which affect or relate to the Collateral; (ii) none of the operations or properties of Borrower is the subject of federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Materials into the environment or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Materials; (iii) Borrower has not filed or received any notice under any federal, state or local law indicating that Borrower is or may be responsible for the improper release into the environment, or the improper storage or disposal, of any Hazardous Materials or that any Hazardous Materials has been improperly released, or is or has been improperly stored or disposed of, upon the Properties; and (iv) Borrower is not aware of contingent liability under any Environmental Laws or in connection with the release into the environment, or the storage or disposal, of any Hazardous Materials, upon the Properties. (t) Daily Field Activity Reports. At Lender's written request, Borrower shall provide Lender, to the extent possible, by telecopy or e- mail, a daily report detailing all drilling, completions and workovers from the preceding day with respect to the Properties in form and substance reasonably satisfactory to Lender. (u) Weekly Reports. Borrower shall provide Lender with weekly reports by telecopy or e-mail setting forth the quantities, types and specifications of Hydrocarbons produced from or allocable to each of the Properties, in form and substance satisfactory to Lender. (v) AFE's. Borrower will provide Lender with authorizations for all material expenditures ("AFEs") with respect to the Properties, representing an estimate of work to be done, prior to commencing the activity contemplated by such AFE. If any such AFE is inconsistent with or relates to an operation not contemplated by Schedule 2.1(b) attached hereto, then such AFE shall be supported by appropriate invoices, bids, estimates, contracts and all other relevant, available supporting information. 28

(w) Nominations. For Hydrocarbons not purchased by Lender or its Affiliate, Borrower shall provide to Lender by the first day of each calendar month, beginning with May 1999 reports by telecopy setting forth the nominations of quantities of Hydrocarbons for that calendar month, and for Hydrocarbons purchased by Lender or its Affiliate, nominations shall be provided pursuant to the applicable gas purchase agreement. (x) Post-Closing Title Opinions. As requested by Lender, Borrower will, within sixty (60) days following the Closing Date, deliver to Lender a title opinion or opinions covering the Properties and showing Defensible Title in the Properties in Borrower subject only to: (i) a first priority lien created by the Mortgage in favor of Lender, (ii) other Permitted Encumbrances, and (iii) the necessity for approval of assignments into Borrower by the United States Department of Interior, Minerals Management Service, and otherwise reasonably satisfactory in form and substance to Lender. (y) Legal Fees. Borrower will pay on or before the Closing Date, all reasonable legal expenses incurred by Lender in connection with the Credit Agreement and the Loan Documents; provided, however, the Borrower shall not be obligated to pay in excess of $25,000 in the aggregate for legal, title, environmental and other due diligence expenses incurred by the Lender, and, thereafter, will reimburse Lender for all reasonable legal expenses incurred in connection with any subsequent amendment, mortgage, extension or renewal of any Loan Document or the legal expenses attributable to the enforcement of the same. (z) Facility Fee. The Facility Fee in the amount of $465,000.00 shall be payable by Borrower to Lender out of the advances evidenced by the Note, the face amount of which shall be the sum of the Initial Loan (which includes the amount of the Facility Fee) and the maximum amount of the Development Loans. The amount of the Facility Fee will be deemed to have been advanced by Lender to Borrower on the Closing Date, with such advance having been contemporaneously paid by Borrower to Lender. Section VII.2 Negative Covenants. Borrower warrants, covenants and agrees that until the full and final repayment of the Obligations and the termination of each of the Loan Documents: (a) Limitation on Sales of Collateral. Borrower will not sell, transfer, lease, exchange, alienate or dispose of any Collateral or any interest therein, except for the sale of Hydrocarbons in the ordinary course of business and/or other sales to the extent pursuant to or as expressly allowed under this Agreement and the Security Documents encumbering such Collateral. (b) Compensation. The Borrower shall not, directly or indirectly, enter into any employment agreement or other arrangement with or for the benefit of an officer, director or employee of the Borrower other than for reasonable compensation for services as an officer, director or employee. 29

(c) Limitation on Credit Extensions. Neither Borrower nor any of its Affiliates will extend credit, make advances or make loans to any Person other than in the ordinary course of business. (d) Certain Contracts; Amendments. Borrower shall not amend or permit any amendment to any contract or lease with respect to the Collateral which releases, qualifies, limits, makes contingent or otherwise modifies in a manner reasonably expected to have an Adverse Effect. (e) Indebtedness. Except for Permitted Encumbrances or as otherwise expressly provided herein, Borrower shall not create, incur, assume or suffer to exist any Debt against the Properties or Equipment, except Obligations to Lender hereunder, or trade payables incurred in the ordinary course of Borrower's business, or sell, discount or factor its accounts, instruments, intangibles, leases or chattel paper constituting a part of the Collateral; provided, however, Borrower may incur such Debt not to exceed $100,000 per transaction and in the aggregate with regard to direct costs and expenses incurred in the prudent operation of the Properties. (f) Liabilities. Except as expressly provided herein, Borrower shall not assume, guaranty, or endorse or otherwise become directly or contingently liable in connection with any other liability of any other Person other than majority owned Affiliates, except for the indemnification contained herein; provided, however, that the foregoing shall not prohibit the endorsement of negotiable instruments for deposit or collection or incurrence of obligations under operating agreements and similar transactions in the ordinary course of business. For the purposes hereof, "guaranty" shall include any agreement, whether such agreement is on a contingency basis or otherwise, to purchase, repurchase or otherwise acquire any obligation or liability of any other Person, or to purchase, sell or lease, as lessee or lessor, property or services in any such case primarily for the purpose of enabling another Person to make payment of any such debt or liability, or to make any payment (whether as a capital contribution, purchase of any equity interest or otherwise) to assure a minimum equity, asset base, working capital or other balance sheet or financial condition, in connection with Debt or liability of another Person, or to supply funds to or in any manner invest in another Person in connection with such Person's Debt or liability. (g) Cancellation of Claims. Without Lender's written consent, Borrower shall not cancel any claim or debt relating to the Properties in excess of a total of $50,000 during the term of the Loans, except for reasonable consideration and in the ordinary course of its business. (h) Defaults. Except as previously disclosed to Lender, Borrower shall not cause a default under any lease, mortgage, deed of trust or lien with respect to the Properties. 30

(i) Security Interests and Liens. Subject to Borrower's right to contest in good faith or cure within thirty (30) days of the filing of any Lien, Borrower shall not suffer to exist any valid Lien against the Properties or consent to the filing of any financing statements on any of the Collateral, other than the Liens created by the Security Documents and other Permitted Encumbrances. (j) Certain Changes. Borrower shall not transfer its principal office or its registered offices outside of the State of Texas or keep Collateral at any location(s) other than those at which the same are presently kept in accordance with Section 6.1 without prior written notice to the Lender and the execution and delivery to the Lender of such additional Security Documents as may be reasonably required by the Lender in connection therewith. (k) Loan Documents. Borrower shall not alter, amend or cause the alteration or amendment of any of the Loan Documents without the prior written consent of Lender. ARTICLE VIII: FURTHER RIGHTS OF LENDER AND BORROWER Section VIII.1 Maintenance of Security Interests. Until the Obligations are repaid in full, Borrower, at its own expense, shall do all things and shall deliver all instruments reasonably requested by Lender in writing to protect or perfect any security interest, mortgage or lien given hereunder or under any Security Documents, including, without limitation, financing statements under the Uniform Commercial Code. Borrower hereby authorizes Lender, during the continuance of any Event of Default, to appoint such Person or Persons as Lender may designate as its attorney-in-fact to endorse the name of Borrower on any checks, notes, drafts or other forms of payment or security that may rightfully come into the possession of either Lender or any Affiliate of Lender, to sign Borrower's name on invoices or bills of lading, drafts against customers, notices of assignment, verifications and schedules that relate exclusively to the Collateral and, generally, to do all things necessary to carry out this Agreement and the Security Documents to the extent required of Borrower pursuant to this Section 8.1 and Section 11.10. The powers granted herein, being coupled with an interest, are irrevocable so long as any Obligations are outstanding. Neither Lender nor the attorney-in-fact shall be liable for any act or omission, error in judgment or mistake of law so long as the same is not malicious or grossly negligent. Upon payment and performance of all Obligations of Borrower to Lender, such power of attorney will become null and void. Section VIII.2 Performance of Obligations. In the event that Borrower fails to purchase or maintain insurance in accordance with the requirements of this Agreement, or to pay any tax, assessment, government charge or levy, except as the same may be otherwise permitted hereunder, or in the event that any Lien prohibited hereby shall not be paid in full or discharged, or in the event that Borrower shall fail to perform or comply with any other covenant, promise or Obligation to Lender hereunder or under any Loan Document, which failure may reasonably be expected to cause an Adverse Effect, Lender may, following written notice to Borrower affording Borrower ten (10) days after the date of such notice to cure the relevant circumstance, but shall not be required to, 31

perform, pay, satisfy, discharge or bond the same for the account of Borrower, and all monies so paid by Lender, including, without limitation, reasonable attorneys' fees and disbursements, shall, at Lender's option, either be treated as an additional Obligation of Borrower to Lender hereunder and under the other Loan Documents, or be treated as a debit to the Borrower Sub-Account in accordance with Section 2.7(a). If Lender has attempted to send the notice required hereby but, as the result of inadvertence not constituting gross negligence or willful misconduct, such notice is improperly addressed or is not timely delivered, the failure of Borrower to have timely received such notice shall not in any way prohibit or otherwise limit the exercise by Lender of its rights under this Section. Section VIII.3 Overriding Royalty Interest. At Closing, Borrower shall assign to Lender the ORRI by executing and delivering to Lender the Overriding Royalty Interest Conveyance in form and substance mutually satisfactory to Lender and the Borrower. Section VIII.4 ORRI Option. Pursuant to the terms of the Overriding Royalty Interest Conveyance, Borrower shall have an option to repurchase the ORRI after the Closing Date at a price (the "Purchase Price") to be determined by a Reserve Report that incorporates, without limitation, forward pricing determined by the Engineers pursuant to the parameters set forth on Schedule 7.1(f)(i) attached hereto, historical operating expenses verified by the Engineers and proven reserves attributable to the ORRI that is prepared by Engineers, such as Ryder Scott, Netherland Sewell or the Engineers that prepared the Reserve Report most recently delivered hereunder, using a fifteen percent (15%) discount rate; provided, however, that the ORRI Option is a non-assignable option granted by Lender solely to Borrower and, notwithstanding any right that may be granted to Borrower in the Overriding Royalty Interest Conveyance to assign, sell, transfer or otherwise convey any of the Properties, the exercise of the ORRI Option shall be solely by Borrower and shall be with relation to the entire ORRI as granted in the Overriding Royalty Interest Conveyance. Furthermore, any notice to Borrower hereunder shall be deemed as actual notice to its assignees of the Properties ("Assignees"), if any. Borrower may exercise its option by sending written notice of such exercise to Lender specifying an effective date for the determination of the Purchase Price that is the first day of the month preceding the month in which the notice is delivered to Lender ("ORRI Sale Date"), accompanied by the Reserve Report that establishes the Purchase Price, and stating that Borrower is ready, willing and able to close such purchase and pay the Purchase Price within thirty (30) days from the date of the notice, without any conditions with respect to obtaining financing, or otherwise. If the Purchase Price established in the Reserve Report was appropriately determined based on the parameters set forth in Schedule 7.1(f)(i), then the parties shall proceed to close such purchase and sale transaction within thirty (30) days from Lender's receipt of Borrower's option exercise notice. At the closing, Borrower shall pay the Purchase Price to Lender in cash or by wire transfer to an account designated by Lender, and Lender shall assign the ORRI to Borrower by recordable form of assignment with special warranty of title by, through and under Lender, but not otherwise. The Purchase Price shall be adjusted, downward, by the amount of any net revenues received by Lender prior to the closing for production attributable to the ORRI subsequent to the ORRI Sale Date, and shall be adjusted upward for any revenues that have accrued with respect to the ORRI for production prior to the ORRI Sale Date, that have not yet been paid to Lender. After the closing, any revenues received by Lender that are attributable to the ORRI shall be promptly remitted to Borrower. If 32

Lender does not agree with the Purchase Price proposed by Borrower in the option exercise notice, it shall notify Borrower promptly and in any event within ten (10) days after the receipt of such notice, and the parties shall endeavor to reach agreement on the Purchase Price within thirty (30) days thereafter. If they are able to do so, closing, as provided above, shall occur within ten (10) days after they have reached agreement on the Purchase Price. If they are unable to reach agreement on the Purchase Price, either party may elect to have the Purchase Price determined through arbitration in accordance with Article XII hereof, and the closing shall then occur within ten (10) days after the arbitrator(s) have notified Lender and Borrower of the Purchase Price that has been so determined. After Borrower has notified Lender of Borrower's election to exercise its option to purchase the ORRI, such election shall not be revocable, and Lender shall have the right to enforce specific performance of Borrower's resulting obligation to purchase, so long as the Lender can deliver title to the ORRI to the Borrower without being in violation of its special warranty of title. Section VIII.5 Non-Recourse. It is expressly understood and agreed that the undertaking of the Borrower to pay any indebtedness or perform any obligation under the Loan Documents is included herein for the sole purpose of establishing the continuing existence of the debt and the maturity of such debt. Notwithstanding anything in the Loan Documents, including but not limited to this instrument and any certificate, opinion, or documents of any nature whatsoever, neither Lender nor its successors or assigns, nor any holder or holders of the indebtedness will have any claim, remedy, or right to proceed against Borrower for the payment of any deficiency or any other sum or performance of any obligation of any nature whatsoever under the Loan Documents from any source other than the Collateral, for the payment of such indebtedness or the satisfaction of such liability or for the satisfaction of any obligation by the Borrower to Lender, whether sounding in contract, tort or otherwise; provided, however, that nothing contained herein will limit, restrict, or impair the rights of the holders of the debt to accelerate the maturity of the debt during the continuance of an Event of Default, to bring suit and obtain a judgment against Borrower on the debt for purposes of enforcement of any Security Document, provided that the satisfaction of such judgment is limited solely to the Collateral, and the exercise of all of Lender's rights and remedies to foreclose or otherwise realize upon the Collateral, including rights to collect sums due or to become due under the Collateral. Section VIII.6 Removal and Appointment of Operator. Lender shall, in its reasonable discretion, have the right to approve or disapprove any action taken by Borrower to appoint, remove or replace the Operator of any of the Properties. Section VIII.7 Set-Off Rights. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right to set-off and apply against the Obligations in such manner as Lender may determine, upon written notice at any time to Borrower, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Lender or any depositary to Borrower whether or not the Obligations are then due, except there shall not be such right against any amounts owing to third-party working interest and royalty interest holders of which the Lender shall have been notified. Lender shall provide notice to Borrower not later than five (5) days following any application of such funds. 33

ARTICLE IX: CLOSING; CONDITIONS TO CLOSING Section IX.1 Closing. Subject to the conditions set forth in this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") shall occur at a mutually agreeable time on or before April 9, 1999. The date the Closing actually occurs is hereby called the "Closing Date." The Closing shall be held at the offices of Porter & Hedges. LLP in Houston, Texas, or at such other place as Borrower and Lender may agree in writing. Section IX.2 Conditions to Closing. As conditions precedent to the making of the Initial Loan hereunder and to the making of any Development Loans, Borrower shall deliver to Lender (except as otherwise provided below) the following documents duly executed and in form and substance satisfactory to Lender: (a) the Note, multiple counterparts of this Agreement; (b) a certificate of the secretary or assistant secretary of Borrower dated the Closing Date, certifying the incumbency of its officers executing this Agreement and any other documents required hereby and certifying resolutions adopted by the board of directors of Borrower authorizing Borrower's execution and delivery of this Agreement, the Note, the Mortgage and all other documents and instruments contemplated by this Agreement; (c) a certificate of the president or a vice president of Borrower dated the Closing Date, certifying the truth and accuracy of the representations and warranties of Borrower set forth in this Agreement and Borrower's performance and compliance with all agreements and covenants required by this Agreement to be performed or complied with prior to the making of the Loans; (d) a copy of the Articles of Incorporation of Borrower certified by the Secretary of State of the State of Texas and a copy of its bylaws certified by the secretary or an assistant secretary of the Borrower; (e) certificates, as of the most recent dates practicable, of the Secretary of State of the State of Texas attesting to Borrower's existence, and from the appropriate governmental authority of each state in which Borrower is qualified to do business as a foreign corporation attesting to such qualification, and from the office of the comptroller of public accounts, department of revenue or taxation, or other appropriate governmental authority of each of the foregoing states, attesting to the good standing of Borrower; (f) evidence of termination and/or releases of the Existing Liens; (g) the Mortgage dated as of the Closing Date and in as many counterparts as Lender may require; 34

(h) U.C.C.-1 financing statements to be filed under the Uniform Commercial Code; (i) the written opinion of Borrower's counsel dated the Closing Date and addressed to Lender in form and substance satisfactory to Lender; (j) evidence that Borrower has obtained insurance in accordance with Sections 7.1(p) and (q) hereof; (k) a Reserve Report satisfactory to Lender's staff petroleum engineer from an engineer attesting to the quantity of reserves underlying the Properties and their classification (e.g., proved undeveloped), as calculated in accordance with the Society of Petroleum Engineers standards; (l) Title Opinions satisfactory to Lender establishing that Borrower has acquired Defensible Title to the Properties, subject only to Permitted Encumbrances and the Existing Liens; (m) a Swap Agreement; (n) the results of Uniform Commercial Code searches showing all financing statements and other documents or instruments on file against Borrower, in the Offices of the Secretaries of State of the State of Texas and Louisiana and in the counties or parishes in which Properties are deemed to be located for recording purposes, such search to be as of a date no more than ten (10) days prior to the date of the advance of the Loans; (o) any and all fees required under this Agreement as of the date of the making of the relevant Loan are paid in full; (p) the Security Agreement; (q) the Overriding Royalty Interest Conveyance; (r) the Gas Purchase and Sale Agreement; (s) the Cash Collateral Agreement; (t) the Lockbox Agreement; and (u) such other documents and instruments as Lender may reasonably request. None of the foregoing instruments will be required to be redelivered at the time of the advance of any Development Loans subsequent to the date of the making of the Initial Loan with 35

the exception of those identified in paragraph (c), paragraph (h) (if the operations to be funded by such Development Loan involve the installation of additional major items of Equipment for which Lender desires to file a new UCC-1 or UCC-3), (n) (only if requested by Lender), (o) and (v). Section IX.3 Conditions Precedent to Funding. Lender shall not be obligated to make any loan available (other than advances under a Development Loan for which: (i) a conforming Request for Commitment has been submitted to Lender, (ii) the operations covered by such Request for Commitment are Development Operations set forth on Schedule 2.1(b), (iii) Borrower has commenced such Development Operations and (iv) has given Lender written notice thereof) unless the following conditions precedent have been satisfied. (a) There is no Event of Default, Unmatured Event of Default or Tax Claim under this Agreement, the Mortgage or any other Loan Document; (b) All of Borrower's representations and warranties made in any Loan Document shall be true and correct as if made on the date of such advance (except to the extent that the facts upon which such representation are based have been changed by the extension of credit hereunder); (c) Borrower shall have performed and complied with all agreements and conditions in the Loan Documents which are required to be performed or complied with by it on or prior to the date of such Loans; (d) No law, regulation, order, judgment or decree of any governmental authority is in effect or pending which shall enjoin, prohibit or restrain such loan or impose, or result in the imposition of, any adverse condition upon Lender; (e) Lender shall have received all documents and instruments which Lender has then reasonably requested as to, (i) the accuracy and validity of or compliance with all representations, warranties and covenants made by the Borrower in any Loan Document, (ii) the satisfaction of all conditions contained herein or therein, and (iii) all other matters pertaining hereto and thereto. All such additional documents and instruments shall be satisfactory to Lender (in reasonable exercise of its discretion) in form, substance, and date; (f) Lender shall have received satisfactory due diligence analysis including, but not limited to, financial and operational data, title and environmental review, all such data to be provided by Borrower; and (g) Lender shall have received satisfactory information regarding existing gas sales and oil sales with respect to production of Hydrocarbons from or allocable to the Properties, which will include, for gas sales on a well-by-well basis, where applicable, transportation costs, gathering costs, processing costs, gas stream heating content, then-current market prices for gas of similar quality and copies of existing sales contracts and for 36

oil sales, individual well specific gravity of produced oil, transportation costs, sulfur content, purchase bonuses, then-current market prices for oil of similar quality, and copies of existing sales contracts. ARTICLE X: EVENTS OF DEFAULT AND REMEDIES Section X.1 Events of Default. Each of the following events constitutes an Event of Default under this Agreement: (a) Lender fails to receive its portion of Net Revenue (Net Revenue multiplied by the applicable Dedication Rate) in accordance with Section 2.7(b) when the same is due and payable; (b) Projected Net Revenue attributable to Proved Reserves, based on the most recent Reserve Report delivered to Lender after the Closing Date, is insufficient to fully amortize the Loans by their stated maturity; (c) Any Loan Document at any time ceases to be valid, binding and enforceable against Borrower for any reason other than its release or subordination made with the consent of Lender, and such cessation is not remedied in full within fifteen (15) days after Borrower receives written notice thereof; (d) Any "Event of Default", as defined in the Mortgage (other than an event which is referred to in subsection (a) through (c) of this Section 10.1), occurs under the Mortgage, and the same is not remedied within the applicable period of grace (if any) provided in the Mortgage; (e) Borrower fails (other than as referred to in subsections (a) through (d) of this Section 10.1) to duly observe, perform or comply with any covenant, agreement, condition or provision of any Loan Document, and such failure is not remedied within thirty (30) days of the time at which Borrower receives written notice from Lender or otherwise knows or should have known of such failure; (f) Any representation or warranty previously, presently or hereafter made in writing by or on behalf of Borrower in connection with any Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made; (g) Any Lien against any of the Properties resulting from a Tax Claim for $50,000 or more is asserted against Borrower and such Tax Claim is not withdrawn, formally disputed in good faith, or otherwise disposed of within thirty days (30) thereafter; (h) Subject to Permitted Encumbrances, and except for such resulting from any failure by Lender to duly file applicable Security Documents executed and delivered by 37

Borrower or applicable UCC-3 continuation filings not required to be executed by Borrower, Lender shall at any time not have a perfected first priority security interest and/or Lien on all or any part of the Collateral; (i) Borrower's Working Interest and/or Net Revenue Interest constituting any Property is decreased, other than by virtue of the Overriding Royalty Interest Conveyance, from those set forth in Exhibit A to the Mortgage other than pursuant to a Permitted Encumbrance or with the prior written consent of Lender; (j) Borrower: (i) has entered against it a judgment, decree or order for relief by a court of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended, or has any such proceeding commenced against it which remains undismissed for a period of ninety (90) days; or (ii) commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended; or applies for or consents to the entry of an order for relief in an involuntary case under any such law; or makes a general assignment for the benefit of creditors; or fails generally to pay (or admits in writing its inability to pay) debts as such debts become due; or takes corporate or other action to authorize any of the foregoing; or (iii) suffers the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of all or a substantial part of its assets or of any part of the Collateral in a proceeding brought against or initiated by it, and such appointment or taking possession is neither made ineffective nor discharged within sixty (60) days after the making thereof, or such appointment or taking possession is at any time consented to, requested by or acquiesced to by it; or (iv) suffers the entry against it of a final judgment for the payment of money in excess of $250,000, unless the same is covered by insurance or is discharged within sixty (60) days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such period and a stay of execution pending such appeal is obtained; or (v) suffers a writ or warrant of attachment or any similar process to be issued by any court against all or any substantial part of its assets or any part of the Collateral, and such writ or warrant of attachment or any similar process is not stayed 38

or released within sixty (60) days after the entry or levy thereof or after any stay is vacated or set aside; or (vi) fails to pay any Indebtedness in excess of $50,000.00 relating to the Properties (other than Indebtedness hereunder) or any interest or premium thereon when due (whether at scheduled maturity or by acceleration, demand or otherwise) and such failure shall continue after any applicable grace period specified in the agreement or instrument relating to such Indebtedness or any other event shall occur and continue after any applicable grace period specified in such agreement or instrument, if the effect of such default or event is to accelerate or permit the acceleration of, the maturity of such Indebtedness (in excess of $50,000.00), or if, as the result of such a default, any such Indebtedness (in excess of $50,000.00) shall be declared to be due and payable, or is required to be prepaid, prior to the stated maturity thereof. (k) Both T. Paul Bulmahn and Gerald W. Schlief cease to be involved actively in the management of the Borrower. Section X.2 Acceleration. (a) Automatic Acceleration. Upon the occurrence of an Event of Default described in subsection (j)(i), (j)(ii) or (j)(iii) of Section 10.1, all of the Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each obligor who at any time ratifies or approves this Agreement. After any acceleration under this subsection, any obligation of Lender to make any further Loans or advances of any kind under any Loan Document shall at the option of Lender be permanently terminated. (b) Partial Acceleration. Upon the occurrence and during the continuance of any Event of Default described in subsection (a), (c), (d) or (e) of Section 10.1 with respect to any Obligation owing or Loan Document executed in connection therewith, Lender at any time and from time to time may declare any and all such Obligations immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower. Upon Lender's acceleration of any or all of the Obligations, it shall use commercially reasonable efforts to give Borrower reasonably contemporaneous written notice thereof, but any inadvertent error in the timing or manner of giving such notice shall not affect, in any way, the otherwise proper acceleration under the terms of this Agreement of such Obligations. 39

(c) Tax Claims. Upon the occurrence and during the continuance of an Event of Default described in subsection (g) of Section 10.1, Lender may at any time and from time to time and without notice to Borrower, except as may otherwise be required hereunder, declare any or all of the Obligations associated with such Tax Claim (or which Lender in its reasonable discretion believes will be likely to become associated with such Tax Claim or any similar future Tax Claim) immediately due and payable, and all such Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower. Upon Lender's acceleration of any or all of the Obligations, it shall use commercially reasonable efforts to give Borrower reasonably contemporaneous written notice thereof, but any inadvertent error in the timing or manner of giving such notice shall not affect, in any way, the otherwise proper acceleration under the terms of this Agreement of such Obligations. (d) Other Acceleration. Upon the occurrence and during the continuance of any Event of Default not described in the preceding subsections (a), (b) or (c) of this Section 10.2, Lender may at any time and from time to time and without notice to Borrower, except as may otherwise be required hereunder, declare any or all of the Obligations immediately due and payable, and all such Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower. Upon Lender's acceleration of any or all of the Obligations, it shall use commercially reasonable efforts to give Borrower reasonably contemporaneous written notice thereof, but any inadvertent error in the timing or manner of giving such notice shall not affect, in any way, the otherwise proper acceleration under the terms of this Agreement of such Obligations. Section X.3 Remedies. If any Event of Default shall occur and be continuing, Lender's obligation to make any Development Loans shall be suspended, except as expressly provided to the contrary herein, and Lender may protect and enforce its rights under the Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and Lender may enforce the payment of any Obligations due or enforce any other legal or equitable right. All rights, remedies and powers conferred upon Lender under the Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the Loan Documents or at law or in equity. Notwithstanding the foregoing, the payment of the Obligations of Borrower shall be made solely from the cash flows from the Collateral, or in the Event of Default by Borrower, from any amounts derived from the exercise by Lender of its rights hereunder, or under any other Loan Document, with regard to the Collateral including proceeds of foreclosure; but without recourse by Lender to any of the cash flows, properties or other assets of Borrower not included in or derived from the Collateral. If any Unmatured Event of Default shall occur and be continuing, Lender's obligation to make any 40

Development Loans shall be suspended, except as expressly provided to the contrary herein, so long as any such Unmatured Events of Default or resulting Event of Default is continuing. Section X.4 Indemnity. Except to the extent expressly provided otherwise in another Loan Document, Borrower agrees to indemnify Lender, upon written demand, from and against any and all liabilities, obligations, claims, losses, damages, penalties, fines, actions, judgments, suits, settlements, costs, expenses or disbursements (including reasonable fees of attorneys, experts and advisors) of any kind or nature whatsoever (in this section collectively called "liabilities and costs") which to any extent (in whole or in part) may be imposed on, incurred by or asserted against Lender growing out of, resulting from or in any other way associated with any of the Collateral, the Loan Documents or the transactions and events including the enforcement or defense thereof at any time associated therewith or contemplated therein (including any violation or noncompliance with any Environmental Laws by any Person or any liabilities or duties of any Person with respect to Hazardous Materials found in or released into the environment). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDER PROVIDED THAT NO PERSON SHALL BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS CAUSED BY SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. As used in this section the term "Lender" shall refer not only to the Person designated as such in Section 1.1, but also to its lender(s) and members and, with respect to each of the foregoing, each director, officer, agent, attorney, employee, representative and Affiliate of such Person. ARTICLE XI: MISCELLANEOUS Section XI.1 Waivers and Amendments; Acknowledgments and Admissions. (a) Waivers and Amendments. No failure or delay (whether by course of conduct or otherwise) by Lender in exercising any right, power or remedy which Lender may have under any of the Loan Documents shall operate as a waiver thereof or of any other right, power or remedy, nor shall any single or partial exercise by Lender of any such right, power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No waiver of any provision of any Loan Document and no consent to any departure therefrom shall ever be effective unless it is in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instances and for the purposes for which given and to the extent specified in such writing. No notice to or demand on Borrower shall in any case of itself entitle Borrower to any other or further notice or demand in similar or other circumstances. This Agreement and the other Loan Documents set forth the entire understanding and agreement of the parties hereto and thereto with respect to the transactions contemplated herein and therein and supersede all prior discussions and understandings with respect to the subject matter hereof and thereof, and no modification or amendment of or 41

supplement to this Agreement or the other Loan Documents shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced. (b) Acknowledgments and Admissions. Borrower hereby represents, warrants and acknowledges that (i) it has been advised by counsel in the negotiation, execution and delivery of the Loan Documents to which it is a party, (ii) it has made independent decisions to enter into this Agreement and the other Loan Documents to which it is a party, without reliance on any representation, warranty, covenant or undertaking by Lender, whether written, oral or implicit, other than as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iii) there are no representations, warranties, covenants, undertakings or agreements by Lender to Borrower as to the Loan Documents except as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iv) Lender owes no fiduciary duty to Borrower with respect to any Loan Document or the transactions contemplated thereby, (v) the relationship pursuant to the Loan Documents between Borrower, on one hand, and Lender, on the other hand, is and shall be solely that of debtor and creditor, respectively, (vi) no partnership or joint venture exists with respect to the Loan Documents between Borrower and Lender, (vii) should an Event of Default or Unmatured Event of Default occur or exist Lender will determine in its sole discretion and for its own reasons what remedies and actions it will or will not exercise or take at that time, (viii) without limiting any of the foregoing, Borrower is not relying upon any representation or covenant by Lender, or any representative thereof, and no such representation or covenant has been made, that Lender will, at the time of an Event of Default or Unmatured Event of Default, or at any other time, waive, negotiate, discuss or take or refrain from taking any action permitted under the Loan Documents with respect to any such Event of Default or Unmatured Event of Default or any other provision of the Loan Documents, and (ix) Lender has relied upon the truthfulness of the acknowledgments in this section in deciding to execute and deliver this Agreement and to make the Loans. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section XI.2 Survival of Agreements: Cumulative Nature. Lender may assign and/or transfer its rights and privileges under the Loan Documents at any time and from time to time; provided that Lender shall remain liable to perform, or cause to be performed, its obligations to Borrower under the terms of the Loan Documents. All of the various representations, warranties, covenants and agreements of Borrower in the Loan Documents shall survive the execution and delivery of this Agreement and the other Loan Documents and the performance hereof and thereof, including the making or granting of the Loans and the delivery of the Note and the other Loan Documents, and shall further survive until all of the Obligations are paid in full to Lender and all of 42

Lender's obligations to Borrower are terminated. The representations, warranties and covenants made by Borrower in the Loan Documents, and the rights, powers and privileges granted to Lender in the Loan Documents, are cumulative, and, except for expressly specified waivers and consents, no Loan Document shall be construed in the context of another to diminish, nullify or otherwise reduce the benefit to Lender of any such representation, warranty, covenant, right, power or privilege. In particular and without limitation, no exception set out in this Agreement to any representation, warranty or covenant herein contained shall apply to any similar representation, warranty or covenant contained in any other Loan Document, and each such similar representation, warranty or covenant shall be subject only to those exceptions which are expressly made applicable to it by the terms of the various Loan Documents. Section XI.3 Notices. All notices, requests, consents, demands and other communications required or permitted under any Loan Document shall be in writing, unless otherwise specifically provided in such Loan Document, and shall be deemed sufficiently given or furnished if delivered by personal delivery, by telecopy, by delivery service with proof of delivery or by registered or certified United States mail, postage prepaid, (unless changed by similar notice in writing given by the particular Person whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of delivery at the address and in the manner provided herein, (b) in the case of telecopy, upon receipt, or (c) in the case of registered or certified United States mail three (3) business days after deposit in the mail. For mail delivery to: ATP Oil and Gas Corporation Attn: T. Paul Bulmahn, President 4600 Post Oak Place, Suite 230 Houston, Texas 77027 with copies to: David G. Dunlap Jackson Walker L.L.P. 1100 Louisiana, Suite 4200 Houston, Texas 77002 For mail delivery to: Aquila Energy Capital Corporation 909 Fannin, Suite 1850 Two Houston Center Houston, Texas 77010-1007 43

with copies to: Michael L. Grove Porter & Hedges, L.L.P. 700 Louisiana, Suite 3500 Houston, Texas 77002 Section XI.4 Parties in Interest; Transfers. All grants, covenants and agreements contained in the Loan Documents shall bind and inure to the benefit of the parties thereto and their respective successors and assigns; provided, however, that Borrower shall not assign or transfer any of its rights or delegate any of its duties or obligations under any Loan Document without the prior written consent of Lender, which consent shall not unreasonably be withheld or delayed. Nothing expressed or referred to in this Agreement shall be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. Section XI.5 Governing Law; Submission to Process. Except to the extent that the law of another jurisdiction is expressly elected in a Loan Document or mandatorily governs a Loan Document, the Loan Documents shall be deemed contracts and instruments made under the laws of the State of Texas and shall be construed and enforced in accordance with and governed by the laws of the State of Texas, without regard to principles of conflicts of law. This Agreement has been entered into in Houston, Texas and shall be performable for all purposes in Harris County, Texas. Subject to the provisions of Article XII, courts within the State of Texas shall have jurisdiction over any and all disputes between Borrower and Lender, whether in law or equity, including, but not limited to, any and all disputes arising out of or relating to this Agreement or any other Loan Document; and venue in any such dispute whether in federal or state court shall be laid in Harris County, Texas. Section XI.6 Limitation on Interest. Lender, Borrower and any other parties to any Loan Documents intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof, the parties stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Borrower nor any present or future guarantors, endorsers or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. Lender expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are 44

determined to be in excess of the legal maximum, or (c) Lender or any other holder of any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at Lender's or such holder's option, promptly returned to Borrower or the other payor thereof upon such determination. In determining whether or not the interest paid or payable under any specific circumstance exceeds the maximum amount permitted under applicable law, Lender and Borrower (and any other payors thereof) shall to the greatest extent permitted under applicable law, (x) characterize any non-principal payment as an expense, fee or premium rather than as interest, (y) exclude voluntary prepayments and the effects thereof, and (z) amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. Section XI.7 Termination; Limited Survival. In their sole and absolute discretion, Borrower and Lender may each, at any time that no Obligations are owing, elect in a notice delivered to the other to terminate this Agreement; provided that prior to the Drawdown Termination Date the Lender shall not, without the written consent of Borrower, be entitled to terminate its commitment to make additional Development Loans. Upon receipt of such a notice, if no Obligations are then owing, this Agreement and all other Loan Documents shall thereupon be terminated and the parties thereto released from any prospective obligations thereunder. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by Borrower or Lender in any Loan Documents, and any obligations which any Person may have to indemnify or compensate Lender shall survive any termination of this Agreement or any other Loan Document. At the request and expense of Borrower, Lender shall prepare and execute all necessary instruments to release and effect such termination of the Loan Documents; provided however, that nothing in this Section 11.7 shall affect any and all continuing rights, validity and enforceability of the ORRI. Section XI.8 Severability. If any term or provision of any Loan Document shall be determined to be illegal or unenforceable, all other terms and provisions of the Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable law. Section XI.9 Counterparts. This Agreement may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Section XI.10 Further Assurances. The parties agree (a) to furnish upon written request to each other such information, (b) to execute and deliver to each other such documents, and (c) to do 45

such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the Loan Documents. Section XI.11 Waiver of Punitive Damages, Etc. BORROWER AND LENDER HEREBY (a) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY ARBITRATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (b) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF ARBITRATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (c) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. Section XI.12 Representations and Warranties of Lender. To confirm Borrower's understanding concerning Lender and Lender's business and obligations, and to induce Borrower to enter into this Agreement and to make the Loans, Lender represents and warrants to Borrower that: (a) Organization and Good Standing. Lender is a corporation duly organized, validly existing and in good standing under the laws of Delaware, having all powers necessary to carry on its business and to enter into and consummate the transactions contemplated by the Loan Documents. (b) Authorization. Lender has taken all actions necessary to authorize the execution and delivery of the Loan Documents and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder, subject to satisfaction of the terms and conditions of the Loan Documents. Lender is duly authorized to lend funds hereunder, subject to satisfaction of the terms and conditions of the Loan Documents. (c) No Conflicts or Consents. Except as expressly contemplated in the Loan Documents, no consent, approval, authorization or order of, and no notice to or filing with, any court or governmental authority or third- party is required in connection with the execution, delivery or performance by Lender of any Loan Document or to consummate any transaction contemplated by the Loan Documents. (d) Enforceable Obligations. This Agreement is, and the other Loan Documents when executed and delivered by Lender will be, legal, valid and binding obligations of Lender, enforceable in accordance with their terms except as such enforcement may be 46

limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of debtor's rights or by principles of equity applicable to the enforcement of debtor's rights generally. (e) Compliance with Agreement and Law. Lender will perform all material obligations it is required to perform under the terms of the Loan documents. Lender will conduct its business and affairs in material compliance with laws, regulations and orders applicable thereto. ARTICLE XII: ARBITRATION Section XII.1 Arbitration (a) Borrower and Lender and any other obligor party (the "parties") will attempt in good faith to resolve any controversy or dispute arising out of or relating to this Agreement promptly by negotiations between themselves. The negotiation process may be started by the giving of written notice by any party to the other parties in accordance with the terms of Section 11.3 hereof, and the parties agree to negotiate in good faith, and select an independent mediator to facilitate the negotiations and conduct up to eight consecutive hours of mediated negotiations in Houston, Texas within thirty (30) days after the notice is first sent. If, within ten (10) days after the initial notice, the parties are not able to agree upon a mediator, the parties shall immediately proceed to arbitration. Fees and expenses of the mediator shall be borne equally by Borrower and Lender. (b) No litigation or other proceeding may ever be instituted at any time in any court for any purpose, except as may be set forth in Section 12.1(h) hereof. (c) If a controversy or dispute is not resolved after completion of the negotiation process described in subsection (a) above, then, upon notice by any party to the other parties (an "Arbitration Notice") and to AAA, the controversy or dispute shall be submitted to an arbitration panel for binding arbitration in Houston, Texas, in accordance with AAA's Commercial Arbitration Rules (the "Rules"). The parties agree that they will faithfully observe this Agreement and the Rules and that they will abide by and perform any award rendered by the arbitration panel. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16. The award or judgment of the arbitration panel shall be final and binding on all parties and judgment upon the award or judgment of the arbitration panel may be entered and enforced by any court having jurisdiction. If any party becomes the subject of a bankruptcy, receivership or other similar proceeding under the laws of the United States of America, any state or commonwealth or any other nation or political subdivision thereof, then, to the extent permitted or not prohibited by applicable law, any factual or substantive legal issues arising in or during the pendency of any such proceeding shall be subject to all of the foregoing mandatory mediation and arbitration provisions and shall be resolved in accordance therewith. The agreements contained herein have been given 47

for valuable consideration, are coupled with an interest and are not intended to be executory contracts. The fees and expenses of the arbitration panel will be shared by all parties engaged in the dispute or controversy on a basis determined to be fair and equitable by the arbitrators, taking into account the relative fault of each party, the relative credibility and merit of all claims and defenses made by each party and the cooperation, speed and efficiency of each party in conducting the arbitration proceeding and complying with the Rules and with orders and requests of the arbitrators. (d) Promptly after the Arbitration Notice is given, each party will select an arbitrator and the arbitrators so selected will in turn select an independent and impartial third arbitrator. If the arbitrators selected by the parties are unable to agree on a third arbitrator, then one of the parties shall notify AAA and AAA shall select the third arbitrator. The decision of AAA with respect to the selection of the third arbitrator will be final and binding in such case. Such three arbitrators will constitute the arbitration panel. Any arbitration regarding the Purchase Price for the ORRI shall be conducted by arbitrators who are petroleum engineers employed by one or more of the firms designated in Section 7.1(f) hereof. (e) Within 10 days after the selection of the arbitration panel, the parties and their counsel will appear before the arbitration panel at a place and time in Houston, Texas, as may be designated by the arbitration panel for the purpose of each party making a one hour or less presentation and summary of the case. Thereafter, the arbitration panel will set dates and times for additional hearings until the proceeding is concluded. The desire and goal of the parties is, and the arbitration panel will be advised that its goal should be, to conduct and conclude the arbitration proceeding as expeditiously as possible. (f) Any arbitral award may be enforced in a District Court of the State of Texas sitting in Houston, Texas or in the United States District for the Southern District of Texas, Houston Division, and, by execution and delivery of this Agreement, the parties hereby accept for themselves and in respect of their property, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts for said purpose and the parties hereby irrevocably waive to the fullest extent permitted by law any objection, including without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which they may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. (g) The arbitration panel will have no authority to award punitive or other damages not measured by the prevailing party's actual damages and may not, in any event, make any ruling, finding, or award that does not conform to the terms and conditions of this Agreement. (h) The provisions of this Section 12.1 relating to arbitration of disputes shall not apply to litigation that is instituted for the sole purpose of either: (i) compelling a party to 48

submit to arbitration in accordance with the provisions of this Section 12.1, or (ii) obtaining enforcement of any award or judgment of the arbitrator(s) issued pursuant to this Section 12.1. (i) The provisions of this Article XII shall terminate immediately if, as and when the party originally identified herein as "Lender" no longer owns any rights or interests under this Agreement and the Obligations of Borrower arising pursuant hereto; provided that if any arbitration under the provisions of this Article has been initiated prior to the time that such Lender no longer owns any such rights or interests under this Agreement and the Obligations, the provisions of this Article shall continue to be applicable to any such arbitration that has been commenced. IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. BORROWER: ATP Oil & Gas Corporation By: T. Paul Bulmahn President LENDER: Aquila Energy Capital Corporation By: Kenneth F. Wyatt Vice President 49

NOTICE TO BORROWER THIS WRITTEN CREDIT AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND LENDER. THIS WRITTEN CREDIT AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT OR OF A CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER. Affirmation of No Unwritten Oral Credit Agreements. Borrower and Lender affirm by the initials below of their authorized officers or representatives that no unwritten, oral credit agreement exists between them. Borrower's Lender's Representative's Representative's Initials Initials 50

EXHIBIT 10.4 FIRST AMENDMENT TO CREDIT AGREEMENT DATED APRIL 9, 1999 BY AND BETWEEN ATP OIL & GAS CORPORATION AND AQUILA ENERGY CAPITAL CORPORATION This First Amendment ("First Amendment") to the Credit Agreement dated April 9, 1999, by and between ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower") and AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation (the "Lender"), is entered into effective on the 23rd day of June, 1999. W I T N E S S E T H: A. Borrower and Lender heretofore entered into a Credit Agreement dated April 9, 1999, but effective March 31, 1999 (the "Credit Agreement"). B. Borrower and Lender hereby desire to amend the Credit Agreement subject to the terms and conditions contained herein. C. Capitalized terms used, but not defined herein, shall have the meanings prescribed therefor in the Credit Agreement. NOW THEREFORE, in consideration of the mutual promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Borrower and Lender, and each intending to be legally bound hereby, the Lender and Borrower agree as follows: I. Specific Amendments to Credit Agreement Article I of the Credit Agreement is hereby amended by revising the following defined terms in their entirety to read as follows: "Advancing Note" means the Amended and Restated Advancing Note attached as Exhibit "B" to the First Amendment, which amends and restates the Advancing Note originally described and defined in Section 2.1(a). "Loan Termination Date" means the earlier of (a) June 23, 2002, (b) the date of payment and performance in full of all the Obligations of Borrower under the Loan Documents (other than the Overriding Royalty Interest Conveyance), and (c) the date on which Lender notifies Borrower, as provided in Section 10.2, of the acceleration of payment of all Obligations because of the occurrence of an Event of Default.

"Loans" means, collectively, the Initial Loan, the Royalty Acquisition Loan and the Development Loans and "Loan" means either the Initial Loan, the Royalty Acquisition Loan or any Development Loan as described in Section 2.1. "Note" means the Amended and Restated Advancing Note in the form attached as Exhibit "B" to the First Amendment and any amendment, restatement, replacement or extension thereof. "ORRI" means that overriding royalty interest in Hydrocarbons produced, saved and sold or used off the premises of the relevant Lease, attributable to the undivided interest of the Borrower constituting each Property, conveyed by Borrower to Lender pursuant to the Overriding Royalty Interest Conveyances dated the Closing Date and dated of even date with the First Amendment. "Overriding Royalty Interest Conveyance" means, collectively, assignments, in form and substance acceptable to Lender, pursuant to which Borrower grants in favor of Lender an overriding royalty interest equal to six and one-fourth percent (6.25%) of Hydrocarbons produced, saved and sold or used off the premises of the relevant Lease, attributable to the undivided interest of the Borrower constituting each Property, calculated and paid on the same basis as royalty payable to the United States Department of Interior, Minerals Management Service pursuant to applicable rules and regulations, such grants to be made on the Closing Date and of even date with the First Amendment, but applicable only as to production on and after the first day of the first calendar month following the Loan Termination Date. "Title Opinions" means those certain title opinions addressed to Borrower and Lender and dated on or prior to the Closing Date covering the Properties described on Exhibit A attached hereto and on or prior to the date of the First Amendment covering the Properties described on Exhibit A attached to the First Amendment, as the same may be or are required to be updated under this Agreement. Article I of the Credit Agreement is hereby further amended by adding the following definitions thereto: "Additional Facility Fee" means the fee owed by Borrower to Lender as consideration, in part, for structuring and entering into the transactions contemplated under the First Amendment, as set forth in Section 7.1(z). "First Amendment" means that certain First Amendment to the Credit Agreement executed by Lender and Borrower effective on June 23, 1999. "KCS Purchase and Sale Agreement" means that certain Purchase and Sale Agreement dated June 23, 1999, by and between KCS, as Seller, and Borrower, as Buyer. 2

"Royalty Acquisition Loan" means the loan made by Lender to Borrower in part for the payment of all or a portion of the consideration for the acquisition by Borrower from KCS Energy Services, Inc. of the Royalty Interest and related Royalty Hydrocarbons effective April 1, 1999 pursuant to the KCS Purchase and Sale Agreement. "Royalty Hydrocarbons" has the meaning prescribed therefor in the "Conveyance" defined in the KCS Purchase and Sale Agreement. "Royalty Interest" has the meaning prescribed therefor in the "Conveyance" defined in the KCS Purchase and Sale Agreement. Section 2.1(a) of the Credit Agreement is hereby amended by inserting in the first line thereof, between the paragraph designation "(a)" and the heading "The Initial Loan" the subparagraph designation "(i)", and by amending the text that appears in parenthesis in the ninth and tenth lines of Section 2.1(a) to read as follows: "(together with the Royalty Acquisition Loan described in Section 2.1(a)(ii) below and the Development Loans, if any, described in Section 2.1(b) below)". Section 2.1(a) of the Credit Agreement is hereby further amended by adding the following new subparagraph 2.1(a)(ii): (ii) The Royalty Acquisition Loan. Borrower intends to acquire the Royalty Interest and Royalty Hydrocarbons pursuant to the KCS Purchase and Sale Agreement. To facilitate such acquisition and to pay other amounts due by Borrower as provided in Section 2.2, Lender shall, subject to the terms and conditions set forth below, make available to Borrower a loan in the amount of Twenty One Million Eight Hundred Forty-One Thousand Three Hundred and No/100 Dollars ($21,841,300.00), to be paid in U.S. dollars by wire transfer, and such Loan shall be evidenced (together with the Initial Loan and the Development Loans, if any, described in Section 2.1(b) below) by the Advancing Note. Section 2.1(b) of the Credit Agreement is hereby amended by revising the text that appears in parenthesis in the first line of the second grammatical paragraph thereof to read as follows: "(together with the Initial Loan and the Royalty Acquisition Loan)". Section 2.1(b) of the Credit Agreement is hereby further amended by replacing the dollar amount "27,800,000.00" that appears in the seventh and the last lines thereof with the dollar amount "$30,330,000.00". Section 2.2 of the Credit Agreement is hereby amended by inserting the following new text after the first sentence thereof: 3

Royalty Acquisition Loan proceeds shall be used by Borrower for the purposes of: (a) acquiring the Royalty Interest and Royalty Hydrocarbons pursuant to the KCS Purchase and Sale Agreement and (b) paying the Additional Facility Fee pursuant to Section 7.1(z) hereof. Section 3.4, Account Debtors, of the Credit Agreement is hereby amended by adding the following new text at the end of that section: Borrower shall also use commercially reasonable efforts to assist Lender in obtaining, within sixty (60) days after the funding of the Royalty Acquisition Loan, from all Purchasers of Hydrocarbons who purchase Hydrocarbons from the Properties described on Exhibit "A" to the First Amendment, to remit all proceeds from sales of all production from or allocable to Borrower's respective Net Revenue Interests constituting such respective Properties to the Cash Collateral Account. Section 7.1(z) of the Credit Agreement is hereby amended in its entirety to read as follows: (z) Facility Fee. A Facility Fee in the amount of $465,000.00 was paid by Borrower to Lender at Closing out of the advances constituting the Initial Loan. An additional facility fee (the "Additional Facility Fee") in the amount of $241,300.00 shall be payable by Borrower to Lender out of advances constituting the Royalty Acquisition Loan. The amount of the Facility Fee is deemed to have been advanced by Lender to Borrower on the Closing Date as a part of the Initial Loan, with such advance having been contemporaneously paid by Borrower to Lender. The amount of the Additional Facility Fee will be deemed to have been advanced by Lender to Borrower contemporaneously with the funding of the Royalty Acquisition Loan, with such advance having been contemporaneously paid by Borrower to Lender. The face amount of the Note is the sum of the Initial Loan (which includes the amount of the Facility Fee), the Royalty Acquisition Loan (which includes the amount of the Additional Facility Fee) and the maximum amount of the Development Loans. Section 8.3 of the Credit Agreement is hereby amended by adding the following new text at the end of that section: Contemporaneously with the funding of the Royalty Acquisition Loan, Borrower shall assign to Lender the ORRI applicable to the Properties described on Exhibit "A" to the First Amendment by executing and delivering to Lender an Overriding Royalty Interest Conveyance in form and substance mutually satisfactory to Lender and Borrower. Article IX of the Credit Agreement is hereby amended by adding the following new Section 9.4: 4

9.4 Conditions Precedent in Connection with the First Amendment. The obligation of the Lender to make the Loan advances on or about June 23, 1999, referred to in Section 2.1(a)(ii) of this Agreement is subject to satisfaction of the following conditions precedent: (a) Receipt of Amended and Restated Advancing Note, First Amendment and Certificate of Compliance. Lender shall have received the Amended and Restated Advancing Note, multiple counterparts of the First Amendment and the Certificate of Compliance in the form attached as Exhibit "C" to the First Amendment duly executed by an authorized officer of Borrower. (b) Receipt of Additional Loan Documents. Lender shall have received the Mortgages, Security Agreement, Overriding Royalty Interest Conveyance, Letters in Lieu of Transfer Orders and Notices of Assignment of Proceeds (or any amendments, extensions, renewals or restatements thereof), all duly executed and, where appropriate, acknowledged by Borrower, in form and substance acceptable to Lender, covering the Properties described on Exhibit A attached to the First Amendment. (c) Additional Facility Fee. Lender shall have received the Additional Facility Fee. (d) Receipt of Certified Copy of Corporate Proceedings and Certificate of Incumbency. Lender shall have received from Borrower copies of the resolutions of the board of directors authorizing the transactions set forth in the First Amendment and the execution of the First Amendment and the other Loan Documents contemplated thereby, such copy or copies to be certified by the secretary or an assistant secretary of Borrower as being true and correct and in full force and effect as of the date of such certificate. In addition, Lender shall have received from Borrower a certificate of incumbency signed by the secretary or an assistant secretary of Borrower setting for (a) the names of the officers executing the First Amendment and the other Loan Documents contemplated thereby, (b) the office(s) to which such persons have been elected and in which they presently serve and (c) an original specimen signature of each such persons. (e) Accuracy of Representations and Warranties and No Event of Default. The representations and warranties contained in Article IV of the Credit Agreement shall be true and correct in all material aspects on the date of such advances with the same effect as though such representations and warranties had been made on such date; and no Event of Default shall have occurred and be continuing or will have occurred at the completion of the making of such Loan. (f) Legal Matters Satisfactory to Special Counsel to Bank. All legal matters incident to the consummation of the transactions contemplated by the First Amendment shall be satisfactory to the firm of Porter & Hedges, L.L.P., special counsel for Lender. Borrower shall have paid to Porter & Hedges, L.L.P., on the date of the First Amendment, all of Lender's legal fees and expenses incurred to Porter and Hedges, L.L.P. in connection with 5

the First Amendment and related Loan Documents, together with a deposit for estimated recording fees in the amount of $2,000.00. (g) KCS Purchase and Sale Agreement. All the conditions to the closing of the KCS Purchase and Sale Agreement shall have been met to Lender's satisfaction, in its sole discretion; the closing of the KCS Purchase and Sale Agreement shall have contemporaneously occurred; the assignments conveying the Royalty Interest and Royalty Hydrocarbons from KCS Energy Services, Inc. to Borrower shall have been executed, acknowledged and delivered by KCS to Borrower; and possession of such assignments shall have been delivered to representatives of Lender or its counsel for recording. (h) Releases. Lender shall received satisfactory evidence of releases of all prior liens encumbering the Properties described on Exhibit "A" to the First Amendment,, including, without limitation, the releases of all liens and security interests held by CIBC Inc. and KCS Energy Services, Inc. (i) No Material Adverse Change. No material adverse change shall have occurred since the date of this Agreement in the condition, financial or otherwise, of Borrower. Exhibit A to the Credit Agreement is hereby amended by adding the schedule of the Properties that appear on Exhibit A to this First Amendment. Exhibit B to the Credit Agreement is hereby replaced with Exhibit B to the First Amendment. Schedule 2.1(b), Development Operations, of the Credit Agreement is hereby supplemented with Supplemental Schedule 2.1(b), Development Operations, attached to the First Amendment. Schedule 2.8, Purchasers of Production, of the Credit Agreement is hereby supplemented with Supplemental Schedule 2.8, Purchasers of Production, attached to the First Amendment. II. Reaffirmation of Representations and Warranties. To induce Lender to enter into this First Amendment, Borrower hereby reaffirms, as of the date hereof, its representations and warranties contained in Article IV of the Credit Agreement and in all other documents executed pursuant thereto, and additionally represents and warrants as follows: A. The execution and delivery of this First Amendment and the performance by Borrower of its obligations under this First Amendment are within Borrower's power, have been duly authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the Articles of Incorporation or Bylaws of Borrower or of any agreement binding upon Borrower. 6

B. The Credit Agreement as amended by this First Amendment, represents the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. C. No Event of Default has occurred and is continuing as of the date hereof. III. Defined Terms. Except as amended hereby, terms used herein that are defined in the Credit Agreement shall have the same meanings herein. IV. Reaffirmation of Loan Agreement. This First Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. V. Entire Agreement. The Credit Agreement, as hereby amended, embodies the entire agreement between Borrower and Lender and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. Borrower certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in the Credit Agreement as hereby amended and the other documents previously executed or executed of even date herewith. VI. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This First Amendment has been entered into in Harris County, Texas and shall be performable for all purposes in Harris County, Texas. Courts within the State of Texas shall have jurisdiction over any and all disputes between Borrower and Lender, whether in law or equity, including, but not limited to, any and all disputes arising out of or relating to this First Amendment or any other Loan Document. VII. Severability. Whenever possible, each provision of this First Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this First Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this First Amendment. VIII. Section Captions. Section captions used in this First Amendment are for convenience of reference only, and shall not affect the construction of this First Amendment. IX. Successors and Assigns. This First Amendment shall be binding upon Borrower and Lender and their respective successors and assigns, and shall inure to the benefit of Borrower and Lender, and the respective successors and assigns of Lender. 7

X. Non-Application of Chapter 346 of Texas Finance Codes. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Credit Agreement as hereby amended or any other Loan Documents or the transactions contemplated hereby. XI. Notice. THIS FIRST AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. BORROWER: ATP Oil & Gas Corporation By: _________________________________ T. Paul Bulmahn President LENDER: Aquila Energy Capital Corporation By: _________________________________ Kenneth F. Wyatt Vice President 8

EXHIBIT "A" PROPERTIES 1

EXHIBIT "B" AMENDED AND RESTATED ADVANCING NOTE 1

EXHIBIT "C" FORM OF CERTIFICATE OF COMPLIANCE 1

SUPPLEMENTAL SCHEDULE 2.1(B) ADDITIONAL DEVELOPMENT OPERATIONS 1

SUPPLEMENTAL SCHEDULE 2.8 PURCHASERS OF PRODUCTION 1

EXHIBIT 10.5 SECOND AMENDMENT TO CREDIT AGREEMENT DATED APRIL 9, 1999 BY AND BETWEEN ATP OIL & GAS CORPORATION AND AQUILA ENERGY CAPITAL CORPORATION This Second Amendment ("Second Amendment") to the Credit Agreement dated April 9, 1999, by and between ATP OIL & GAS CORPORATION, a Texas corporation (the "Borrower") and AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation (the "Lender"), is entered into effective on the 3rd day of November, 1999. W I T N E S S E T H: A. Borrower and Lender heretofore entered into a Credit Agreement dated April 9, 1999, but effective March 31, 1999, as amended by the First Amendment thereto dated June 23, 1999 (the "Credit Agreement"). B. Borrower and Lender hereby desire to further amend the Credit Agreement subject to the terms and conditions contained herein. C. Capitalized terms used, but not defined herein, shall have the meanings prescribed therefor in the Credit Agreement. NOW THEREFORE, in consideration of the mutual promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Borrower and Lender, and each intending to be legally bound hereby, the Lender and Borrower agree as follows: I. Specific Amendments to Credit Agreement Article I of the Credit Agreement is hereby amended by revising the following defined terms in their entirety to read as follows: "Advancing Note" means the Second Amended and Restated Advancing Note attached as Exhibit "B" to the Second Amendment, which amends and restates the Amended and Restated Advancing Note executed pursuant to the First Amendment, which in turn amended and restated the Advancing Note originally described and defined in Section 2.1(a). "Loan Termination Date" means the earlier of (a) November 2, 2002, (b) the date of payment and performance in full of all the Obligations of Borrower under the Loan Documents (other than the Overriding Royalty Interest Conveyance), and (c) the date on

which Lender notifies Borrower, as provided in Section 10.2, of the acceleration of payment of all Obligations because of the occurrence of an Event of Default. "Note" means the Second Amended and Restated Advancing Note in the form attached as Exhibit "B" to the Second Amendment and any amendment, restatement, replacement or extension thereof. "ORRI" means that overriding royalty interest in Hydrocarbons produced, saved and sold or used off the premises of the relevant Lease, attributable to the undivided interest of the Borrower constituting each Property, conveyed by Borrower to Lender pursuant to the Amended and Restated Overriding Royalty Interest Conveyance dated of even date with the Second Amendment, which, in part, amends and restates the Overriding Royalty Interest Conveyances dated the Closing Date and dated of even date with the First Amendment. "Overriding Royalty Interest Conveyance" means, collectively, the Amended and Restated Overriding Royalty Interest Conveyance and any other assignments and any amendment, restatement, replacement or extension thereof, in form and substance acceptable to Lender, pursuant to which Borrower grants in favor of Lender an overriding royalty interest in the Hydrocarbons produced, saved and sold or used off the premises of the relevant Lease, attributable to the undivided interest of the Borrower constituting each Property, calculated and paid on the same basis as royalty payable to the United States Department of Interior, Minerals Management Service pursuant to applicable rules and regulations but applicable only as to production on and after the applicable Commencement Date. The percentage ORRI granted in favor of Lender described in the preceding sentence shall initially equal six and one-fourth percent (6.25%) and shall be subject to reduction to three and one-eighth percent (3.125%) and further subject to termination, all in accordance with the terms specified in the Amended and Restated Overriding Royalty Interest Conveyance. "Properties" means those certain properties described on the Exhibit "A" attached to and incorporated in the Original Agreement, the First Amendment and the Second Amendment, respectively, limited, however, to the extent of the specified undivided interest of Borrower in each such Property as stated therein; provided, however, that the term "Properties," as used in this Agreement (including, but not limited to, for the purposes of determining Gross Receipts, Operating Expenses, Direct Taxes and Net Revenue), shall not include the Released Properties, except for purposes of the ORRI, the Overriding Royalty Interest Conveyance, the Gas Purchase and Sale Agreement, Section 7.1(b) hereof, and any Swap Agreement entered into by Borrower with reference to gas volumes attributable to any such Released Property. "Title Opinions" means those certain title opinions addressed to Borrower and Lender and dated on or prior to (a) the Closing Date covering the Properties described on Exhibit "A" attached to the Original Agreement, (b) the date of the First Amendment

covering the Properties described on Exhibit "A" attached to the First Amendment and (c) the date of the Second Amendment covering the properties described on Exhibit "A" attached to the Second Amendment, as the same may be or are required to be updated under this Agreement. Article I of the Credit Agreement is hereby further amended by adding the following definitions thereto: "Amended and Restated Overriding Royalty Interest Conveyance" means the Amended and Restated Overriding Royalty Interest Conveyance executed by Borrower in favor of Lender dated of even date with the Second Amendment (which amends and restates the Overriding Royalty Interest Conveyances dated April 9, 1999 and June 23, 1999 executed by Borrower in favor of Lender). "Commencement Date" has the meaning assigned to such term in the Overriding Royalty Interest Conveyance. "Original Agreement" means the Credit Agreement as it existed on the Closing Date. "Released Properties" means Borrower's right, title and interest in and to Brazos Block 544, West Cameron Block 431, West Cameron Block 432 and West Cameron Block 263, as such Properties are more fully described on that certain Act of Partial Release executed by Lender dated of even date with the Second Amendment. "Second Amendment" means that certain Second Amendment to Credit Agreement executed by Lender and Borrower effective on November 3, 1999. "Second Amendment Facility Fee" means the fee in the amount of $177,000.00 owed by Borrower to Lender as consideration, in part, for structuring and entering into the transactions contemplated under the Second Amendment, as set forth in Section 7.1(z). Article I of the Credit Agreement is hereby further amended by modifying the following definitions in the manner prescribed below: The definition of "Gross Receipts" is modified by inserting after the term "Swap Settlement Proceeds" in the third line thereof the following parenthetical text: "(excluding, however, all Swap Settlement Proceeds attributable to any Swap Agreement pertaining to Released Properties)" The definition of "Net Revenue" is modified by inserting after the term "Swap Settlement Payables" in the fifth line thereof the following parenthetical text: 3

"(except for any Swap Settlement Payables attributable to any Swap Agreement pertaining to Released Properties)" Section 2.1(b) of the Credit Agreement, as amended by the First Amendment, is amended by changing the period at the end of the first grammatical paragraph thereof to a semicolon, and by adding the following text after the semicolon: "provided, however, that out of such total, Development Loans in the amount of $2,000,000.00, reflected as being discretionary on Supplemental Schedule 2.1(b) attached to the Second Amendment, shall be made solely in Lender's discretion, notwithstanding anything else herein to the contrary. Section 2.1(b) of the Credit Agreement, as amended by the First Amendment, is hereby further amended by replacing the dollar amount "$30,330,000.00" that appears in the seventh and the last lines thereof with the dollar amount "$48,030,000.00". Section 2.1(b) of the Credit Agreement, as amended by the First Amendment, is hereby further amended by changing the period at the end of the last line in subparagraph (ii) thereof to a semicolon, and adding the following text after the semicolon: "and in its sole discretion, Lender may make additional Development Loans of up to $2,000,000.00, to fund the discretionary Development Operations described on Supplemental Schedule 2.1(b) attached to the Second Amendment. Section 2.2 of the Credit Agreement is hereby amended by inserting the following new text after the second sentence thereof: Additional Development Loan proceeds advanced pursuant to the Second Amendment may be used by Borrower for the purposes of paying the Second Amendment Facility Fee pursuant to Section 7.1(z) hereof. Section 2.6 of the Credit Agreement is hereby amended by changing the period in the fourteenth line thereof after the words "February 1999," to a semicolon and by adding the following text after the semicolon: provided, however, that with respect to: (a) the Properties described on Exhibit A to the Second Amendment, the first Gross Receipts to be included in the Property Operating Statement shall be those attributable to the production of Hydrocarbons during the month of September 1999, and the first Operating Expenses, Direct Taxes, royalties, overriding royalty interests and other payments out of or measured by production shall be those relating to production and operations for the month of August, 1999, and (b) the Released Properties, the last Gross Receipts to be included in the Property Operating Statement shall be those 4

attributable to the production of Hydrocarbons during the month of August 1999, and the last Operating Expenses, Direct Taxes, royalties, overriding royalty interests and other payments out of or measured by production shall be those relating to production and operations for the month of July 1999. Section 2.6(a) of the Credit Agreement is hereby amended by inserting after the term "Swap Settlement Payables" appearing in the third line thereof the following parenthetical text: "(except for Swap Settlement Payables attributable to any Swap Agreement pertaining to any Released Property)" Section 2.6(b) of the Credit Agreement is hereby amended in its entirety to read as follows: (b) Second, the "Dedication Rate" (as hereinafter defined) times the Net Revenue, as reflected in the relevant Property Operating Statement, to Lender for payment of amounts which are included within Debt Service and other Obligations to Lender for the relevant Interest Period. The amount paid to Lender pursuant to this subpart (b) shall be applied first to any interest due on the Advancing Note until all accrued interest is paid in full, and any remaining amounts paid to Lender pursuant to this subpart (b) shall be applied to remaining principal of the Advancing Note. The term "Dedication Rate" means ninety percent (90%); provided that following the occurrence and during the continuation of an Event of Default the "Dedication Rate" shall be one hundred percent (100%) until such time as Borrower and Lender mutually agree or it has been demonstrated at any time to Lender's reasonable satisfaction by Engineers that the net present value of the Proved Reserves attributable to Borrower's Net Revenue Interest in the Properties, using the parameters set forth in Section 7.1(f), multiplied by ninety percent (90%), is greater than one and one-half (1.5) times the outstanding principal balance of the Advancing Note, and at such point and thereafter the "Dedication Rate" shall be ninety-five percent (95%). Section 2.6(c) of the Credit Agreement is hereby amended by changing the period at the end of such Section to a semicolon, and adding the following text after the semicolon: provided, however, that if, subsequent to the date of any payment made by Lender to Borrower pursuant to this Section 2.6(c) in the prior calendar month, there has accrued any net positive amount that is owed by Lender to Borrower with respect to all Swap Settlement Payables and Swap Settlement Proceeds that accrued during such period under any Swap Agreement pertaining to Released Properties, the net amount due from Lender to Borrower shall be paid by Lender to Borrower along with the amounts otherwise owed by Lender to Borrower pursuant to this Section 2.6(c); and provided, further, that if, subsequent to the date of any payment made by Lender to Borrower pursuant to this Section 2.6(c) in the prior calendar month, there has accrued any net positive amount that is owed by Borrower to Lender with respect to all Swap Settlement Payables and Swap Settlement Proceeds that accrued during such period under any Swap Agreement pertaining to Released Properties, the net amount due from Borrower to Lender shall be deducted by Lender from the amounts 5

otherwise owed by Lender to Borrower pursuant to this Section 2.6(c), but if the net amount due from Borrower to Lender under all such Swap Agreements pertaining to Released Properties exceeds the amounts otherwise owed by Lender to Borrower pursuant to this Section 2.6(c), Borrower shall pay the amount of such excess to Lender within ten (10) days after receipt of Lender's statement detailing the amount due, and, if any such amount is not paid when due, at Lender's option any such unpaid amount may be included in the outstanding balance of the Loans advanced to Borrower hereunder. 6

Section 2.10 of the Credit Agreement is hereby amended by adding the following text at the end of such section: Contemporaneously with the execution of the Second Amendment by Borrower and Lender, Borrower shall at Lender's discretion enter into an additional Swap Agreement. Section 3.1 of the Credit Agreement is hereby amended by inserting the following clause immediately before the parenthetical "(the "Mortgage")": "or any extension modification, renewal or amendment thereof." Section 3.4 of the Credit Agreement is hereby amended by adding the following new text at the end of that section: Borrower shall also use commercially reasonable efforts to assist Lender in obtaining, within sixty (60) days after the date of the Second Amendment, the agreement of all Purchasers of Hydrocarbons who purchase Hydrocarbons from the Properties described on Exhibit "A" to the Second Amendment, to remit all proceeds from sales of all production from or allocable to Borrower's respective Net Revenue Interests constituting such respective Properties to the Cash Collateral Account. Section 7.1(z) of the Credit Agreement is hereby amended by replacing the text therein in its entirety to read as follows: (z) Facility Fee. A Facility Fee in the amount of $465,000.00 was paid by Borrower to Lender at Closing out of the advances constituting the Initial Loan and the Additional Facility Fee in the amount of $241,300.00 was paid by Borrower to Lender out of advances constituting the Royalty Acquisition Loan. The amount of the Facility Fee is deemed to have been advanced by Lender to Borrower on the Closing Date as a part of the Initial Loan, with such advance having been contemporaneously paid by Borrower to Lender. The amount of the Additional Facility Fee is deemed to have been advanced by Lender to Borrower contemporaneously with the funding of the Royalty Acquisition Loan, with such advance having been contemporaneously paid by Borrower to Lender. The amount of the Second Amendment Facility Fee is deemed to have been advanced by Lender to Borrower on the date of the Second Amendment, with such advance having been contemporaneously paid by Borrower to Lender. The face amount of the Note is the sum of the Initial Loan (which includes the amount of the Facility Fee), the Royalty Acquisition Loan (which includes the amount of the Additional Facility Fee), the Second Amendment Facility Fee and the maximum amount of the Development Loans. Section 8.3 of the Credit Agreement is hereby amended by replacing the text of that section in its entirety with the following text: 7

Contemporaneously with the closing of the Second Amendment, Borrower shall assign to Lender the ORRI applicable to the Properties described on Exhibits "A" attached to this Agreement, to the First Amendment and to the Second Amendment by executing and delivering to Lender an Amended and Restated Overriding Royalty Interest Conveyance in form and substance mutually satisfactory to Lender and Borrower. Article IX of the Credit Agreement is hereby amended by adding the following new Section 9.5: 9.5 Conditions Precedent in Connection with the Second Amendment. The obligation of Lender to make the Development Loan advances on or after November 3, 1999, referred to in Section 2.1(b) of this Agreement is subject to satisfaction of the following conditions precedent: (a) Receipt of Second Amended and Restated Advancing Note, Second Amendment and Compliance Certificate. Lender shall have received the Second Amended and Restated Advancing Note, multiple counterparts of the Second Amendment and the Compliance Certificate in the form attached as Exhibit "C" to the Second Amendment duly executed by an authorized officer of Borrower. (b) Receipt of Additional Loan Documents. Lender shall have received the Mortgages, Security Agreement, Letters in Lieu of Transfer Orders and Notices of Assignment of Proceeds (or any amendments, extensions, renewals or restatements thereof), all duly executed and, where appropriate, acknowledged by Borrower, in form and substance acceptable to Lender, covering the Properties described on Exhibit "A" attached to the Second Amendment, and the Amended and Restated Overriding Royalty Interest Conveyance covering all of the Properties, duly executed and acknowledged by Borrower. (c) Second Amendment Facility Fee. Lender shall have received the Second Amendment Facility Fee. (d) Receipt of Certified Copy of Corporate Proceedings and Certificate of Incumbency. Lender shall have received from Borrower copies of the resolutions of the board of directors authorizing the transactions set forth in the Second Amendment and the execution of the Second Amendment and the other Loan Documents contemplated thereby, such copy or copies to be certified by the secretary or an assistant secretary of Borrower as being true and correct and in full force and effect as of the date of such certificate. In addition, Lender shall have received from Borrower a certificate of incumbency signed by the secretary or an assistant secretary of Borrower setting for (a) the names of the officers executing the Second Amendment and the other Loan Documents contemplated thereby, (b) the office(s) to which such persons have been elected and in which they presently serve and (c) an original specimen signature of each such person. 8

(e) Accuracy of Representations and Warranties and No Event of Default. The representations and warranties contained in Article IV of the Credit Agreement shall be true and correct in all material aspects on the date of such advances with the same effect as though such representations and warranties had been made on such date; and no Event of Default shall have occurred and be continuing or will have occurred at the completion of the making of such Loan. (f) Legal Matters Satisfactory to Special Counsel to Bank. All legal matters incident to the consummation of the transactions contemplated by the Second Amendment shall be satisfactory to the firm of Porter & Hedges, L.L.P., special counsel for Lender. Borrower shall have paid to Porter & Hedges, L.L.P., on the date of the Second Amendment, a deposit for estimated recording fees in the amount of $4,000.00; and not later than thirty (30) days after receipt of such counsel's invoice therefor, Borrower shall pay all of Lender's legal fees and expenses (less the recording fee deposit paid at the closing of the Second Amendment) incurred to Porter and Hedges, L.L.P. in connection with the Second Amendment and related Loan Documents. (g) Partial Prepayment. Lender shall have received from Borrower a partial prepayment in the amount of $4,000,000.00 to be applied against the outstanding principal balance of the Loans and accrued unpaid interest thereon. (h) No Material Adverse Change. No material adverse change shall have occurred since the date of this Agreement in the condition, financial or otherwise, of Borrower. Exhibit "A" to the Credit Agreement, as amended by the First Amendment, is hereby further amended by adding thereto the schedule of the Properties that appear on Exhibit "A" to this Second Amendment. Exhibit "B" to the Credit Agreement, as replaced pursuant to the First Amendment, is hereby replaced with Exhibit "B" to the Second Amendment. Schedule 2.1(b), of the Credit Agreement is hereby supplemented with Supplemental Schedule 2.1(b), Development Operations, attached to the Second Amendment. Schedule 2.8, of the Credit Agreement is hereby supplemented with Supplemental Schedule 2.8, Purchasers of Production, attached to the Second Amendment. II. Lender's Release of the Released Properties. Upon the satisfaction of all of the conditions precedent to the effectiveness of the Second Amendment, as set forth in Section 9.5 of the Credit Agreement (as added by this Second Amendment) Lender shall execute, acknowledge and deliver to Borrower an Act of Partial Release, effective September 1, 1999, a corresponding UCC-3 Partial Release, and other documents as reasonably requested by Borrower pursuant to which the Released Properties are released from all liens and security interests of Lender that exist pursuant to the Mortgage, the Security Agreement, other applicable Security Documents and the Notice of 9

Assignment of Proceeds, and letters pursuant to which the Purchasers of Hydrocarbons from or attributable to the Released Properties are directed to make future remittances directly to Borrower. In addition, Lender acknowledges and agrees that the Released Properties are no longer subject to the Lockbox Agreement or the Cash Collateral Account Agreement. III. Reaffirmation of Representations and Warranties. To induce Lender to enter into this Second Amendment, Borrower hereby reaffirms, as of the date hereof, its representations and warranties contained in Article IV of the Credit Agreement and in all other documents executed pursuant thereto, and additionally represents and warrants as follows: A. The execution and delivery of this Second Amendment and the performance by Borrower of its obligations under this Second Amendment are within Borrower's power, have been duly authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the Articles of Incorporation or Bylaws of Borrower or of any agreement binding upon Borrower. B. The Credit Agreement as amended by this Second Amendment, represents the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. C. No Event of Default has occurred and is continuing as of the date hereof. IV. Defined Terms. Except as amended hereby, terms used herein that are defined in the Credit Agreement shall have the same meanings herein. V. Reaffirmation of Loan Agreement. This Second Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. VI. Entire Agreement. The Credit Agreement, as hereby amended, embodies the entire agreement between Borrower and Lender and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. Borrower certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in the Credit Agreement as hereby amended and the other documents previously executed or executed of even date herewith. VII. Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This Second Amendment 10

has been entered into in Harris County, Texas and shall be performable for all purposes in Harris County, Texas. Courts within the State of Texas shall have jurisdiction over any and all disputes between Borrower and Lender, whether in law or equity, including, but not limited to, any and all disputes arising out of or relating to this Second Amendment or any other Loan Document. VIII. Severability. Whenever possible, each provision of this Second Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Second Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Second Amendment. IX. Section Captions. Section captions used in this Second Amendment are for convenience of reference only, and shall not affect the construction of this Second Amendment. X. Successors and Assigns. This Second Amendment shall be binding upon Borrower and Lender and their respective successors and assigns, and shall inure to the benefit of Borrower and Lender, and the respective successors and assigns of Lender. XI. Non-Application of Chapter 346 of Texas Finance Codes. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Credit Agreement as hereby amended or any other Loan Documents or the transactions contemplated hereby. XII. Notice. THIS SECOND AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the day and year first above written. BORROWER: ATP Oil & Gas Corporation By: _____________________________ T. Paul Bulmahn President 11

LENDER: Aquila Energy Capital Corporation By: ____________________________ Kenneth F. Wyatt Vice President EXHIBIT "A" PROPERTIES 12

EXHIBIT "B" SECOND AMENDED AND RESTATED ADVANCING NOTE 1

EXHIBIT "C" FORM OF COMPLIANCE CERTIFICATE 1

SUPPLEMENTAL SCHEDULE 2.1(B) ADDITIONAL DEVELOPMENT OPERATIONS 2

SUPPLEMENTAL SCHEDULE 2.8 PURCHASERS OF HYDROCARBONS NONE. 1

EXHIBIT 10.6 GAS SERVICE AGREEMENT THIS GAS SERVICE AGREEMENT (the "Agreement") is made and entered into this 31st day of December, 1998 by and between AMERICAN CITIGAS COMPANY, a Nevada corporation (hereinafter referred to as "Company"), and ATP ENERGY, INC., a Texas corporation (hereinafter referred to as "Customer"). WITNESSETH: That in consideration of the mutual benefits accruing and to accrue by virtue of this Agreement, the parties do hereby agree and covenant as follows: 1. This Agreement shall be for an original term of ten (10) years from the first day of the month next succeeding that month in which gas commences to flow to Customer and thereafter shall renew from year to year. This Agreement may be terminated effective at the expiration of the original term or any yearly renewal thereof, by either party giving the other party not less than six (6) months written notice. 2. The Gas to be furnished hereunder shall be delivered at the following described Point(s) of Delivery: a) inlet side of pipeline meter of Sabine Pipeline's meter at tailgate of Texaco's plant at Henry Hub, Louisiana or b) any mutually agreeable delivery point. 3. Customer agrees to purchase, take and pay for one hundred percent (100%) of the Daily Contract Quantities ("DCQ") subject to the terms herein. Company agrees to sell and tender delivery of the Daily Contract Quantities subject to the terms herein. The Daily Contract Quantity shall be nine thousand (9,000) mmBtu of Gas per day during the first year of the term of this Agreement and five thousand (5,000) mmBtu of Gas per day during the balance of the term. Customer may take in excess of the Daily Contract Quantities if advance approval by Company is obtained. 4. The Gas furnished herein is in accordance with Appendix A attached hereto and made a part hereof and in accordance with the additional terms and conditions set forth in Appendix B attached hereto and made a part hereof.

IN WITNESS WHEREOF; the parties hereto have subscribed their names on the day and year first above written.
"Customer" WITNESS: ATP ENERGY, INC. a Texas corporation /s/ T. Paul Bulmahn ---------------------------T. Paul Bulmahn President "Company" WITNESS: ------------------------------------------------AMERICAN CITIGAS COMPANY, a Nevada corporation By: ------------------------Robert S. Silverthorn President

/s/ Albert Reese Jr. ------------------------/s/ Peggy N. Shaddix -------------------------

IN WITNESS WHEREOF; the parties hereto have subscribed their names on the day and year first above written.
"Customer" WITNESS: /s/ Albert Reese, Jr. ---------------------------/s/ Peggy M. Shaddix ---------------------------ATP ENERGY, INC. a Texas corporation By: /s/ T. Paul Bulmahn ----------------------------T. Paul Bulmahn President "Company" WITNESS: /s/ [signature] ---------------------------/s/ [signature] ---------------------------STATE OF NEVADA ) AMERICAN CITIGAS COMPANY, a Nevada corporation By: /s/ Robert S. Silverthorn ----------------------------Robert S. Silverthorn President

SS: COUNTY OF CLARK ) On this 31st day of December, 1998, personally appeared Robert S. Silverthorn before me a Notary Public, who acknowledged that he executed the within instrument freely and voluntarily.
/s/ BERYL HAYAT --------------------------OFFICIAL HAND AND SEAL: Notary Public-State of Nevada County of Clark BERYL HAYAT My Appointment Expires October 3, 2001

2

APPENDIX A Attached to and made a part of Gas Service Agreement (the "Agreement") dated 31st day of December, 1998 between AMERICAN CITIGAS COMPANY ("Company") and ATP ENERGY, INC. ("Customer"). Section 1. AVAILABILITY AND RATE 1.1 AVAILABILITY The sale and delivery of Gas by Company under the Agreement is subject to economic availability of supply and transportation. Customer acknowledges that supply and transportation may be procured from others and will be subject to curtailment or interruption. Notwithstanding provisions of the Agreement or its appendices to the contrary, Company may interrupt its performance at any time for any reason whether or not caused by Force Majeure, with no liability except it shall be responsible for any Imbalance Charges as set forth in Section 4.1, Appendix B related to its interruption after a nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by the Transporter. 1.2 RATE The base charge for recorded consumption of Gas at the point of delivery in any month is as follows: Four hundred fifty cents (450 cents) per mmBtu. Section 2. ADJUSTMENT FOR COST OF GAS 2.1 (a) The base charge in Section 1.2 hereof shall be adjusted automatically on a monthly basis (the "Adjusted Base Charge") cent for cent (unrounded) to the extent the average daily midpoint price of gas for the month of delivery at Henry Hub, Louisiana as published in the Regional Price Sampler of Gas Daily is greater than or less than the average daily midpoint price of gas for September, 1998 at Henry Hub, Louisiana as published in the October, 1998 Regional Price Sampler of Gas Daily. For example, the base charge for gas deliveries in January, 1999 shall be adjusted to the extent (a) the average daily midpoint price of gas for January, 1999 at Henry Hub, Louisiana as published in the Regional Price Sampler in February, 1999 is (b) greater than or less than the average daily midpoint price of gas for September, 1998 at Henry Hub, Louisiana. In the event the average daily midpoint price of gas is no longer published by Gas Daily then the parties shall negotiate in good faith to identify and use a similar price index. Appendix A Page A-1

(b) To the price determined for each month under Section 1.2 herein shall be added any new or increased taxes, fees or charges, except income taxes, whether measured by or imposed upon the production, severance, gathering, transportation, metering, delivery, purchase or sale of gas that may be levied or charged after the date first above written against the Company either directly or indirectly by duly constituted governmental authorities having jurisdiction therof; and (2) any new or increased costs due to transportation tariff rates, charges or provisions imposed after the date first above written which have been approved by duly constituted governmental authorities having jurisdiction thereof that may be allocated to the gas sold and delivered hereunder; such costs to be allocated on the basis of the weighted average cost of gas. Section 3. PREMIUM PAYMENT TRANSACTION 3.1 Simultaneously with the execution hereof, the Company shall deliver the following to Customer (collectively, the "Premium Payment"): (i) $6,000,000.00 (the "Initial Payment") in immediately available funds to be paid by wire transfer; and (ii) $33,600,000.00 payable in 120 monthly installments bearing interest at 6.0% per annum to be evidenced by a Non-Negotiable Promissory Note to be in form and content mutually agreeable to the parties hereto (the "Promissory Note") which is incorporated by reference herein. 3.2 $2,000,000.00 of the Premium Payment shall be deemed earned by Customer upon the execution of this Agreement. 3.3 Customer herby represents and warrants that Customer is a wholly owned subsidiary of ATP Oil & Gas Corporation, a Texas corporation ("ATP Oil"). Simultaneous with the execution hereof, ATP Oil shall execute and deliver to Company an irrevocable Guaranty Agreement guaranteeing Customer's obligations under this Agreement and any security agreements all to be in form and content acceptable to Company. Section 4. CURTAILMENT 4.1 Whenever, in Company's opinion, it is necessary to curtail deliveries on all or part of Company's system, service to customers on this rate schedule in the areas affected shall be immediately reduced or totally discontinued to all customers on a prorated basis. To the extent Company fails to tender delivery of the DCQ on any day for any reason, Customer shall remain obligated to pay an amount equal to the difference between the then Adjusted Base Charge and the then Fair Market Price (defined in Appendix B) for such undelivered quantity which shall be payable when it would have been due if such gas had been delivered. Company shall have the right to subsequently overdeliver to make up for such under delivery(ies). Such make up over deliveries may extend up to twelve (12) calendar months beyond the termination of the Agreement. Customer will Appendix A Page A-2

receive a credit against payment for such overdeliveries to the extent of payments made by Customer pursuant to the previous provisions of this Section 4.1. Section 5. MISCELLANEOUS TERMS AND CONDITIONS 5.1 MEASUREMENT The parties agree that the measurement of Gas purchased hereunder shall be performed in accordance with the established procedures by the Transporter. BTU and volume measurements shall be made in accordance with the provisions of such pipeline's then effective F.E.R.C. Gas Tariff, or in the event such pipeline is not subject to F.E.R.C. regulation, the applicable gas transportation regulations or contract provisions of such pipeline. End of Appendix A Appendix A Page A-3

APPENDIX B ADDITIONAL TERMS AND CONDITIONS Attached hereto and made a party of Gas Service Agreement dated the 31st day of December, 1998, between AMERICAN CITIGAS COMPANY ("Company") and ATP ENERGY, INC. ("Customer"). 1. PURPOSES AND PROCEDURES 1.1 The parties desire to set forth certain terms and conditions applicable to the Transaction(s) contemplated by the Agreement. 2. DEFINITIONS 2.1 "EFP" shall mean the purchase, sale or exchange of Gas as the "physical" side of an exchange for physical Transaction involving gas Futures Contracts. 2.2 "Business Day" shall mean any day except Saturday, Sunday, or Federal Reserve Bank holidays. 2.3 "Day" shall mean the period of time defined as "day" or "daily" in the effective tariff or other operating rules, policies or procedures of the Transporter applicable to transportation service. 2.4 "Delivery Point(s)" shall mean the point(s) at which title to the Gas, possession and risk of loss transfers from Company to Customer. 2.5 "Eligible Collateral" shall mean (i) cash, or (ii) a Letter of Credit from a financial institution acceptable by the Beneficiary Party (defined below), or (iii) acceptable cash equivalents subject to a security interest. 2.6 "Fair Market Price" shall mean the midpoint price of gas for the day at Henry Hub, Louisiana as published in Gas Daily. In the event the midpoint price of gas is no longer published by Gas Daily then the parties shall negotiate in good faith to identify and use a similar price index. 2.7 "Force Majeure" shall mean any event beyond the reasonable control of the party in question which prevents, in whole or in part, that party's performance of obligations. 2.8 "Futures Contract" shall mean the standardized contract for the purchase or sale of Gas that is traded for future delivery under the applicable trading board's regulations. 2.9 "Gas" shall mean and include all vapor phase hydrocarbons and gaseous substances consisting primarily of methane. Appendix B Page B-1

2.10 "Imbalance Charges" shall mean any fees, penalties, costs or charges (in cash or in kind) assessed by a Transporter for failure to satisfy the Transporter's balance and/or nomination requirements. 2.11 "Material Adverse Change" shall mean that Customer and its consolidated subsidiaries and parent shall have Total Assets below $50,000,000.00 or a consolidated Net Worth below $20,000,000.00. 2.12 "Minimum Delivery Amount" shall mean as (i) with respect to Company $100,000.00 and (ii) with respect to Customer $100,000.00. 2.13 "Month" shall mean the period of time defined as "month" in the effective tariff or other operating rules, policies or procedures of the Transporter applicable to transportation service. 2.14 "mmBtu" shall mean the unit of measurement for payment purposes expressed as one million (1,000,000) BTU, measured on a dry basis. 2.15 "Net Worth" shall mean Total Assets (exclusive of intangible assets, deferred tax benefits, and intercompany notes receivable), minus total liabilities, each as would be reflected on a balance sheet of the subject party prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). 2.16 "NYMEX" shall mean the New York Mercantile Exchange. 2.17 "Pledgor" shall mean Customer, if it (i) receives a demand for or is required to provide Eligible Collateral or (ii) has provided Eligible Collateral. 2.18 "Point of Delivery" shall have the same meaning as Delivery Point(s); however, specified as in the Agreement. 2.19 "Primary in-path" shall mean firm transportation service obtained directly from the respective Transporter. This term specifically excludes "secondary" and/or "released" firm transportation, as those terms are commonly used in the natural gas industry. 2.20 "Tax" shall mean any tax levied, assessed or claimed to be due by any Federal, State, County, Tribal, or Municipal Government or any other governmental agency having jurisdiction to do so. 2.21 "Termination Payment Threshold" shall mean (i) with respect to the Company $250,000.00 and (ii) with respect to Customer $250,000.00. 2.22 "Total Assets" means total assets (exclusive of intangible assets, deferred tax benefits, and intercompany notes receivables), including deferred income based on income tax return. 2.23 "Transaction" shall mean a particular, specifically agreed-to purchase or sale of Gas for delivery or receipt to be performed under the Agreement and all obligations related thereto including, without limitation, the transaction contemplated in Appendix A and the Promissory Note. 2.24 "Transporter" shall mean the pipeline(s) or gathering line(s) designated by the Company to deliver Gas to the Delivery Point(s). Appendix B Page B-2

3. QUANTITY AND DELIVERY 3.1 Company shall notify Customer of its nomination(s), from time to time, with prior notice of at least twenty-four (24) hours and/or within the Transporter's pipeline's deadline date for making changes in nominations to be effective the next Day at 7:00 a.m. Customer shall be responsible for compliance with the effective nominations given within the Transporter's pipeline's deadline date for changes. 4. TRANSPORTATION AND IMBALANCE 4.1 Company shall be responsible for all arrangements necessary to deliver Gas sold hereunder to the Delivery Point(s) and Customer shall be responsible for all arrangements necessary to receive Gas at the Delivery Point(s). In the event Company delivers more or less than the DCQ, and as a result thereof, Customer is assessed imbalance penalties, fees, or charges, Company shall reimburse Customer for same within ten (10) days of Company's receipt of Customer's invoice therefor. In the event Customer takes delivery of more or less than the DCQ, and as a result thereof, Company is assessed imbalance penalties, fees, or charges, Customer shall reimburse Company for same within ten (10) days of Customer's receipt of Company's invoice therefor. 5. DELIVERY POINT 5.1 The Delivery Point(s) for all Gas delivered hereunder shall be set out in the Agreement. All rights, title, interest and risk of loss to all Gas purchased hereunder shall pass to Customer upon the receipt of such Gas by Customer or Customer's designee at the Delivery Point(s). Company shall have possession of the Gas and shall arrange for all necessary transportation of the Gas from Company's source(s) of such Gas to the Delivery Point(s). 6. PRICE 6.1 Customer shall pay Company, for all quantities of Gas delivered for Customer's account hereunder, the price per mmBtu set forth in Appendix A of the Agreement. Such price will be inclusive of all royalties, taxes, transportation charges, expenses and costs applicable to the Gas prior to receipt by Customer at the Delivery Point(s). In the event Customer should be required, by the laws of any governmental body having jurisdiction hereunder, to pay any such costs or charges for which Company is liable, then Customer shall have the right to reduce the amount payable hereunder by an amount equal to such costs or charges. In the event Company should be required, by the laws of any governmental body having jurisdiction hereunder, to pay any such costs or charges for which Customer is liable, then Customer shall reimburse Company for same within ten (10) days of Customer's receipt of Company's invoice therefor. 6.2 Company may offer a temporary user allowance ("TUA") as a discount on the price of gas provided for in the Agreement. Appendix B Page B-3

7. FAILURE TO PERFORM 7.1 If on any Day, Customer fails to accept tender of delivery of the DCQ, Company shall have the right to sell to a third party purchaser during the then current Month the difference between the quantity actually accepted by Customer on such Day and such DCQ. Company shall be entitled to reimbursement from Customer for an amount calculated by multiplying the quantity of Gas not purchased times the difference between: (i) The then Adjusted Base Charge provided in Section 2.1(a), Appendix A, less (ii) The then Fair Market Price adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s). Any payments due Company by Customer under this paragraph shall be made in the Month following the Month Company sells such Gas to a third party purchaser; provided, however, Company first provides Customer with information and documentation supporting Company's claim for reimbursement. 7.2 If on any Day, Company fails to tender delivery of the DCQ, Customer shall have the right to purchase from a third party supplier during the then current Month the difference between the amount actually delivered by Company on such Day and such DCQ. Customer shall be entitled to recover from Company an amount calculated by multiplying the quantity of Gas not delivered times the difference between: (i) The then Adjusted Base Charge; and (ii) The then Fair Market Price adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s). Any reduction in the payment due to Company shall be made in the Month following the Month in which the failure to deliver Customer's nominated quantity occurred; provided, however, Customer shall first provide Company with information and documentation supporting the reduction. 8. DEFAULT, REMEDIES, AND TERMINATION 8.1 If a Triggering Event, as defined in Section 8.2 below, occurs with respect to either party at any time during the term of the Agreement, the other party (the "Notifying Party") may (i) upon two (2) Business Days written notice to the first party (the "Affected Party"), which notice shall be given no later than sixty (60) days after the discovery of the occurrence of the Triggering Event, establish a date on which any or all Transactions pursuant to the Agreement will terminate ("Early Termination Date"), and (ii) withhold any payments due in respect of such Transactions; provided, upon the occurrence of any Triggering Event listed in item (iv) of Section 8.2 as it may apply to any party, the Agreement shall automatically terminate, without notice, as if an Early Termination Date had been immediately declared. If an Early Termination Date occurs, the Notifying Party shall in good faith calculate its damages, including its associated costs and attorneys' fees, resulting from the termination of the terminated Transactions (the "Termination Payment"). The Termination Payment will be determined by: (i) comparing the value of (a) the remaining term, quantities and prices and any loan payments under each such Transaction had it not been terminated to (b) the equivalent quantities and relevant market prices for the remaining term either quoted by a bona fide third party offer, or which are reasonably expected to be available in the market under a replacement contract for each such Transaction; and (ii) ascertaining the associated costs and attorney's fees. To Appendix B Page B-4

ascertain the market prices of a replacement contract the Notifying Party may consider, among other valuations, including but not limited to, any or all of the settlement prices of NYMEX (or applicable futures trading board) gas Futures Contracts, quotations from leading dealers in Gas swap contracts and other bona fide third party offers, all adjusted for the length of the remaining term and the basis differential. All terminated Transactions under any provision herein shall be netted against each other and upon the netting of all terminated Transactions, if the calculation of the Termination Payment does not result in damages to the Notifying Party, the Termination Payment shall be zero. The Notifying Party shall give the Affected Party written notice of the amount of the Termination Payment, inclusive of a statement showing its determination. The Affected Party shall pay the Termination Payment within ten (10) days of receipt of such notice. At the time for payment of any amount due under this provision, each party shall pay to the other party all additional amounts payable by it pursuant to this Agreement, but all such amounts shall be netted and aggregated with any Termination Payment payable hereunder. If the Affected Party disagrees with the calculation of the Termination Payment, the issue shall be submitted to arbitration pursuant to this Agreement and the resulting Termination Payment shall be due and payable within three (3) Business Days after the award. 8.2 "Triggering Event" shall mean, with respect to a party (the "Affected Party"): (i) the failure by the Affected Party to make, when due, any payment required under the Agreement if such failure is not remedied within five (5) Business Days after written notice of such failure is given to the Affected Party; or (ii) any representation or warranty made by the Affected Party in this Agreement shall prove to have been false or misleading in any material respect when made or deemed effective; or (iii) the failure by the Affected Party to perform any covenant set forth in the Agreement and such failure is not excused by Force Majeure or cured within five (5) Business Days after written notice thereof to the Affected Party; or (iv) the Affected Party shall (a) make an assignment or any general arrangement for the benefit of creditors, (b) file a petition or otherwise commence, authorize or acquiesce in the commencement of a proceeding or cause under any bankruptcy or similar law for the protection of creditors, or have such petition filed against it, (c) otherwise become bankrupt or insolvent (however evidenced) or (d) be unable to pay its debts as they fall due; or (v) the occurrence of a Material Adverse Change of the Affected Party; provided, such Material Adverse Change shall not be considered if the Affected Party establishes, and maintains throughout the term hereof, Eligible Collateral in amount equal to the sum of (a) the Notifying Party's Termination Payment plus (b) if the Notifying Party is Company, the aggregate of the amounts Company is entitled to receive under each Transaction; (vi) the Affected Party fails to establish, maintain, extend or increase Eligible Collateral when required pursuant to the Agreement, or (vii) the Affected Party shall have defaulted on any indebtedness to a third party resulting in an acceleration of obligations in excess of the greater of $250,000.00 or three percent (3%) of the Affected Party's Net Worth. 8.3 If at any time and from time to time during the term of this Agreement (and notwithstanding whether a Triggering Event has occurred) the Termination Payment that would be owed to a party in respect of all Transactions then outstanding should exceed the Pledgor's Termination Payment Threshold, such party as the "Beneficiary Party" may request the Pledgor to deliver Eligible Collateral in an amount at least equal to the Termination Payment minus the Pledgor's Termination Payment Threshold in increments equal to the Minimum Delivery Amount. Eligible Collateral must be delivered within two (2) Business Days of the date of such notice provided that notice be given before 9:00 a.m. Central Time. On any subsequent Business Day, the Pledgor may be requested to deliver additional Eligible Collateral Appendix B Page B-5

to the Beneficiary Party in excess of any additional uncollateralized Termination Payment in increments equal to the Minimum Delivery Amount. 8.4 Notwithstanding any provision in the Agreement to the contrary, each party reserves to itself all rights, setoffs, counterclaims and other remedies and defenses consistent with Article 16 which such party has or may be entitled to arising from or out of this Agreement. All outstanding Transactions and the obligations to make payment in connection therewith or under this Agreement may be offset against each other, setoff, or recouped therefrom. 9. QUALITY AND PRESSURE 9.1 Gas tendered for sale hereunder shall meet the quality and pressures specifications of the pipeline system and/or facilities which shall receive the Gas at the Delivery Point(s) set forth in the Agreement. 10. BILLING AND PAYMENT 10.1 Company shall invoice Customer by the tenth (10th) day of the calendar month for Gas delivered to Customer during the preceding Month. Company shall render to Customer a statement showing the quantity of Gas delivered at the Delivery Point(s) and the amount due therefor. Customer shall make payment to Company, by wire transfer, as provided for in Company's invoice, on or before the twenty-fifth (25th) day of the Month following the delivery Month. In the event Customer has obtained a statement of actual volumes received for Customer's account from the party responsible for measurement at the Delivery Point(s), then Customer shall adjust the amounts due on Company's next invoice and shall make payment to Company of the adjusted amount. In such event, Customer shall promptly provide Company with a third party measurement statement sufficiently supporting Customer's adjustment. 10.2 If there is a bona fide dispute with regard to any amount billed, Customer shall nevertheless pay the total amount when due and if such dispute is settled in Customer's favor, the refund to Customer from Company shall include interest as hereinafter defined. If any amount billed hereunder is not paid by Customer when due, interest shall accrue on the unpaid amount from the due date until paid at the prime commercial rate charged by CitiBank N.A. New York, New York, plus two (2) percent or the maximum legal rate, whichever is less. 10.3 Either party may withhold payment of amounts due hereunder to offset an equivalent amount due such party under this or any other agreement between the parties so long as the payment withheld is due to a netting of payments which are due on the same calendar day, in which case the party owing the greater aggregate amount shall pay to the other party the difference in the amounts owed. 10.4 If any overcharges or undercharges in any form whatsoever shall be found within one (1) year of occurrence and the bill therefore has been paid, Company shall refund the amount of overcharges received by Company and Customer shall pay the amount of undercharges within thirty (30) days after final determination thereof. Appendix B Page B-6

11. TAXES 11.1 As between the parties, Company will pay, or cause to be paid, all Taxes or other sums due on production, gathering, processing or severance of the Gas prior to delivery to Customer at the Delivery Point(s). All such Taxes shall be paid by Company directly to the taxing authority unless Customer is required by law to collect and remit such Taxes, in which event Customer shall withhold from payments to Company an amount required to be collected and remitted by Customer. If any such Tax is claimed, assessed or levied on Customer, then Company shall reimburse Customer for the amount of such Tax. Customer will pay or cause to be paid, all Taxes upon and after delivery to Customer (including, without limitation, sales, use or gross receipts Taxes) unless Customer furnishes Company with applicable exemption certificates. In the event a national energy, BTU, consumption, or use tax shall be imposed, both Customer and Company shall work to reasonably apportion said Tax, taking into account the ability of either party to pass through all or a part of such tax; provided, however, that not Tax, whether existing or future, shall render either party economically incapable of continuing its performance hereunder. 12. TITLE, WARRANTY AND INDEMNITY 12.1 Unless otherwise specifically agreed, title to the Gas shall pass from Company to Customer at the Delivery Point(s). Company shall have responsibility for and assume any liability with respect to the Gas prior to its delivery to Customer at the specified Delivery Point(s). Customer shall have responsibility for and assume any liability with respect to said Gas after its delivery to Customer at the Delivery Point(s). 12.2 Company warrants that it will have good and merchantable title to or will have the right to deliver all Gas sold hereunder and delivered by it to Customer, free and clear of all liens, encumbrances, and claims. 12.3 Company agrees to indemnify Customer and save it harmless from all losses, liabilities or claims, including attorneys' fees and costs of court ("Claims"), arising from or out of claims of title, personal injury or property damage from any or all persons to said Gas or other charges thereon which attach before title passes to Customer. Customer agrees to indemnify Company and save it harmless from all Claims arising from or out of claims regarding payment, personal injury or property damage from said Gas or other charges thereon which attach after title passes to Customer. 12.4 Notwithstanding the other provisions of this Section 12 as between Company and Customer, Company will be liable for all Claims to the extent that such Claims arise from the failure of Gas delivered by Company to meet the quality requirements of Section 9.1. 12.5 In the event of any claim or litigation, at any time, concerning Company's title to the Gas sold hereunder or the proceeds from the sale thereof, Customer shall be entitled to suspend payments to Company until such claims or litigation of title is resolved to Customer's reasonable satisfaction. 13. FORCE MAJEURE 13.1 Nonperformance of any obligation hereunder, other than the obligation to make payment for Gas previously delivered under this Agreement, or Imbalance Charges under Section 4.1, shall be excused Appendix B Page B-7

if rendered commercially impractical by an occurrence of Force Majeure, but only for so long as performance is prevented by such Force Majeure. The party claiming excuse shall promptly advise the other party of such Force Majeure event and shall, as soon as commercially reasonable, seek to remedy the occurrence. The party claiming Force Majeure shall not be excused from its responsibility for Imbalance Charges. Additionally, in the event Customer is the party claiming Force Majeure, Customer shall remain obligated, notwithstanding anything contained in the Agreement to the contrary, to pay an amount equal to the difference between the Adjusted Base Charge and the Fair Market Price for the amount of gas not accepted during the duration of Force Majeure. 13.2 The party whose performance is rendered commercially impracticable by Force Majeure must provide notice as soon as reasonably practical to the other party. Initial notice may be given orally; however, written notification with reasonably full particulars of the event or occurrence is required as soon as reasonably possible. Upon providing written notification of Force Majeure to the other party, the Affected Party will be relieved of its obligation to make or accept delivery of Gas as applicable to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event. In the event of a Force Majeure, the non-claiming party may declare an extension to each contract year of the Agreement to the extent that the Force Majeure condition exists. 13.3 Force Majeure shall include, but not be limited to, the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires hurricanes, tornadoes, storms or storm warnings which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as hurricanes, or freezing or failure of wells or lines of pipe; (iii) acts of others such as strikes, riots, sabotage, insurrections or wars; (iv) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, or regulation promulgated by a governmental authority having jurisdiction; and (v) any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the affected party. Company and Customer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance. Notwithstanding anything to the contrary herein, the parties agree that the settlement of strikes, lockouts or other industrial disturbances shall be entirely within the sole discretion of the party experiencing such disturbance. 13.4 Force Majeure shall also include the inability to transact futures trading for any reason beyond the reasonable control of Customer, including, without limitation, closing of the NYMEX or applicable futures trading board, any refusal by the NYMEX or applicable futures trading board to allow trading during normal trading hours; failure of telecommunications lines or of computer or other equipment utilized in trading; and other such causes. 13.5 The term Force Majeure as used herein specifically EXCLUDES the following occurrences or events: (i) the loss, interruption, or curtailment of interruptible transportation on any Transporter necessary to make or accept delivery of Gas hereunder, unless and to the extent the same event also curtails Primary in-path, firm transportation at the same point; and (ii) loss of markets or either party's inability to economically use or resell Gas purchased under this Agreement. Appendix B Page B-8

14. NOTICE 14.1 Any notice, demand, or statement or payment, other than nominations provided for herein, shall be in writing and shall be deemed delivered three (3) Business Days after posting when mailed, postage prepaid, return receipt requested, by United States mail to the address of the party to receive same as set forth below; but actual notice or demand, however given or received, shall always be effective. ATP ENERGY, INC. AMERICAN CITIGAS COMPANY NOTICE/BILLING NOTICE/BILLING
ADDRESS ATTN TELEPHONE FACSIMILE 4600 Post Oak Place, Suite 230 Houston, Texas 77056 President (713)622-3311 (713)622-5101 ADDRESS ATTN 4055 South Spencer St. Suite 204 P.O. Box 70540 Las Vegas, NV 89170-0540 Gas Administration

PAYMENT ADDRESS: For Wire Transfer: US Bank For the account of AMERICAN CITIGAS COMPANY ABA# 1212-01694 ACCT# 15370034 6213 TELEPHONE: (702)737-7319 FACSIMILE: (702)737-7539

or to such other address as either party may from time to time designate by certified or registered mail addressed to the other party at the then effective address of that party. 15. ARBITRATION CLAUSE 15.1 Any controversy or claim arising out of or relating to the Agreement or the breach thereof shall be settled by binding arbitration by one (1) arbitrator in Houston, Texas, in accordance with the American Arbitration Association Commercial Arbitration rules. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The prevailing party shall be entitled to its reasonable attorneys' fees. Any monetary award shall accrue interest from the date of the breach to the date of any judgment entered on the award at the prime commercial rate charged on the date of the breach by CitiBank, N.A. New York, New York plus two (2) percent or at the maximum legal rate, whichever is less. If a party files a complaint in any court with respect to any matter subject to arbitration hereunder, the defendant in such court action shall be entitled to recover its reasonable attorneys' fees in connection with the court action. This arbitration provision shall survive termination of the Agreement. 16. LIMITATION ON LIABILITY 16.1 NOTWITHSTANDING ANY OTHER PROVISIONS HEREIN, THE PARTIES HERETO WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OR ACTION ARISING UNDER THIS Appendix B Page B-9

AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES. THIS PROVISION SHALL SURVIVE ANY TERMINATION OF THE AGREEMENT. 17. DECEPTIVE TRADE PRACTICES 17.1 COMPANY AND CUSTOMER CERTIFY THAT THEY ARE NOT "CONSUMERS" WITHIN THE MEANING OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SUBCHAPTER E OF CHAPTER 17, SECTIONS 17.41 ET SEQ., AMENDED (THE "DTPA"). THE PARTIES COVENANT, FOR THEMSELVES THAT IF DTPA IS APPLICABLE, (A) THE PARTIES ARE "BUSINESS CONSUMERS" THEREUNDER, (B) EACH PARTY HEREBY WAIVES AND RELEASES ALL OF ITS RIGHTS AND REMEDIES THEREUNDER (OTHER THAN SECTION 17.5555, TEXAS BUSINESS AND COMMERCE CODE) AS APPLICABLE TO THE OTHER PARTY AND ITS SUCCESSORS AND ASSIGNS, AND (C) EACH PARTY SHALL DEFEND AND INDEMNIFY THE OTHER FROM AND AGAINST ANY AND ALL OF THEIR AFFILIATES BASED IN WHOLE OR IN PART ON THE DTPA, ARISING OUT OF OR IN CONNECTION WITH THE TRANSACTIONS FORTH IN THIS AGREEMENT. 18. FINANCIAL RESPONSIBILITY 18.1 When reasonable grounds for insecurity of payment or title to the Gas arise, either party may demand adequate assurance of performance. Adequate assurance shall mean sufficient security in the form and for the term reasonably specified by the party demanding assurance, including, but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in an asset acceptable to the demanding party or a performance bond or guarantee by a creditworthy entity. In the event either party shall: (i) make an assignment or any general arrangement for the benefit or creditors; or (ii) default in the payment obligation to the other party; or (iii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or cause under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; or (iv) otherwise become bankrupt or insolvent (however evidenced); or (v) be unable to pay its debts as they fall due; or (vi) fail to give adequate assurance of its ability to perform its obligations under the Agreement within two (2) Business Days of a reasonable request by the other party, then the other party shall have the right to either withhold and/or suspend deliveries or payment, or terminate the Agreement without prior notice, in addition to any and all other remedies available hereunder. Company may immediately suspend deliveries to Customer hereunder in the event Customer has not paid any amount due Company hereunder on or before the fifth (5th) Business Day following the date such payment is due. 19. MISCELLANEOUS 19.1 Audit. Each party shall have the right, at its own expense, at reasonable hours and reasonable notice to examine the records of the other party to the extent necessary to verify the accuracy of any statement or other data that may reasonably have a bearing on or pertain to any business conducted hereunder between the parties; provided, however, that the auditing party does not have the right to examine any record relating to Transactions that occurred more than two (2) years before the date of the Appendix B Page B-10

audit. In the event of any inaccuracy, any necessary adjustments in the billing shall be made within thirty (30) days after the determination thereof. This provision shall survive any termination of this Agreement. 19.2 DISCLAIMER OF WARRANTIES. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND EXPRESS WARRANTY OF TITLE SET FORTH HEREIN. IN PARTICULAR, THERE ARE NO OTHER EXPRESS WARRANTIES AND NO IMPLIED WARRANTIES, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 19.3 Assignments. The Agreement may not be assigned by either party without the prior written consent of the other party. Additionally, neither party may pledge, mortgage or assign its rights hereunder as security for any indebtedness. The Agreement extends to and will be binding upon the respective successors and permitted assigns of Customer and Company. 19.4 APPLICABLE LAW. THE AGREEMENT AND ALL DOCUMENTS EXECUTED SIMULTANEOUSLY HEREWITH SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. THIS PROVISION SHALL SURVIVE ANY TERMINATION OF THE AGREEMENT. 19.5 Entire Agreement. This document, including the Agreement and Appendix A thereof, and all documents executed simultaneously herewith including, without limitation, the Promissory Note, constitute the entire agreement between the parties with respect to the subject matter hereof. No promises, agreements or warranties additional to this Agreement will be deemed to be a part hereof, nor will any alteration, amendment or modification hereof, be effective unless mutually agreed in writing by the parties hereto. 19.6 Confidentiality. The terms of the Agreement and any transaction thereof shall not be disclosed to any person or party except when the disclosure is (i) required by law; (ii) requested by Customer's or Company's independent public accountants; (iii) required pursuant to a loan agreement; (iv) required to be disclosed in connection with the prosecution or defense of any litigation; or (v) is otherwise agreed in writing to be disclosed. 19.7 Severability. If any provision in this Agreement is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Agreement. 19.8 Waiver. A waiver by either party of any provision hereof shall not be construed to constitute a continuing waiver hereunder by such party, and furthermore, a waiver by either party of any one or more defaults by the other party in performance of any provisions of this Agreement shall not operate or be construed as a waiver of any future default or defaults, whether of a like or different character. 19.9 Captions. Captions used herein are for convenience only and shall not be used to construe this Agreement. End of Appendix B Appendix B Page B-11

EXHIBIT 10.7 [LOGO OF EL PASO ENERGY MARKETING EL PASO ENERGY APPEARS HERE] MARKETING NATURAL GAS PURCHASE AGREEMENT
CONTRACT DATE: December 1, 1998 BUYER: EL PASO ENERGY MARKETING COMPANY NOTICE/BILLING ADDRESS: P.O. Box 2511 Houston, Texas 77252-2511 ATTN: Accounting Department FOR OVERNIGHT DELIVERY: 1001 Louisiana, 25th Floor Houston, Texas 77002 ATTN: Contract Services TELEPHONE: (713) 420-5000 FACSIMILE: (713) 420-2180 CONTRACT NO.: SELLER: ATP ENERGY, INC. NOTICES/BILLING ADDRESS: 4600 Post Oak Place, Suite 230 Houston, Texas 77027 ATTN: Contract Service PAYMENT ADDRESS: For Payment Chase Bank of Texas Acct # 01000027441 ABA # 113000609 TELEPHONE: (713) 622-3311 FACSIMILE: (713) 622-5101

This Agreement is entered into and effective as of the contract date written above, and will continue therefrom for an initial term through the last day of December, 2001 and month to month thereafter, unless terminated by at least thirty (30) days prior written notice from either party to the other. This Agreement incorporates and is subject to the terms and conditions set out hereunder, and a Confirmation Letter in the form of an Exhibit "A", as such Confirmation Letter may be amended from time to time. ACCEPTED AND AGREED TO THIS 30th day of December, 1998
BUYER: EL PASO ENERGY MARKETING COMPANY BY: -----------------------------TITLE: SELLER: ATP ENERGY, INC. BY: /s/ PAUL BULMAHN --------------------------------TITLE: PRESIDENT

TERMS AND CONDITIONS OF PURCHASE PURPOSES AND PROCEDURES: EL PASO ENERGY MARKETING COMPANY ("Buyer") and ATP OIL & GAS CORPORATION. ("Seller") Will enter into a Firm Natural Gas Transactions (hereinafter __ defined) pursuant to which natural Gas is delivered and received at one or more mutually agreeable delivery points. The Buyer or Seller may sometimes be referred to collectively as "Parties" or singularly as "Party." "FIRM" SHALL MEAN THAT EITHER PARTY MAY INTERRUPT ITS PERFORMANCE WITHOUT LIABILITY ONLY TO THE EXTENT THAT SUCH PERFORMANCE IS PREVENTED FOR REASONS OF FORCE MAJEURE; PROVIDED, HOWEVER, THAT DURING FORCE MAJEURE INTERRUPTIONS, THE PARTY INVOKING FORCE MAJEURE MAY BE RESPONSIBLE FOR ANY IMBALANCE CHARGES RELATED TO ITS INTERRUPTION AFTER THE NOMINATION IS MADE TO THE TRANSPORTER AND UNTIL THE CHANGE IN DELIVERIES AND OR RECEIPTS IS CONFIRMED BY THE TRANSPORTER. CONFIRMATION LETTER: The Confirmation Letter is a document in the form of Exhibit "A" hereto that is prepared by the sending Party, faxed by the sending Party to the receiving Party, executed by the receiving Party, and faxed by the receiving Party to the sending Party. The Confirmation Letter shall be deemed for all purposes to be in writing, to have been signed by both parties, and to constitute an "original" for purposes of the best evidence rule. TERM: The effective date and term shall be as indicated on the face of this Agreement. QUANTITY: Subject to the provisions of this Agreement, Maximum Daily Quantity set forth in the Confirmation Letter, attached hereto and made a part hereof. Either Party shall notify the other Party of its nomination(s), from time to time, with prior notice of at least twenty-four (24) hours and/or within the transporting pipeline's deadline date for making changes in nominations to be effective the next day at 7:00 A.M. Sales and purchases hereunder are subject to and expressly made contingent upon the availability of acceptable transportation capacity necessary for Seller to deliver and Buyer to receive such gas at the Point(s) of Delivery set forth in the Confirmation Letter. In the event Seller delivers more or less than the effective nomination(s), and as a result thereof, Buyer is assessed imbalance penalties, fees, or charges, Seller shall reimburse Buyer for same within ten (10) days of Seller's receipt of Buyer's invoice therefor. PRICE: Buyer shall pay Seller, for all quantities of gas nominated and received for Buyer's account hereunder, the price per MMBtu set forth in the Confirmation Letter. Such price will be inclusive of all royalties, taxes, transportation charges, expenses and costs applicable to the gas prior to receipt by Buyer at the Point(s) of Delivery set forth in the Confirmation Letter. In the event Buyer should be required, by the laws of any governmental body having jurisdiction hereunder, to pay any such costs or charges for which Seller is liable, then Buyer shall have the right to reduce the amount payable hereunder by an amount equal to such costs or charges. POINT(S) OF DELIVERY: The Point(s) of Delivery for all gas delivered hereunder shall be set out in the Confirmation Letter. All rights, title, interest and risk of loss to all gas purchased hereunder shall pass to Buyer upon the receipt of such gas by Buyer or Buyer's designee at the Point(s) of Delivery set forth in the Confirmation Letter. Seller shall have possession of the gas and shall arrange for all necessary transportation of the as from Seller's source(s) of such gas to the Point(s) of Delivery set forth in the Confirmation Letter. MEASUREMENT: The parties agree that the measurement of gas purchased hereunder shall be performed by the pipeline designated to Buyer to receive the gas at the Point(s) of Delivery as described in the Confirmation Letter. The unit of measurement for payment purposes shall be one million (1,000,000) BTU, as measured on a dry basis. BTU and volume measurements shall be made at the pressure and temperature basis of the measuring pipeline in accordance with the provisions of such pipeline's then effective F.E.R.C. Gas Tariff, or in the event such pipeline is not subject to FERC regulation, the applicable gas transportation regulations or contract provisions of such pipeline. QUALITY AND PRESSURE: Gas tendered for sale hereunder shall meet the quality and pressure specifications of the pipeline system and/or facilities which shall receive the as at the Point(s) of Delivery set forth in the Confirmation Letter. 2

TERMS AND CONDITIONS OF PURCHASE FORCE MAJEURE: Nonperformance of any obligation hereunder, other than the obligation to make payment hereunder, shall be executed if prevented by an occurrence of legitimate force majeure, but only for so long as performance is prevented by such force majeure. The Party claiming excuse shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance. Force majeure as used herein shall mean any event beyond the reasonable control of the Party in question which prevents, in whole or in part, that Party's performance or obligations hereunder. With respect to FIRM transaction only, force majeure shall specifically exclude economic hardship. Force Majeure shall include but not be limited to the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as hurricanes, or freezing or failure of wells or lines of pipe; (iii) acts of others such a strikes, riots, sabotage, insurrections or wars; (iv) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, or regulation promulgated by a governmental authority having jurisdiction; and (v) any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the affected Party. BILLING AND PAYMENT: As soon as reasonably practical following the close of each month during which deliveries of gas occurred pursuant to an effective Confirmation Letter, Seller shall render to Buyer a statement showing the quantity of gas delivered at the Point(s) of Delivery and the amount due therfor. Buyer shall make payment to Seller, by wire transfer on the Twenty-Fifth day of the month following the delivery month. In the event, Buyer has obtained a statement of actual volumes received for Buyer's account, from the Party responsible for measurement at the Point(s) of Delivery, then Buyer shall adjust the amounts due on Seller's invoice and shall make payment to Seller on the adjusted amount. In such event, Buyer shall promptly provide Seller with a third Party measurement statement sufficiently supporting Buyer's adjustment. If there is a bona fide dispute with regard to any amount billed, Buyer shall nevertheless pay the undisputed amount when due. If any amount billed hereunder is not paid by Buyer when due, then, absent a bona fide dispute as to whether such amount is due, interest shall accrue on the unpaid amount from the due date until paid at the prime commercial rate charged by CitiBank N.A. New York, New York, plus two (2) percent or the maximum legal rate, whichever is less. FINANCIAL ASSURANCE: Should Buyer fail to give adequate assurance of its ability to perform its obligations under this Agreement within forth-eight (48) hours of Seller demand, Seller may withhold and/or suspend deliveries, or terminate this Agreement without prior notice, in addition to any and all other remedies available hereunder. WARRANTY AND INDEMNIFICATION: Seller warrants that, at the time of delivery of all gas sold hereunder to Buyer, Seller shall have good title to the right to sell such gas and that such gas shall be free and clear of all liens, encumbrances or claims. Seller shall agree to hold harmless, defend and indemnify Buyer against all suits, actions, debts, accounts, damages, costs (including reasonable attorneys' fees) arising from or out of any adverse claims relating to Seller's title or right to sell such gas. In the event of any claim or litigation, at any time, concerning Seller's title to the leases, wells, gas produced or liquid hydrocarbons recovered from the gas sold hereunder or the proceeds from the sale thereof, Buyer shall be entitled to suspend payments to Seller until such claims or litigation of title is resolved to Buyer's satisfaction. AUDIT: Each Party shall have the right at its sole expense and at reasonable hours to examine the records of the other Party to the extent necessary to verify the accuracy of any statement or other data that may reasonably have a bearing on or pertain to any business conducted hereunder between the parties; provided, however, that the auditing Party does not have the right to examine any record relating to transactions that occurred more than two (2) years before the date of the date of the audit. In the event of any inaccuracy, any necessary adjustments in the billing shall be made within thirty (30) days after the determination thereof. This provision of this Agreement shall survive any termination of this Agreement. LIMITATION OF ACTION: ANY ACTION FOR BREACH OF THIS AGREEMENT MUST BE COMMENCED WITHIN TWO (2) YEARS AFTER THE ALLEGED BREACH OCCURS, REGARDLESS OF 3

TERMS AND CONDITIONS OF PURCHASE THE AGGRIEVED PARTY'S LACK OF KNOWLEDGE OF THE ALLEGED BREACH. THIS PROVISION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT. NOTICE: Any notice, demand, or statement or payment, other than nominations provided for herein, shall be in writing and shall be deemed delivered when mailed, postage prepaid, by United States mail to the address of the Party to receive same as set forth on the face of this Agreement. ASSIGNMENTS: This Agreement may not be assigned by either Party hereto except to an affiliate of the assigning Party; provided, however, either Party may pledge, mortgage or assign its rights hereunder as security for indebtedness. This Agreement extends to and will be binding upon the respective successors and assigns of Buyer and Seller. DISCLAIMER OF WARRANTIES: THERE ARE NO WARRANTIES WHICH EXTEND BEYOND EXPRESS WARRANTY OF TITLE SET FORTH HEREIN. IN PARTICULAR, THERE ARE NO OTHER EXPRESS WARRANTIES AND NO IMPLIED WARRANTIES, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. APPLICABLE LAW: THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. THIS PROVISION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT. LIMITATION ON LIABILITY: NOTWITHSTANDING ANY OTHER PROVISIONS HEREIN, THE PARTIES HERETO WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF ACTION ARISING UNDER THIS AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR FOR LOST PROFITS. THIS PROVISION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT. ARBITRATION CLAUSE: ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH THEREOF SHALL BE SETTLED BY ARBITRATION BY THREE ARBITRATORS IN HOUSTON, TEXAS, IN ACCORDANCE WITH THE AMERICAN ARBITRATION ASSOCIATION COMMERCIAL ARBITRATION RULES. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. THE PREVAILING PARTY SHALL BE ENTITLED TO ITS REASONABLE ATTORNEYS' FEES. ANY MONETARY AWARD SHALL ACCRUE INTEREST FROM THE DATE OF THE BREACH TO THE DATE OF ANY JUDGMENT ENTERED ON THE AWARD AT THE PRIME COMMERCIAL RATE CHARGED ON THE DATE OF THE BREACH BY CITIBANK, N.A. NEW YORK, NEW YORK, PLUS TWO (2) PERCENT OR AT THE MAXIMUM LEGAL RATE, WHICHEVER IS LESS. IF A PARTY FILES A COMPLAINT IN ANY COURT WITH RESPECT TO ANY MATTER SUBJECT TO ARBITRATION HEREUNDER, THE DEFENDANT IN SUCH COURT ACTION SHALL BE ENTITLED TO RECOVER ITS REASONABLE ATTORNEYS' FEES IN CONNECTION WITH THE COURT ACTION. THIS ARBITRATION PROVISION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT. ENTIRE AGREEMENT: This document constitutes the entire Agreement between the parties with respect to the subject matter hereof. No promise, agreements or warranties additional to this Agreement will be deemed to be a part hereof, nor will any alteration, amendment or modification hereof, be effective unless mutually agreed in writing by the parties hereto. The Confirmation Letter shall be amended to reflect any changes to Point(s) of Delivery, Measuring Party, Maximum Daily Quantity, Sales Price, or Effective Term agreed to by the parties for gas sold hereunder. 4

EXHIBIT 10.8 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made as of the ____ day of September, 1999, between Eugene Offshore Holdings, LLC ("Seller"), with a place of business at 1400 Smith Street, Houston, Texas 77002, and ATP Oil & Gas Corporation ("Purchaser"), with a place of business at 4600 Post Oak Place, Suite 230, Houston, Texas 77027. WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, on the terms and conditions set forth in this Agreement, all of Seller's interests and rights in a certain oil and gas lease, and certain agreements, contracts, immovable property, movable property, and equipment. NOW, THEREFORE, for good and valuable consideration and for the mutual covenants herein contained, Seller and Purchaser agree as follows: ARTICLE 1. EFFECTIVE TIME The ("Effective Time") of the sale and purchase provided for in this Agreement shall be May 1,1999, as of 7:00 AM, C. D. T. ARTICLE 2. PURCHASE AND SALE 2.01 The Interests. Subject to the terms and conditions of this Agreement, at Closing (as hereinafter defined) Seller shall sell and Purchaser shall purchase all of Seller's right, title and interest in and to the following assets described in Subsections 2.01(a) through 2.01(e) (collectively called the "Interests"): (a) The oil and gas lease described in Exhibit "A," attached hereto and made a part hereof(hereinafter called the "Lease"); (b) The wells, equipment and facilities located on the Lease (collectively called the "Equipment"), including, but not limited to, pumps, platforms, well equipment (surface and subsurface), saltwater disposal wells, water wells, lines and facilities, sulfur recovery facilities, compressors, compressor stations, dehydration facilities, treating facilities, pipeline gathering lines, flow lines, and transportation lines, valves, meters, separators, tanks, tank batteries and other fixtures; (c) Oil, condensate, natural gas, and natural gas liquids produced after the Effective Time, attributable to the Lease; 1

(d) To the extent transferable and only to the extent that they relate to the other Interests, all contracts and agreements concerning the other Interests, including, but not limited to, unit agreements, pooling agreements, areas of mutual interest, farmout agreements, farmin agreements, saltwater disposal agreements, water injection agreements, line well injection agreements, transportation agreements, processing agreements, operating agreements, and gas balancing agreements; and (e) To the extent transferable, all easements, rights-of-way, licenses, authorizations, permits, and similar rights and interests applicable to, or used in connection with, the Interests. ARTLCLE 3. SALE PRICE 3.01 Sale Price and Adjusted Sale Price. The sale price (the "Sale Price") for the Interests shall be SEVENTEEN-MILLION FIVE-HUNDRED-THOUSAND DOLLARS ($17,500,000.00). The Sale Price as adjusted pursuant to this Article shall be referred to as the "Adjusted Sale Price." 3.02 Sale Price Adjustments. The Sale Price shall be adjusted as follows: (a) The Sale Price shall be increased by an amount equal to the costs and expenses, net of any applicable joint interest billings, refunds or credits that are (i) attributable to the Interests after the Effective Time, and (ii) paid by Seller. (b) The Sale Price shall be decreased by (i) an amount equal to the net proceeds received by Seller from the sale of hydrocarbons produced from and after the Effective Time, and (ii) an amount equal to all other proceeds received by Seller from whatever source derived that relate to the Interests and are attributable to periods on or after the Effective Time. (c) Seller shall deliver to Purchaser before the Closing (as defined hereinafter) a statement in the format attached hereto as Exhibit "B" (the "Closing Statement") setting forth the adjustments to the Sale Price provided above. ARTICLE 4. THE CLOSING The sale and purchase described in Article 2 shall take place at a closing (the "Closing") at which the Purchaser shall pay or cause to be paid to Seller the Adjusted Sale Price and Seller shall deliver the conveyancing instruments referred to in Article 9 to Purchaser. The Closing shall occur on September __, 1999, at such time and place as the parties may agree upon (the "Closing Date"). ARTLCLE 5. THIRD PARTY RIGHTS AND CONSENTS There are no consents to transfer or similar restraints on alienability, other than governmental approvals, burdening the Interests. 2

ARTLCLE 6. REPRESENTATIONS 6.01 Exclusivity and Survivability of Representations. The express representations contained in this Agreement are exclusive and are instead of all other representations, express, implied, or statutory. The representations contained in section 6.02 shall survive Closing for a period of one year, but all other representations shall terminate at Closing. 6.02 Mutual Representations. Each party represents to the other that: (a) It is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the State of its incorporation, and is duly qualified to do business on the Outer Continental Shelf of the Gulf of Mexico; (b) It has all authority necessary to enter into this Agreement and to perform all its obligations hereunder; (c) Its execution, delivery and performance of this Agreement and the transactions contemplated hereby will not: (i) violate or conflict with any provision of its certificate of incorporation, by-laws or other governing documents; (ii) result in the breach of any term or condition of or constitute a default or cause the acceleration of any obligation under any agreement or instrument to which it is a party or by which it is bound; or (iii) violate or conflict with any applicable judgment, decree, order, permit, law, rule, or regulation; (d) This Agreement has been duly executed and delivered on its behalf, and at the Closing all documents and instruments required hereunder will have been duly executed and delivered. This Agreement, and all such documents and instruments shall constitute legal, valid and binding obligations enforceable in accordance with their respective terms, except to the extent enforceability may be affected by bankruptcy, reorganization, insolvency or similar laws affecting creditors' rights generally; and (e) Neither party has incurred any obligation or liability, contingent or otherwise, for brokers or finders' fees in connection with this Agreement in respect of which the other party may have any responsibility. 6.03 Seller's Representations. Seller represents that: (a) The Interests are free and clear of all liens, mortgages, and other similar burdens created by Seller; (b) To Seller's knowledge and belief, it is not in default or breach under any contract or agreement relating to the Interests; (c) Seller has timely paid all royalties, rentals and other payments due under the Lease and the Lease is in full force and effect; 3

(d) No imbalance of gas deliveries of any kind exists with regard to the interest of Seller in the Interests; (e) The Interests are not subject to any sales contract for oil, gas, or other hydrocarbons that requires more than thirty (30) days notice to terminate; (f) There is no lien, claim, demand, suit, action or other proceeding pending or, to the knowledge of Seller, threatened which could result in impairment or loss of Seller's title to any part of the Interests or loss in value thereof; and (g) Since the Effective Date, there has not been: (i) any incurrence by Seller of any liabilities or obligations with respect to the Interests other than A) liabilities or obligations incurred in the ordinary course of business, or B) capital expenditures totaling $65,000.00 or less; (ii) any sale, lease of other disposition by Seller affecting the Interests other than sales of hydrocarbons in the ordinary course of business; (iii) any mortgage or pledge by Seller of, or grant by Seller of a lien or security interest in, the Interests; or (iv) any change, damage, destruction or casualty loss affecting the Interests which, taken as a whole, could have a impact of more than $25,000.00. ARTLCLE 7. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES Disclaimer of Warranty. ANY ASSIGNMENT, DEED, LEASE OR OTHER CONVEYANCE EXECUTED PURSUANT HERETO SHALL BE EXECUTED WITH FULL SUBSTITUTION AND SUBROGATION OF PURCHASER AS TO ALL CLAIMS SELLER HAS OR MAY HAVE AGAINST ALL PRECEDING OWNERS OF THE INTERESTS THAT MAY BE ASSIGNABLE. WITHOUT LIMITING THE FOREGOING, THE TRANSACTION CONTEMPLATED HEREBY SHALL BE WITHOUT ANY WARRANTY OR REPRESENTATlON OF TITLE, EITHER EXPRESS, IMPLIED, OR STATUTORY, AND WITHOUT ANY EXPRESS, IMPLIED OR STATUTORY WARRANTY OR REPRESENTATlON AS TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, FREEDOM FROM REDHIBITORY VICES OR DEFECTS, OR MERCHANTABILITY OF ANY OF THE EQUIPMENT (AS DESCRIBED IN ARTICLE 2.01(b)) OR ITS FITNESS FOR ANY PURPOSE. ARTICLE 8. CONDITIONS OF CLOSING Each party's obligation to consummate the transaction provided for herein is subject to the satisfaction or waiver by the other party of the following conditions: 8.01 Representations. The representations contained in Article 6 hereof shall be true and correct in all material respects on the Closing Date as though made on and as of the Closing Date. 8.02 Performance. Each party shall have performed in all material respects the obligations, covenants and agreements hereunder to be performed by it at or prior to the Closing Date. 4

8.03 Pending Matters. No suit, action or other proceeding by a third party or a governmental authority shall be pending that seeks to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement. ARTICLE 9. TRANSACTIONS ON AND AFTER CLOSING At the Closing, the following shall occur: 9.01 Assignment and Bill of Sale. Seller shall execute, acknowledge and deliver five (5) originals of an Assignment and Bill of Sale substantially in the form of Exhibit "C" (Record Title Assignment), attached hereto and made a part hereof, appropriate letters in lieu of transfer orders to be furnished by Seller, and such other necessary instruments i